Section 41 - Conditions for exercise of supervisory powers
238.This section restricts the circumstances in which the Regulator is able to exercise the supervisory powers conferred by sections 42 to 51. It constrains the Regulator in three respects. First, subsection (1) imposes a general requirement on the Regulator to make use of these powers in such a way that his supervisory activity is not greater than is needed to maintain confidence in CICs.
239.Second, subsection (2) prevents the Regulator from exercising the powers listed in that subsection unless the "company default condition" is satisfied. The purpose of this provision is to ensure that the Regulator can only use these relatively intrusive powers where it is necessary to do so and there are particular grounds for doing so. The grounds are set out in subsection (3).
240.One of the four triggers of the company default condition relates to community interest objects (subsection (3)(d)). These are defined in section 35(3). If they wish, CICs will be able to state wide objects in their memorandum, such as commercial trading objects. Alternatively, they may choose to limit themselves to ‘community interest objects’ that only include specific activities for the benefit of the community. A CIC may wish to do this, for instance, to demonstrate to potential investors, grant-givers or other stakeholders that it is restricted to particular activities. If a CIC chooses to limit its objects in this way, then a failure to carry on activities in pursuit of those objects will be sufficient grounds to trigger the company default condition.
241.The third constraint is applied by subsection (4). This prevents the Regulator from exercising the power to order a transfer of shares or other membership interests in a CIC under section 49 unless the CIC in question is an excluded company within the meaning of section 35(6). It is intended that regulations will provide that companies subject to the control of a political party will be excluded companies (see also the note on section 35(6) above).