Two freelancers, one conman and a doubling in fees

Fees for unpaid contractors to get recourse in the courts might be on the up, but two freelancers we represented would likely pay the extra if they could totally avoid the conman who hit their finances, writes Adam Home of debt recovery firm Safe Collections.

Freelancing duo fleeced for £10,000

The freelancers were owed a total of more than £10,000 in unpaid invoices by the same individual, who we discovered had a track record of non-payment -- not to mention a ban against acting as a company director.

In April 2014, this individual was again convicted for fraud-related offences yet, in a ruling that would have worked as the opening-credits voiceover from Porridge, the judge declared that imprisoning such a habitual offender would be a waste of state funds! Instead, he was handed down a suspended sentence, 200 hours of community work and a victim surcharge of £120, equating to a paltry 0.03% of the total amount owed.

Even based solely on the £10,000 lost by our two clients, that 'unpaid' community work has been worth £50 an hour to him, which is no mean feat given that he has escaped jail and is free to start working on bringing up his half-century of criminal convictions.

In this case, the losses could have been avoided by a simple credit check because this would have shown that this apparently 'prestige' group of companies was, in fact, a collection of brand-new limited companies, with no apparent assets, operating out of a virtual office address. Unfortunately in this instance, both our clients and many others were swayed by the fraudster's promise of quick returns on their investments -- a promise that ultimately went unfulfilled.

Crooks ‘Ltd’

At least in this case, the guilty party was banned from running a limited company for ten years, but that was on top of an existing seven-year ban that he had avoided simply by changing his name, which again hardly seems like an effective form of punishment, or of protection for potential future victims.

In 2012-13, only 50 people were disqualified from running a limited company, out of a total of 198 successful prosecutions reported by the BIS Criminal Enforcement Team. This means the other 148 could theoretically go straight back into business despite being convicted of fraud and similar offences.

Of the 198, 123 were given custodial sentences although like the serial offender mentioned above, those sentences may well have been suspended, meaning it is impossible to know from the statistics alone whether anybody actually served any time at Her Majesty's pleasure.

The limited company structure certainly could use some looking at, as the protections it offers to directors and owners only seem fair if the company is being run in an ethical and legitimate way.

As soon as you start deliberately committing fraud, the limited liability of being ‘Ltd’ puts you at an unfair advantage and seems fundamentally opposed to the principles that usually apply to the proceeds of crime.

Why should £10,000 of fraud committed against freelancers only deserve a £120 victim surcharge? And why should jail terms be served concurrently, or be suspended, so convicts do not have to stay in jail for the length of time they are actually convicted for?

Small Claims, Big Fees

If things were not already tough enough for those of you running PSCs, April 2014 also saw substantial increases in court fees for all kinds of proceedings, ranging from small claims to instigating insolvency proceedings against a debtor.

Making a claim for recovery of a £10,000 debt, for instance, rose from £245 to £445 (for any sum of £5,000-£15,000). Sums of £3,000-£5,000 saw a fee increase from £120 to £200. Only debts below £1,500 keep their old fees of up to £80 for a small claims court application.

Freelancers already face enough dilemmas when deciding whether to chase for payment, as though expecting to be paid for the work you've done should have some kind of negative reputational impact.

It should be possible to make a claim without the fear of putting off future customers -- the non-paying debtor is in the wrong, not the contractor who relies on that income to keep their cash flow in the black from month-to-month.

So currently, those who are legitimately owed substantial sums of money face fees of hundreds of pounds, and of very nearly double what was previously the case - a 67% rise on debts of £3,000-£5,000, and a massive 82% increase on fees for claiming a debt of £5,000-£15,000.

Final thoughts

It's hard to see this as a system that is built around fair treatment for the out-of-pocket business owner, at a time when increasing self-employment is consistently responsible for falling unemployment figures.

As the UK continues to become a nation of people working for themselves, we can only hope for changes in the law such that convicts, and not contractors, are the ones who bear the punishment for fraudulent non-payment.

Editor's Note: Related Reading -

Contractors face 'major' hike in commercial court fees

Your limited company: its structure and status

Contractors' Questions: Must their invoice be paid even if we've ceased trading?

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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