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You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Discussion Papers) >> Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties [1998] SLC 105(10) (DP) (August 1998) URL: http://www.bailii.org/scot/other/SLC/DP/1998/105(10).html Cite as: [1998] SLC 105(10) (DP) |
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Part 10 Should Part X of the Companies Act 1985 be Decriminalised?
Introduction
10.1 The view was expressed in Part 3 that there is a role for criminal sanctions where, for instance, there are high costs in detecting wrongdoing and where there are limited incentives for private parties to pursue litigation, perhaps because litigation is too costly in time and effort. It was also said that if criminal sanctions were brought into being for these reasons they should not be disproportionately severe, since this might discourage regulatory authorities from seeking them and courts from imposing them, which would in turn diminish their deterrent value. Excessive severity should therefore be avoided, and to this end a provision which is criminalised should normally be tightly drawn rather than open-textured.[1]10.2 The contrary view on the usefulness of criminal sanctions has also been expressed. The DTI's Consultative Paper records that it is a common suggestion that the existing Companies Act too readily invokes criminal penalties, when civil remedies would be more appropriate.[2] Others point to the absence of prosecutions under Part X. This is borne out by our enquiries which show that in the period 1990/6, practically no prosecutions are recorded under this Part of the Act.[3]
10.3 The object of this Part is to pursue these issues in more detail and to look at other arguments for or against decriminalising Part X. One of the aims of our review of Part X[4] is to see if Part X can be simplified; and it clearly would be simplified if the criminal sanctions were removed.
10.4 We have first to define our benchmarks for criminalisation in Part X. The mere fact that there are no prosecutions does not mean that the sanctions serve no purpose or, of course, that breaches do not occur. To define our benchmarks we have started from the proposition that these offences are "regulatory offences", that is offences designed to help enforce the rules in this Part of the Act.[5] Whether those rules are justified is considered elsewhere in this consultation paper.[6] Accordingly in this part we proceed on the basis that the rules which the offences criminalise are appropriate rules in themselves. If that turns out not to be the view reached in our final recommendation, then it follows that no question of criminalising that rule arises.
10.5 Our provisional view is that there are two benchmarks against which regulatory offences should be tested. The first is proportionality. A balance has to be struck between the interests of the individual and the interests of the State. A person should not be subject to criminal sanctions for his actions except and to the extent that it is necessary to impose such sanctions for the public good. If for instance there are adequate civil or other sanctions available, criminal sanctions are not justified. But they are justified for instance where the civil sanctions are not effective or there is a public interest in punishing the breach which means that the victim should not have the right to decide whether sanctions should be sought. Or there may be no identifiable victim so that unless criminal proceedings are available there is in fact no sanction.
10.6 The second benchmark, in our provisional view, is efficiency. If there is a role for a criminal sanction,[7] it must be one that works and makes a tangible contribution to enforcement of the law. It is not efficient to make an offence so sophisticated that proceedings are never brought because of the difficulty in obtaining evidence or because of the cost in bringing the proceedings. It must be one that the prosecuting authorities can use without excessive administrative cost. This is particularly so in the case of proceedings under Part X. Though we know from the statistics that prosecutions are extremely rare, we are told by the DTI that if minor infringements are discovered, they are able as the law stands to indicate that a prosecution might be brought in future if a further infringement occurs. Also, where a Part X infringement emerges in the course of investigation of more serious criminal conduct, the usual practice would be to charge the more serious offences and not pursue the Part X offences.
10.7 This demonstrates another important point, which is that the mere fact that an offence exists on the statute book does not mean that the prosecuting authorities are bound to pursue criminal proceedings in respect of every breach that they discover. In England and Wales, prosecuting authorities follow the code for Crown prosecutors,[8] which sets out an evidential test and a public interest test. If a case passes the evidential test it must still pass the public interest test before criminal proceedings can be brought. The relevant factors to be considered in the case of a Part X offence would include the question whether the defendant was in a position of authority or trust and whether the offence was likely to be repeated. The fact that the penalty is likely to be small or that the defendant acted under a misunderstanding are some of the factors that would be taken into account in deciding whether to bring a prosecution. There is a distinct overlap between these factors going to fairness to the individual (which is an aspect of proportionality) and efficiency, since there may be little purpose from the economic point of view in prosecuting a person whom it is reasonably clear will not commit the offence again. Public resources for enforcement of regulatory offences must necessarily be finite. Likewise a criminal sanction is not efficient if it covers ground well covered by civil sanctions already. However, a criminal sanction can still be efficient even if its principal function is as a deterrent.
