Deceptive
cash-flow forecast by Sally
Ramage 18
October 2006 The Theft
Act 1968 creates three offences of obtaining by deception and the Theft Act
1978 adds another four offences. The Theft
Act 1968 section 15(4) states- "deception means any description (whether
deliberate or reckless) by words or conduct as to fact or
as to law, including a deception as to the present intentions of the person
using the deception or any other person". If we take at look at some
cases, we find that as far back as 1889 in Derry v Peek , that Lord Herschell
said "… fraud is proved when it is shown that a false representation has
been made knowingly; without belief in its truth; or
recklessly, careless whether it be true or false…". In Derry v Peek,
damages were sought for fraudulent misrepresentations of the defendants
because of which the plaintiff was induced to take shares in the company. In the
case Angus v Clifford(1891), Lord Justice Bowen said about a fraudster…"
did he know that the statement was false , was he conscious when he made it
that it was false, or if not, did he make it without knowing whether it was
false and without caring?…." Examples
of deception are identity theft, corporate espionage, bank fraud and even
cash-flow forecasts. A cash
flow forecast is a statement of a sort and may be true or false, depending on
whether it relates to existing facts, past or present. The
making of a forecast, like that of a promise, will normally lead the
recipient to draw certain inferences as to existing facts. It is
clearly deceptive to make a forecast knowing that it will not come true. The
making of a false statement is an offence in itself under the Financial
Services and Markets Act, section 397. Whether a statement is deceptive
depends on how its recipient understands it and is intended or expected to
understand it. The case R v Morris[1994] - "where…the charge is one of
fraudulent trading, not requiring proof that any particular person was
deceived, the question in issue must be as to the interpretation which a
reasonable reader would, or might, put upon a document". To prove
deception, the plaintiff will have to establish that the defendant made a
representation to the plaintiff. The plaintiff would have to have evidence of
this document eg the cash-flow forecast or at least a witness statement as to
the representation and its having been made to the plaintiff. The plaintiff
would have to establish that he acted on that document. He would need the
documentation or a witness statement evidencing how he made the loan as a
result of the document supplied. He would have to prove that he suffered
damage by acting on that document, so he would need to have evidence such as
his bank statements showing his financial position before and after he acted
on the misrepresentation. He would also have to establish that the
representation by way of, for example, the cash-flow statement was untrue, so
he would need to produce the cash-flow statement, or a witness statement as
to the circumstances in which the representation was made. The only
possible defence the defendant would have is that
Accounting
technicians should create a sub-file in the client’s file when making a
cash-flow forecast. The sub-file should include all supporting documentation
used to furnish figures in the forecast. Apart from the past year’s financial
statements, supporting figures such as the current interest rates, the
current margins for that particular trade or sector, real figures as to the
client’s out-goings based on his mortgage statements, his car purchase
details, all documentation relating to other debts he may have at the time,
all current bank statements as to all bank accounts, Income Tax statements
and Value Added Tax statements should be kept in this sub-file. To protect
the preparer of a cash-flow statement, a signed statement from the client
that he has given you all relevant details is a good move. |
