Trouble with Sole Traders: What to do when a sole trader defrauds you

It is often the case that sole traders are unable to pay what they owe you. It is also often the case that a sole trader has disposed of assets before you have the ability to make any sort of recovery from them.

This leaves people in a quandary, because if they attempt to make the sole trader bankrupt, it is extremely unlikely they will recover everything owed by that person. This leaves many people feeling extremely hard done by, especially if they had been promised by the sole trader that their money was safe or that the sole trader would return the money or supply the goods or services which formed part of the business arrangement.

However, there is a solution to pursue sole traders if they do not have the ability to pay you.

Under s.9 of the Fraud Act

Section 9 of the Fraud act sets out a specific offence in relation to sole traders. It states an offence is committed if a business:

“is carried on—

1. by a person who is outside the reach of section 993 of the Companies Act 2006 (offence of fraudulent trading); and
2. with intent to defraud creditors of any person or for any other fraudulent purpose. every person who is knowingly a party to the carrying on of the business in that manner commits an offence.”

What this means is that if a sole trader owes a debt to you, and refuses to pay, or has taken steps to hinder your ability to recover, the sole trader may have committed a criminal offence, if they had been fraudulently trading.

What can you do?

Since fraudulent trading is a criminal offence, the only way to seek justice for this is through a criminal prosecution. A prosecution would be brought against the sole trader who knew the he/she could not pay you or provide the goods and service which they had promised.

If the prosecution is successful, the sole trader could face several years in jail. In addition, a compensation order could be made, forcing the sole trader to pay you for what they owed.

If you believe that you have been cheated by a sole trader, then a private criminal prosecution could be a solution for you.

Nasir Khan

Partner – gunnercooke LLP

Email: [email protected]