Commentary on Sections
Part 1: Auditors, Accounts, Directors' Liabilities and Investigations
Chapter 2: Accounts and Reports
Defective accounts
Summary and background
Section 12 - Power of person authorised to require documents, information and explanations; and Schedule 1 - New Schedule 7B to the Companies Act 1985
69.The FRRP (as the person authorised under section 245C of the Companies Act 1985) previously had no power to require a company to provide it with the information it needed to carry out its functions. Hitherto, it relied on the voluntary co-operation of the company in question to provide explanations and documents which were not publicly available.
70.The view of the Government and the FRRP was that with the FRRP moving to a more proactive approach, in which the FRRP would be considering more cases, such co-operation could not be relied on in every instance. Moreover, the Committee of European Securities Regulators has set out a number of key enforcement principles, including that any competent enforcement authority should have adequate powers. Section 12 therefore provides the FRRP with a statutory power to obtain relevant material.
71.Subsection (1) inserts a new section 245F into the Companies Act 1985. Subsections (1) to (3) of this new section provide the FRRP with a statutory power to require a company and its officers, employees and auditors to provide documents and information. The effect of subsection (1) is that the FRRP may use its power to obtain information, explanations and documents only when it considers that there is a question as to whether the accounts or reports comply with the relevant requirements relating to that report or those accounts. It will not be able to exercise the powers as part of a random sampling or sector-wide review of accounts where there is no reason to believe there is any particular problem with the accounts of the company in question.
72.The person against whom the power is used must produce any document that the FRRP may reasonably require in relation to such accounts or reports or provide any relevant information that the FRRP may reasonably require. Subsection (8) ensures that a "document" can refer to information stored on computer as well as hard copies.
73.Where a person refuses to provide information or documents to the FRRP, the FRRP may apply to the court for an order. The court may make an order requiring disclosure. Failure to comply with such an order would be contempt of court.
74.Restrictions on further disclosure of information obtained under section 245F.
A new section 245G is also inserted into the Companies Act 1985, ensuring that information obtained by the FRRP under the new powers will be subject to restrictions on onward disclosure. Information may not be disclosed by the FRRP without the consent of the individual or business in question, except for the purposes of carrying out its functions, or unless it is disclosed to specified persons or for specified purposes set out in a new Schedule 7B of the Act which is inserted by Schedule 1.
75.New Schedule 7B sets out the disclosures of information obtained by the authorised person under new section 245F which are permitted under new section 245G. It lists the specified persons to whom disclosures are permitted and the specified descriptions of disclosures which are permitted. It also sets out the circumstances in which a disclosure to an overseas regulatory authority is permitted. Under subsection (4) of new section 245G, the Secretary of State has the power to amend the Schedule. Under subsection (5) the Schedule can only be amended to specify persons exercising functions of a public nature or to specify descriptions of disclosure, where the purpose for which the disclosure is permitted is likely to assist in the exercise of a function of a public nature.
76.Subsection (7) of new section 245G makes it an offence to disclose information in contravention of the new section. A person guilty of such an offence is liable on conviction on indictment to two years' imprisonment or a fine or both; and on summary conviction to twelve months' imprisonment or a fine. Subsection (8) provides a person with a defence if he can prove that he did not know or had no reason to suspect that the information in question had been disclosed under this legislation; or that he took reasonable steps to prevent wrongful use or disclosure.
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