R. Prosecution Service v Compton & Ors

Where bankruptcy precedes a restraint order under the Drug Trafficking Act 1994, section 32(2) prevents the statutory powers from being exercised over property comprised in the bankrupt’s estate.

When the power remains available, interim restraint and, where appropriate, receivership orders should ordinarily be made if there is a good arguable case that particular assets are the defendant’s realisable property. A company’s assets may be treated as the defendant’s where the corporate structure has become essentially a vehicle for laundering and investing criminal proceeds. Nominal trading activity does not prevent that conclusion. Piercing the veil for confiscation purposes does not necessarily require the company to be ignored for every legal purpose.

The Crown Prosecution Service appealed from orders of the Administrative Court refusing restraint and receivership orders over the assets of a family company under sections 26(1) and 26(7) of the Drug Trafficking Act 1994. The judge found insufficient evidence at the interlocutory stage to treat the company’s assets as belonging to a convicted drug trafficker. He also held that section 32(2) prevented the orders because the defendant’s bankruptcy preceded the proposed restraint.

After permission to appeal was granted, the Crown Court made a confiscation order following a detailed examination of the company’s use to launder drug-trafficking proceeds. The appeal consequently became moot. The Court nevertheless considered the proper threshold for interim orders and the circumstances in which a corporate veil may be pierced.

1. The appeal was dismissed unanimously. Simon Brown LJ delivered the leading judgment. May LJ and Clarke LJ agreed. Section 32(2) of the Drug Trafficking Act 1994 barred restraint and receivership powers over property comprised in a bankruptcy estate where the bankruptcy preceded the restraint order. The first-instance judge could therefore have afforded the prosecution no greater protection than the anticipatory restraint arrangements he made.

2. The appeal was also moot because a confiscation order had since been made after the Crown Court heard full evidence concerning the company. Any remaining dispute over beneficial ownership had to be resolved finally in the pending Administrative Court proceedings for declaratory relief, with persons claiming an interest given an opportunity to participate.

3. Simon Brown LJ held, expressly obiter, that the proper threshold under section 26 is a good arguable case that identified assets constitute the defendant’s realisable property. The powers preserve property pending a final determination and are closely analogous to freezing relief. They require careful balancing because restraint and receivership may impose serious burdens before confiscation is finally determined.

4. On piercing the corporate veil, In re H and Others (Restraint Order) [1996] 2 All ER 391 was the ruling authority. A veil may be pierced where the corporate structure is used as a device or façade to conceal criminal activities. The company’s involvement in impropriety alone is insufficient. On the later Crown Court findings, however, the family company had essentially become a vehicle for laundering and investing criminal proceeds, while retaining only nominal and sporadic trading activity. Its relevant assets could properly be treated as the defendant’s.

5. The advances to the company could not properly be characterised as gifts. If the veil were not pierced and the company were not a bare nominee or trustee, its records indicated loans. The critical question was therefore whether the veil should be pierced.

6. Clarke LJ agreed but cautioned that piercing the veil may have different meanings in different contexts. Treating the relevant assets as the defendant’s did not necessarily require the company to be ignored for all purposes or prevent it from having legal relations with third parties.

• Court of Appeal (Civil Division): The appeal in [2002] EWCA Civ 1720 was dismissed unanimously. Section 32(2) of the Drug Trafficking Act 1994 barred the requested relief, and the intervening confiscation order had rendered the appeal moot.
• High Court, Queen’s Bench Division (Administrative Court): Stanley Burnton J refused restraint and receivership orders over the company’s assets. He found the interim evidence insufficient to treat those assets as the defendant’s and held independently that section 32(2) prevented the orders. No citation is stated in the judgment.