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Investigations

Chapter 23


Investigations


Chapter Contents


23.1    Introduction


23.2    Production of documents


23.3    Investigation of affairs of a company


23.4    Investigation of ownership or control


23.5    Investigation into insider dealing


23.6    Consequences of inspections


23.7    Expenses of investigation


23.8    Impact of the Companies Act 2006


Summary


Self-test questions


Further reading



23.1  Introduction


Minority remedies have already been considered (Chapter 15). On occasion, powers are given to the Companies Investigation Branch of the Department for Business, Innovation and Skills, which buttress the minority remedies which are available. In particular, investigations, or inspections (as they are sometimes called), may be held into companies.


23.2  Production of documents


If it believes that there is good reason to do so, the Department for Business, Innovation and Skills may require a company to produce documents at such time and place as is specified or it may authorise an officer of the Department or any other competent person to require a company to produce to him any documents that may be specified (s 447 of the Companies Act 1985 as amended by s 21 of the Companies (Audit, Investigation and Community Enterprise) Act 2004). The power extends to requiring production of documents from any person who appears to be in possession of documents but without prejudice to any lien that may be held over the documents. The section also provides for the Secretary of State to require questions to be answered and not just those relating to any papers handed over. The power is reinforced by a power of entry and search of premises set out in s 448 and ss 453A and 453B of the Act. Section 450 of the Act provides a punishment for destroying, mutilating or falsifying a document, and the offence is punishable by imprisonment and/or a fine. Section 453C of the Act makes it an offence treatable as contempt of court to fail to comply with the requirements of s 447. It is usual for an officer of the Department to arrive at an early stage to inspect documents to prevent destruction of the documents.


23.3  Investigation of affairs of a company


In addition to the power to require the production of documents, the Department for Business, Innovation and Skills can in certain situations appoint inspectors to investigate the affairs of a company. Very often, the investigation is preceded by requiring the production of documents that may then demonstrate that a full-blooded investigation is appropriate. Section 431 of the Act provides that the Secretary of State may appoint one or more inspectors to investigate the affairs of a company and to report on them in such manner as he may direct. The appointment may be made in the case of a limited company with share capital on the application of not lower than 200 members or members holding one-tenth of the issued shares and in the case of a company without share capital on the application of one-fifth of the members of the company, and in any case an investigation may be held on the application of the company. In general two joint inspectors are appointed – one is usually a senior solicitor or barrister and the other is usually a senior accountant. For the sake of convenience here, the appointment will be referred to as the appointment of an inspector. The appointment of an inspector to investigate into the affairs of the company is not a judicial proceeding but an administrative one and the decision of the Department for Business, Innovation and Skills is final and cannot be challenged provided that the power is exercised bona fide: see Norwest Holst Ltd v Secretary of State for Trade and Industry [1978] Ch 201. It was stated in this case that an investigation is an administrative act and that the full rules of natural justice did not therefore apply. In the case of such an application, it should be supported by such evidence as the Secretary of State may require to demonstrate that there is good reason for requiring the investigation. The Secretary of State may before appointing an inspector require the applicant or applicants to give security for the costs of the investigation.