1. Confiscation Orders
Confiscation orders are introduced by s. 71 of the 1988 Act.
They can be made on conviction in the Crown or Magistrates’ Court of certain types of offences (including theft), whereupon it is the duty of the prosecutor and the court, before sentencing:
- to determine whether the defendant has benefitted from any criminal conduct (s. 71(1A)), and if so
- to determine the amount to be recovered, which is the lesser of the benefit which has been made or “the amount that might be realised” (the latter being a term of art broadly meaning the value of the defendant’s assets; see s74(1) and (3)) when the order is made (s. 71(1B) and (6)), and if so
- to make an order requiring the defendant to pay that amount (s. 71(1B)(b)). *
Interest accrues on unpaid sums due pursuant to a confiscation order at the rate set by s. 17 of the Judgments Act 1838 (s. 75A(1) and (3)), starting on the date when the defendant is in default (s.75A(1)).
[*] See further the decision of the House of Lords in R v May [2008] 1 AC 1028, where Lord Bingham examined the structure of the 1988 Act in relation to confiscation orders at [10]-[41]. He divided the analysis into three questions: (i) benefit, (ii) the value of the benefit, and (iii) the recoverable amount.
2. Realisable property
If a confiscation order is paid voluntarily, that is the end of the matter.
But if it is not then the concept of ‘realisable property’ assumes significance as it is such property which may be the target of compulsory realisation to contribute to an unpaid confiscation order.
Here, the following principles apply:
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“Realisable property” means (a) any property held by the defendant (ss. 74(1)(a)), 102(1) and 102(7)) and (b) any property held by a person to whom the defendant has directly or indirectly made a gift caught by Part VI (s. 71(1)(b)).
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The term ‘property’ is widely defined to include “money and all other property, real or personal, heritable or moveable, including things in action and other intangible or incorporeal property” (s. 102(1)). The 1988 Act applies to property “wherever situated” (s.102(3)) and so is without territorial limit.
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Property is ‘held’ by a person if “he holds any interest in it” (s. 102(7)); by s.102(1) “interest” in relation to property, includes right”; and property is “transferred by one person to another if the first person transfers or grants the other any interest in the property” (s. 102(10)).
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In relation to gifts: (i) the gift must have been made after the commission of the relevant offence (s. 74(10)(a)); (ii) the Court must consider it appropriate in all the circumstances to take the gift into account (s. 74(10)(b)); and (iii) a gift includes the transfer of property “to another person directly or indirectly for a consideration the value of which is significantly less than the value of the consideration provided by the defendant” (s. 74(12)). *
[*] In which case, the value of the realisable property is limited to the share of the transferred property that represents the undervalue: s. 74(12)(b). Thus, if a £10,000 painting is sold by the defendant for £5,000, then the value of the gift is £5,000 (subject to upward adjustment for money value changes or increase in value of the painting since the date of the gift (s.74(7)(8)). By s.74(1)(b), any of the purchaser’s assets (not just the painting itself) are realisable property, but this Court’s confiscation order enforcement powers are limited to realising no more than £5,000 (plus the upward adjustment) (see s.82(3)).
3. Priority and Realisation
Two further issues are important: where does the prosecutor rank in terms of secured and unsecured creditors; and how is property realised?
Priority
The enforcement authority’s rights rank after those with property interests (provided that they are not the recipients of gifts), but before unsecured creditors.
This principle is enshrined, a little obliquely, in s. 82 of the 1988 Act (and is sometimes referred to as the ‘legislative steer’).
This requires first priority to be given to recognition of the legitimate rights of genuine third parties, that is those who are not recipients of gifts, but otherwise requires the restraint and enforcement powers of the Court to be exercised to pay the confiscation order (i.e. without taking into account unsecured creditors or other obligations of the defendant):
- Section 82(4) provides that the powers conferred on the High Court or receivers by Part VI “shall be exercised with a view to allowing any person other than the defendant or the recipient of any such gift to retain or recover the value of any property held by him”.
- In other words, Part VI of the 1988 Act does not deprive an innocent third party of the value of his interest in any property (notwithstanding that it may be realisable property). In this way (for example) a receiver may sell a house held beneficially equally by the defendant and an innocent third party (since the house is realisable property), but the receiver must account to the third party for 50% of the proceeds.
- But “subject to” that principle, the said powers must be:
“exercised with a view to making available for satisfying the confiscation order … the value for the time being of realisable property held by any person by the realisation of such property” (s. 82(2)).
- Indeed, in exercising the court’s powers:
“no account shall be taken of any obligations of the defendant or of the recipient of any such gift which conflict with the obligation to satisfy the confiscation order” (s. 82(6)).
- In other words, the confiscation order takes priority to merely personal obligations.
The same point finds reflection in s. 84, entitled ‘Bankruptcy of defendant etc’. It provides that where a person who holds realisable property is adjudged bankrupt then property subject to a restraint order, and proceeds held by a receiver, are excluded from the bankrupt’s estate for the purposes of Part IX of the Insolvency Act 1986 (s. 84(1))
Realisation
Section 80 is entitled ‘Realisation of property’.
It gives the Court jurisdiction to appoint a receiver over realisable property (s. 80(2)), to order any person having possession of realisable property to cede possession to such receiver (s. 80(4)), and to empower a receiver to realise such property “in such manner as the Court may direct” (s. 80(5)).
Once realised, following accounting to innocent third parties in an amount equal to the value of their (former) interest in the property, the proceeds of realisation are to be applied towards satisfaction of the confiscation order by payment to the enforcement court (and thereafter from that sum held by the enforcing court the receiver may recover his costs (s. 81(1))).
