In February 2016, the Sentencing Council, an independent, non-departmental public body of the Ministry of Justice, introduced a definitive guideline for the most commonly sentenced health and safety offences and food safety offences. Prior to this, there was only a definitive guideline in cases of corporate manslaughter and health and safety offences causing death.
The new guideline provides sentencing ranges that consider (a) the risk of harm resulting from the offence, (b) culpability, and (c) the size of the organisation. The overall aim is to ensure that any fine imposed is fair and proportionate to the seriousness of the offence and the means of the offender(s).
In considering the size of an organisation, the guidance stipulates that turnover should be used as the starting point as this is a clear financial indicator that can be readily identified in the annual accounts of a business. While turnover may generally be seen as a fair basis to measure the size of the business and, therefore, whether the fine is fair and proportionate, there may be other factors, both non-financial and financial, that need to be considered. The courts are therefore required to “step back” and take into account any additional relevant financial information.
Examples of financial factors, apart from turnover, that may need to be considered in arriving at a fine that is fair and proportionate are:
- profit before tax - some businesses may earn a high turnover but have a very low profit margin. If two businesses have the same turnover and the same fine was imposed on both of them, a business with a 5% profit margin could receive a disproportionate fine compared with a business with a profit margin of 50%;
- the potential impact on employees or other “stakeholders” such as service users or customers (but not shareholders and directors) - if a fine was of such a magnitude as to result in a significant squeeze on cash flow which in turn may result in redundancies or failure of the business; and
- other pressing financial obligations, for example, a business may have existing financial commitments for a new product launch or specific capital expenditure that is key to the business’ future.
While the introduction of sentencing guidelines for non-fatal offences provides a useful mechanism, there is still tremendous scope for variation in determining fines based on the assessment of the means of an organisation – which goes far beyond turnover. It is therefore not surprising that, as forensic accountants, we are receiving an increasing number of enquiries for expert reports addressing the overall financial position of a business and its ability to pay such a fine, also referred to as “mitigation reports” by instructing solicitors. It will certainly be interesting to see how this process develops over the coming months and years.