10.8 On the basis that the question of removing the criminal sanctions will involve the application of the considerations outlined above we turn to examine the following matters
(1) the various specific criminal offences in Part X;[9]
(2) the alternative sanctions for these breaches;[10]
(3) whether civil penalties would be appropriate;[11]
(4) the arguments for and against attaching criminal penalties to breaches of Part X;[12] and
(5) whether there should be a new criminal offence for breach of section 312.[13]
We then ask consultees whether Part X should be decriminalised and whether, if the criminal sanctions are retained, changes should be made.
10.9 We point out at the outset that (with one exception) we are concerned only with the existing criminal offences in Part X. We are also not concerned with the issue of enforcing other obligations in the Companies Acts or the wider issue of preventing or punishing fraud.[14] As explained, we also proceed in this part on the basis that the prohibitions which Part X criminalises are appropriate as prohibitions in themselves and in addition that there is no regulatory body[15] charged with monitoring or enforcing them. We have not reviewed the punishment that can be given for commission of these offences.[16] We refer below to the effect on civil rights and remedies of the criminal offences but we do not see this as an argument for or against decriminalisation since the civil consequences can if thought appropriate be replicated in the section even if the criminal sanction is removed.
(1) Description of the various offences in Part X
Introduction - mens rea and the concept of "officer in default"
10.10 In paragraphs 10.13-10.23, we set out the criminal offences specifically created by Part X.[17] Several of the offences refer to the expression "officer in default". This is defined in section 730(5) as follows:
(5) For the purpose of any enactment in the Companies Acts which provides that an officer of a company or other body who is in default is liable to a fine or penalty, the expression "officer who is in default" means any officer of the company or other body who knowingly and wilfully authorises or permits the default, refusal or contravention mentioned in the enactment.10.11 To fall within this definition the officer must have acted "knowingly" and "wilfully". For the purpose of the first requirement it is sufficent if the defendant knew the facts which constitute the offence:[18] there is no need to show that he knew that he was committing an offence or that he was acting with any dishonest intent. To have acted "wilfully", the officer must have acted "deliberately and intentionally, not by accident or inadvertence, but so that the mind of the person who does the act goes with it".[19]
10.12 In the case of the remaining offences in Part X, where the concept of "officer in default" is not used, the offences are not offences of strict liability but require similar mens rea.[20] Section 323 requires the wrongdoer to "purchase" options. Section 314(3) and 317(5) create offences if a director fails to do that which it is his duty to do. It seems to us in these cases that the law requires the prosecution to show that the alleged offender knew the facts which constitute the wrongful act or omission. In the usual way, ignorance of the law would be no defence.
Summary of specific offences in Part X
Section 314(3): Director's duty of disclosure on takeover etc[21]10.13 This section renders a director, who fails to take reasonable steps to ensure disclosure to offeree shareholders of any loss of office payment to be made to him on the takeover of a company, liable to a fine.[22] Moreover, any person properly required by the director to include those particulars in or send them with the notice of offer sent to offeree shareholders, who fails to do so, is also liable to a fine.
Section 317(7): Directors to disclose interest in contracts[23]
10.14 A director who fails to declare an interest in a contract or proposed contract[24] with the company is liable to a fine.[25]
Section 318(8): Directors' service contracts to be open to inspection[26]
10.15 A company or every officer of it who is in default[27] is liable to a fine if it fails to:
(a) keep copies or particulars of all directors service contracts as required by section 318(1) and (5);
(b) permit inspection of these copies;[28] and
(c) advise the registrar of companies of the place where the copies are kept, or any change in that place, (if not the registered office of the company).[29]
Section 322B(4): Contracts with sole members who are directors[30]
10.16 The terms of an unwritten contract between the sole member of a company and the company itself must be set out in a written memorandum or recorded in the minutes of a directors' meeting. The company and every officer of it who is in default[31] is liable to a fine.[32]
Section 323(1): Prohibition on directors dealing in share options[33]
10.17 A director who purchases put or call options in listed shares or debentures of his company, or any body corporate in the same group, is guilty of an offence.[34]
Section 324(7): Duty of director to disclose shareholdings in own company[35]
10.18 Under section 324, a director is required to notify the company in writing of prescribed details of his interests in shares or debentures of his company, or any company in its group and any change in those interests. Section 328 extends the interests which must be disclosed to those of the spouse and infant children of the director.10.19 A person who fails duly to discharge these obligations, or in purported discharge makes a statement to the company which he knows to be false, or recklessly makes a statement which is false, commits an offence.[36] The offence created by section 324 can only be prosecuted in England and Wales with the authority of the Secretary of State or the Director of Public Prosecutions.[37]
Section 326(2): Sanctions for non-compliance with section 325 etc[38]
10.20 Section 326 provides sanctions in relation to failures to maintain an accurate register of those directors' interests. Failure to comply with specified provisions of this section and Schedule 13 renders the company and every officer of it who is in default liable to a fine.
