§ Sir Graham Pageasked the Secretary of State for Trade whether he is satisfied with the present system for the investigation of companies.
§ Mr. NottThe present system of investigations under the Companies Acts is of long standing. It has given rise to much useful information which in many cases has been the basis for action against crime or misconduct and has led to useful reforms in company law. I am, however, concerned that the system should maintain public confidence. I am aware of criticisms which have been voiced in respect of speed and fairness. On taking office, I therefore put in hand a departmental review of the present practice. I have considered with care the recommendations16W and conclusions of the Council for the Securities Industry, which has recently given me a report on the system of inspections and prosecutions, and I have also taken into consideration the observations of other organisations including the Consultative Committee of Accountancy Bodies, the Senate of the Inns of Court and the Bar and the Law Society, and comments made in the light of their experience by various inspectors appointed to inquire into company affairs.
My powers to appoint inspectors and the powers exerciseable by such inspectors, for example to examine witnesses on oath, are contained in sections 164 to 172 and 175 of the Companies Act 1948, as amended, and in section 32 of the Companies Act 1967. In addition, officials of my Department may be appointed to examine company books and papers under section 109 of the Companies Act 1967; such reports are not published, but serve to establish whether there are grounds for further action by my Department or other authorities. These various powers are of great assistance in the deterrence, investigation and prosecution of company fraud, and I have no intention of relaxing my Department's efforts in this regard.
I am satisfied that in general the present legal powers provide a framework within which matters of public concern may be explored and where appropriate exposed.
I endorse many of the observations made to me by the Council for the Securities Industry about the two aspects of the present system to which I have referred. It is desirable that inspections should be completed quickly, and it is imperative that inspectors should treat witnesses fairly. Fairness should be ensured by strict compliance with the principles established by the Court of Appeal in re Pergamon Press Ltd and Maxwell v Department of Trade and Industry and Others. It is the established practice that these principles are brought to the attention of all inspectors on appointment by my Department, together with guidance on the handling of the investigation and the proper tone of the report.
I propose to publish these guidance notes, as a contribution towards public understanding of the inspections system.
17WMy Department's notes for guidance remind inspectors that the decisions of the Court of Appeal require that inspectors, if disposed to condemn or criticise anyone in a report, must first give him a fair opportunity to correct or contradict the allegations against him.
An inspection under the Companies Acts is therefore likely to be time-consuming and is costly to both sides; I want it to be cost-effective. I consider it desirable for the future that the appointment of inspectors should be confined to cases in which the information necessary for decisions on such matters as prosecutions or petitions to wind up cannot be achieved by examination of books and papers under section 109 of the 1967 Act, or in which for other reasons it is likely to be in the public interest that the inspectors' eventual report should be made public. I intend to lay down a general time scale to which inspections must conform. I believe that 12 months should be sufficient. My Department will in future indicate to inspectors on appointment the particular matters with reference to which a report is desired. If it can be shown that an inspection cannot be finally completed within the time limit I shall require the inspectors to let me have an interim report. Inspectors are already encouraged to make the fullest use of the power under section 41 of the Companies Act 1967 to report to me on matters which suggest that an offence has been committed and this power is well used. When faced with unreasonable delays on the part of witnesses, I hope that inspectors will not hesitate to report the matter to the court, or to deal with it in their report.
Inspectors must themselves be in a position to give priority to the need for speed in completing their investigations, and I have this factor in mind in making
18W
UNITED KINGDOM TRADE VOLUMES Percentage of 1975 levels Imports Manufactures Exports Manufactures Semi* Finished† Semi* Finished† 1949 … … … … N.A. N.A. N.A. N.A. 1959 … … … … 33 14 52 45 1969 … … … … 71 51 81 74 1979 … … … … 147 164 138 108 N.A.=Not available. * S.I.T.C. (R2) sections 5 and 6. † S.I.T.C. (R2) sections 7 and 8. appointments. In general, I believe that the guidelines laid down following the Pergamon case make it desirable that a member of the legal profession is appointed as the inspector. I am aware of the demands which an inspection imposes. I shall not look for inspectors so frequently among the most senior members of the Bar, whose commitments are heavy.
In addition, I have in mind to make certain minor changes to the legal framework within which inspectors are appointed and carry out their functions.
Provision will be included in legislation at the next convenient opportunity.