Oversight by regulators Flashcards
What can bad corporate governance lead to?
What board structure does the UK company law model have at its heart?
When does this work best?
How did the Cadbury Report 1992 describe corporate governance?
How did it describe the board’s and shareholder’s role in corporate governance?
collapse of companies = BHS Limited
Unitary board where directors have collective responsibility
Collective responsibility works best where no individual or group of directors becomes so powerful as to stifle debate and accountability from the remaining directors
= the system by which companies are directed and controlled
Board’s role = responsible for governance of their companies
Shareholder’s role = appoint directors and auditor and satisfy themselves that the appropriate governance structure is in place
Corporate governance policies should be formulated by who and made available to who?
Name 3 examples of corporate governance policies.
Formulated by the board and made available to all stakeholders
- Matters reserved for the board
- Delegated authority
- Whistleblowing
How are members protected?
How are employees protected?
How are directors protected?
How are creditors protected?
- Members best protected stakeholder group = companies are run for their benefit (S.172) and they have the power to bring an unfair prejudice or a derivative action claim
- Employee protection = greatly protected under law e.g. Employment Rights Act 1996 etc. but also get priority of payment of unpaid wages in insolvent liquidations (also directors must have regard to their interests under s.172)
- Directors’ protection = run the affairs of company so can take mitigating action, but can also take out indemnity insurance at company’s expense
- Creditors’ protection = able to sue the company to make settlement and in the event of a winding up, assets are applied to meet their debts
BEIS INVESTIGATION
What investigation powers do the Department of Business, Energy, and Industrial Strategy have and how? (4)
Under CA1985: Secretary of State will appoint inspectors (usually accountant or a barrister) with the:
A. Power of entry (need a search warrant from a justice of the peace and a police officer to attend)
B. Power to investigate affairs of a company
C. Power to investigate ownership
D. Power to require the production of documents
BEIS INVESTIGATION - POWER TO INVESTIGATE AFFAIRS
Who can request that the SoS appoints an inspector to investigate the affairs of a company? (3)
Name 2 circumstances when the court may order the company affairs to be investigated.
CA1985:
1. company itself
2. a minimum of 200 shareholders (1/5 of members (if no share capital)) OR
3. court order
If it appears to the court that there are circumstances to indicate that:
A. affairs have been undertaken with intent to defraud creditors, for fraudulent or unlawful purposes, or in a detrimental way to members
D. members have not been given information on affairs that they might reasonably expect
BEIS INVESTIGATION - POWER TO INVESTIGATE AFFAIRS
Once inspectors are appointed, it is the duty of all officers and agents of the company and of any person who is or may be in possession of information or documents relating to the company under investigation to do what?
Do they have the right to silence?
What if they refuse to answer a question or assist in the investigation?
Once the investigation has been concluded, what must the inspector do?
give all assistance in connection with the investigation that they are reasonably able to give (produce documents and information)
No = inspectors can compel a witness to answer questions
Inspectors may report this to court, who can punish the person
Produce a report to the SoS on findings = The publication of the report is at the discretion of the SoS but must only publish if it is in the public interest to do so
BEIS INVESTIGATION - POWER TO INVESTIGATE OWNERSHIP
When can the SoS appoint an inspector to investigate the ownership of a company? (to investigate what)
When are these investigations usually used?
What can be requested and from who?
What are the consequences for any person failing to provide information or supplying false information?
CA1985 = When it appears that there are good reasons for doing so to investigate the true identity of those able to control/influence company’s management
Where there is a potential takeover and there are undisclosed arrangements between shareholders
Documents or information concerning present or past interests in shares from any person SoS reasonably believes might have it
Liable to fine and/or imprisonment
BEIS INVESTIGATION - POWER TO REQUIRE PRODUCTION OF DOCUMENTS
When can the SoS appoint an inspector to require the production of documents/records/information?
What are the 2 consequences for any person failing to produce documents or provide an explanation without good reason?
CA1985 = if SoS thinks there are good reasons to
- Person commits an offence
- Inspector/SoS can apply to a justice of the peace to issue a search warrant
HMRC INVESTIGATIONS
What are the 3 types of investigations HMRC can undertake?
What criminal investigation powers does HMRC have? (3)
CA1985:
1. criminal investigations = reserved for more serious offenses e.g. use of false/forged documents
- direct tax investigations (civil)
- indirect tax investigations (civil)
Power to obtain orders requiring the:
A. production of documents and information
B. Power of entry (require a search warrant)
C. power of arrest (for HMRC offences and not general right of arrest)
HMRC DIRECT TAX INVESTIGATIONS
What is a direct tax investigation?
What power does HMRC have in relation to direct tax investigations?
Do HMRC officials have the automatic right of entry in a direct tax investigation?
When will a judge grant this?
CA1985:
HMRC can give notice requiring the production of documents and information, which must be complied with in not less than 30
Review company PAYE and NI records at all reasonable times (entry can be refused if request or time is unreasonable in the circumstances)
No = must obtain a warrant, signed by a circuit judge, and served by a police officer
Judge will only grant if reasonable grounds for suspecting evidence of serious tax fraud will be found on premises
HMRC INDIRECT TAX INVESTIGATIONS
What is an indirect tax investigation?
What are they mostly used for?
Can the officer(s) be asked to leave?
What if they refuse to go?
An indirect tax investigation can involve unannounced visits with HMRC having the right of entry to inspect records at any reasonable time (but do not have power to search for records)
Investigating VAT
Yes, if there has been an unannounced visit, and, for genuine business or personal reasons, it is inconvenient for them to be there
They should be given access to a clear room, should be accompanied at all times, and should not be given uncontrolled access to business records
FCA INVESTIGATIONS
What investigation powers do the Financial Conduct Authority, and the investigators they appoint, have? (4 and 2)
FSMA2000 = power to:
1. Require the production of documents and information
- Require an authorised, formerly authorised, or connected person provide a report on any relevant matter (FCA control scope, length, and conduct of investigation)
- Appoint a competent person to conduct a general investigation into the ownership of an authorised person
A. Investigators have the power to require persons to provide info/documents - Appoint a competent person to conduct an investigation where it appears a specific offence may have taken place
B. Investigators have the power to require persons not under investigation to provide info/documents
FCA INVESTIGATIONS
Does an investigator appointed by the Financial Conduct Authority automatically have the right of power of entry?
When will this be granted? (2)
No = must obtain a warrant from a justice of the peace, executed by a police officer
Only if reasonable grounds for believing that:
1. the documents are on the premises;
- any request to provide documents would not be complied with or the documents would be moved, altered or destroyed
FCA INVESTIGATIONS
What are the consequences when a person fails, without good reason, to comply with a request? (2)
What are the consequences when a person recklessly provides false or misleading information or who falsifies withholds, or destroys any documents or information? (2)
A. that fact may be certified to the court, and on enquiry:
B. the court may punish the person
liable to:
1. a fine of up to £5,000 and/or
2. up to 6 months imprisonment
CMA INVESTIGATIONS
What investigation powers do the Competition and Markets Authority have under the Enterprise Act 2002 and Companies Act 1998? (2)
- EA2002 = Power to require persons to provide documents and information in relation to the investigation of cartels, mergers, and abuse of market dominance
- CA1998 = Power to require the production of documents or information
