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Companies (Audit, Investigations and Community Enterprise) Act 2004

Section 21 - Power to require documents and information

120.This section replaces section 447 of the Companies Act 1985.  That section contained the powers used to carry out the majority of company investigations.  In almost all cases, investigations under section 447 are carried out by DTI investigators authorised for that purpose by the Secretary of State.  An investigator's powers previously comprised:

  • a power to require a company to produce documents specified by the investigator;

  • where any other person appeared to be in possession of documents which the investigator could require the company to produce, a power to require that person to produce those documents;

  • a power to copy or take extracts from documents produced;

  • a power to require an explanation of documents produced from the person who produced them or from any past or present officer or employee of the company; and

  • where a person did not produce specified documents as required, a power to require information from that person about their whereabouts.

121.These powers were limited in ways which were capable of slowing down investigations and undermining investigators' ability to uncover the facts, particularly in cases where companies were prepared to do no more than comply strictly with their legal obligations, narrowly interpreted.  First, there was no general power to require answers to questions unrelated to documents produced.  Second, while it was clear that persons other than the company under investigation could be required to produce company documents in their possession and other documents held to the order of the company, the question of what other kinds of documents they could be required to produce was open to argument.  The primary purpose of new section 447 is to remove these limitations.

122.The previous section 447 also conferred document-gathering powers on the Secretary of State.  The Secretary of State had powers to direct a company to produce documents, to require other persons to produce documents (where she could require the company to produce them), to copy or take extracts from documents produced, to require explanations of documents produced from certain persons and to ask about the whereabouts of documents which were not produced.  These powers suffered from the same limitations as those affecting investigators, but the main purpose of new section 447 in this regard is only to give the Secretary of State a new, general power to require answers to questions from companies.

123.Previous section 447 stated that the Secretary of State could exercise her powers (including her power to authorise the exercise of powers by an investigator) if she thought that there was "good reason" to do so.  This restriction prevented the Secretary of State from acting on trivial, irrelevant or irrational grounds.  As such, it added nothing to the restrictions which apply as a matter of general administrative law to the exercise of the Secretary of State's powers.  As explained below, the "good reason" restriction has not been included in new section 447

124.Section 452(2) prevented the powers in previous section 447 from being used to compel the production of documents which would be protected from disclosure in civil court proceedings on the grounds of legal professional privilege.  Section 452(3) also provided a measure of protection for documents held by banks which relate to the affairs of their customers.

125.Section 21 replaces previous section 447(2) to (7) and (9).  (Section 447(1) had already been repealed.)

126.New section 447(2) gives the Secretary of State the power to direct a company to produce documents or to provide information.  Because of new section 447(1),  the power can only be exercised for reasons relating to the company in question. The Secretary of State can either specify or describe the documents she wants.  The Secretary of State's power to require documents under new section 447(2)(a) is narrower than her previous power to require documents under section 447 because it enables her to obtain documents only from the company concerned.  But her general power to require information from a company under new section 447(2)(b) is new.

127.New section 447(3) enables the Secretary of State to authorise a person to exercise certain investigatory powers (as previous section 447(3) did).  Because of new section 447(1), the decision to authorise must relate to a company.  Authorisation is, in effect, a decision to start an investigation of that company.  For the first time a person authorised under section 447 is referred to as an "investigator", although this is not a change of substance.  Investigators can still be appointed from the DTI's ranks or from outside. An investigator has the power to require the company under investigation, or any other person, to produce documents or provide information.  The investigator can either specify or describe the documents he or she wants.  These powers are wider than those previously available to investigators under section 447.  The general power to require information from anyone is new.  It subsumes the existing powers to ask where documents are which have not been produced and to require explanations of documents which have been produced.  It also enables, for example, an investigator to require a person to explain his conduct, or give his opinion about something.  The power to require the production of documents by persons other than the company is expressed in such a way as to make it clear that third parties can be required to produce any relevant document, not just documents in their possession which belong to the company under investigation or are held to the order of that company.

128.The changes made to the powers of the Secretary of State and investigators do not lessen the protection which exists in relation to legal professional privilege and banking confidentiality.  Section 452 of the Companies Act 1985 is amended by paragraph 21 of Schedule 2 so that, among other things, the protection which it provides is applied to the new powers to require information.

129.References to "good reason" are omitted from new section 447, but this is not a change of substance to the grounds for use of the powers.  The references have been omitted because (as explained above) they add nothing to the restrictions which apply as a matter of general administrative law.  The Secretary of State will not be able to act under new section 447 on trivial, irrelevant or irrational grounds, just as she could not act on such grounds under previous section 447.

130.New section 447(5) provides that a requirement to produce documents or provide information must be complied with at such time and place as the Secretary of State or investigator specifies.  Among other things, this enables investigators to require specified documents to be handed over immediately.

131.New section 447(6) provides that a lien on a document is not affected by the production of that document in compliance with a requirement imposed by the Secretary of State or an investigator.  In this context a lien is, generally speaking, a legal right to keep possession of a document belonging to someone else until a claim is satisfied – for example, a claim for payment of professional fees.  This subsection does not entitle a person to refuse to hand over a document to the Secretary of State or an investigator, but preserves the rights of (for example) the professional in question over those documents.

132.New section 447(8) and (9) re-enact previous section 447(9).  These subsections provide that the expression "document" in new section 447 includes information recorded in any form (for example, on paper or electronically).  They also provide that, where information is recorded otherwise than in legible form (for example, electronically), the Secretary of State or an investigator can require a copy of it to be produced in legible form (for example in "hard copy") or in a form from which it can readily be produced in visible and legible form (for example, on a floppy disk).

133.New section 447 does not re-enact previous section 447(6) and (7).  So the offence of failing to comply with a requirement imposed under section 447 is repealed.  To replace it, a new sanction is provided  by section 24, which inserts new section 453C (failure to comply with certain requirements) into the Companies Act 1985.

134.Previous section 447(8), (8A) and (8B) is re-enacted with modifications by new section 447A, inserted by paragraph 17 of Schedule 2.

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