UK: Modernising Company Investigations

The DTI are currently reviewing powers of inspection with a view to modernising the present Companies Act powers to respond to changing business practices and technological advances, and to address the weaknesses of the system. These proposals considerably widen the scope for investigations and inspections and justify doing so on the basis that the cost of investigations should be borne by companies as the price of the benefits of limited liability. However, DTI investigations can already be lengthy and costly; for example, the Mirror Group Newspaper affair took nearly nine years to complete at a cost of almost ten million pounds.

The stated objective of the review is the provision of an up-to-date framework that promotes enterprise and competitiveness with minimal regulatory burdens, but which gives inspectors rapid access to all relevant information and witnesses.

Proposals centre around a new, wide-ranging set of general powers of investigation and inspection, bringing the scope for confidential, unpublicised investigations into line with those powers for publicly announced inspections. Investigation powers would be graduated, allowing for controlled use of each further grade where necessary and proportionate for a particular investigation; investigators would be able to extend the investigation to the nature, conduct or state of business affairs of individuals connected to the company itself and associated companies (regardless of past or present connection and without any suggestion of wrongdoing) and to compel assistance from persons unconnected with the company. Document-based powers of investigators would be replaced by a less restricted approach based on "all relevant information" reasonably required by the investigator. Requirements for assistance would extend to that which a person was "reasonably able to give" to be given "forthwith". Investigators would be permitted access to a company’s premises upon reasonable notice and to inspect record systems, which will also include access, inspection and copying of the contents of any computer present regardless of use by the company.

One particular new development is the proposed introduction of a power permitting the Secretary of State to seek restraining orders (in both interim and long-term form) to prevent a company and also individual directors from carrying on specified activities.

It is difficult to see how these proposals will in fact speed up the production of reports or save costs, particularly as they place significant burdens upon companies and third parties. It is also questionable whether some of the new proposals are appropriate or necessary. Responses to the DTI’s consultation were due in at the end of January. It remains to be seen how many of the proposals find their way into any draft legislation.

© Herbert Smith 2002

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