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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25469
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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My mother is a signatory on a small business account which

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My mother is a signatory on a small business account which is basically a small company made up of the freeholders in a small block of flats. She a signatory on the bank account with the secretary. It has come to light that over several years, the secretary has been giving my mother bunches of blank cheques to sign for payment of bills. In a recent fallout, the secretary has resigned, but wants to keep hold of the cheque book and petty cash. She became very cross when my mother refused to sign any more blank cheques. The secretary will not lot the others who pay into the fund, or my mother, see bank statements. We are worried that the secretary may have been cashing cheques for payment to herself. At the bank last week, it appears that they have it on record that there is another signatory on the account, with the same Christian name as my mother, but the surname of a former flat owner at the block, but it appears they did not have a signature example of this non existant person. We have requested copies of statements and we are trying to see if there appear to be cheques paid out which are not in line with bills for the account. My question is, if a fraud has been committed by the secretary, how liable is my mother, given she may have inadvertently been signing blank cheques, in good faith all this time?
Submitted: 2 years ago.
Category: Law
Expert:  Joshua replied 2 years ago.
Hello and thank you for your question. I will be very pleased to assist you. I'm a practising lawyer in England with over 10 years experience.

May I ask how many shareholders there are in the freehold nominee company - normally each flat owner would be a shareholder - and how many directors there are please?
Customer: replied 2 years ago.

Hello. Sorry for delay. There are 6 share of the freeholders and each one is a director but only my mother and one other, the secretary are signatories on the account for writing cheques.

Expert:  Joshua replied 2 years ago.
No problem. Many thanks.

the position here as you know is that your mother can obtain any and all information she requires directly from the bank in terms of past bank statements and any further information with regards ***** ***** of cheques in order to ensure that company funds have not been misused.

if it is ascertained that the company secretary has been embezzling company funds by banking checks either in her own account or to pay for goods or services for herself personally, she will be guilty of fraud by embezzlement and your mother or any of the other residents could involve the police with a view to prosecution and in addition, the company could issue proceedings against the individual for recovery of any misused funds together with interest and costs.

In terms of the liability of your mother, on the face of what you say, she would not be guilty of embezzlement or fraud. In order to be guilty of embezzlement or fraud she would either need to have misused company funds herself, such as banking company checks in her own account or using company cheques to pay for goods and services for herself or alternatively she would have to be shown to be complicit with the other individual. Simply signing blank cheques would not be sufficient to demonstrate complicity - there would need to be some evidence of personal deriving of benefit which from what you say would not be the case.

It could be however that other residents will consider that her signing blank cheques might be negligent. in a commercial company setting, a director making a regular habit of signing blank cheques would be considered bad practice and a potential risk of money laundering and fraud to the company. If a majority of the residents feel that she has been negligent, they could elect to either ask it to resign as a director or failing which, for the vote to remove her as director but this is the worst case scenario so far as I can see. in practice of course this is not a commercial company and it may well be that fellow residents are more relaxed and forgiving and may be the case in a commercial setting. I cannot see any realistic prospect of any financial liability attaching to your mother either.

In practice, from your mother's point of view, I suspect it will be little more than a lesson learnt in terms of altering her practice going forward.

Can I help you with anything else or has the above answered your questions satisfactorily?
Customer: replied 2 years ago.

That's great. Thanks for your help. One question though. What if the secretary has been getting cheques signed for cash? Couldn't she say she has been giving half to my mother? Harder to prove innocence then? At least the other directors are aware she has been being asked to sign blank cheques.

Expert:  Joshua replied 2 years ago.
She could claim that but it would be for the lady to prove what she did with the cash or prove that she gave it to your mother. It would not be for your mother to disprove her based on her word alone. The lady is liable for the cash if she has obained monies in that way and would have to be able to account for it fully if she were to avoid civil claims and possible criminal action.

She is responsible for the company money and dealing with cash on a regular basis is no way to deal with company funds in the first place but if she did she would then need to produce receipts for all goods or services she purchased. There is a duty to keep accounts under the Companies Act and and to produce accounts under s21 and 22 of the Landlord and Tenant Act 1985 which include detailed receipts or invoices for all expenses.

Have I been able to help you with all your questions on the above?
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