Section 329(3): Duty to notify stock exchange of matters notified under preceding section[39]
10.21 If a company fails to notify any recognised stock exchange,[40] other than an overseas investment exchange on which its shares or debentures are listed, of any matter notified to it under sections 324 and 328, the company and every officer of the company in default is guilty of an offence. In England and Wales, the offence created by section 329 can only be prosecuted with the authority of the Secretary of State or the Director of Public Prosecutions.[41]
Section 342(1)-(3): Criminal penalties for breach of section 330 in relation to prohibited loans[42]
10.22 This section relates to transactions in breach of section 330[43] entered into by a "relevant company." This is defined as a public company, but also applies to private companies where there is a public company in the group.[44] An offence is committed:
(a) by a director who authorises or permits such a company to enter into a transaction or arrangement knowing or having reasonable cause to believe that section 330 (general restriction on loans to directors) was being breached;[45]
(b) by a relevant company which enters into a transaction or arrangement for one of its directors or a director of its holding company knowing or having reasonable cause to believe that the company was breaching section 330, unless it can show that at the time the transaction or arrangement was entered into it did not know the relevant circumstances.;[46] or
(c) by a person who procures a relevant company to enter into a transaction or arrangement knowing or having reasonable cause to believe that the transaction or arrangement was in breach of section 330. [47]
Section 343: Record of transactions not disclosed in company accounts
10.23 Certain requirements exist in relation to the disclosure (in the form of a statement available for inspection by members of the company) of loans, quasi-loans and credit transactions for banks.[48] Failure to comply with this renders the company and its directors guilty of an offence.[49] It is a defence if all reasonable steps were taken to secure compliance.[50] Moreover a person is not guilty of the offence purely due to being a shadow director.[51]
(2) Are there alternative sanctions for these breaches?
10.24 The criminal sanctions discussed above are but part of a range of sanctions available for breach of the above provisions, and the range of sanctions should be seen as a whole. The main alternative sanctions are the civil sanctions. There are however circumstances in which other remedies apply, and we discuss below the interaction of the criminal sanctions with winding up, director's disqualification, unfair prejudice and breaches of the self-regulatory rules discussed in relation to the relevant sections in Part 4. There would be less need for criminal sanctions in Part X if adequate alternative sanctions exist.[52]
(i) Civil remedies for breach of those provisions of Part X which also involve criminal sanctions
10.25 For the purpose of civil remedies, the sections in Part X with which we are here concerned fall into three groups:
(1) those for which the Act provides a code of civil remedies (sections 314-315 and 330-341);
(2) those for which the Act does not provide any remedies over and above the general law (sections 317 and 323); and
(3) those for which the question of civil remedies does not usually arise because they are obligations to give notice, put documents on display etc (sections 318, 322A, 326, 329 and 343).
As to the first group, civil proceedings will lie for breach of section 314 (director's duty of disclosure on takeover, etc). Indeed the principal remedy is set out in section 315(1) and comprises a statutory trust of the payment that should have been disclosed in favour of former shareholders. The Act also sets out the civil remedies which will lie if a company enters into transactions or arrangements in breach of section 330: if the company is a relevant company the offences specified in section 342 will be committed.10.26 As to the second group, comprising section 317 and section 323, we have noted in paragraphs 4.62 and 4.214 above the position under the general law. In short, if a director fails to comply with this duty under section 317, he will probably also fail to comply with this duty to disclose secret profits to the company in the general meeting and in those circumstances he will be liable for breach of duty. Indeed as noted in Part 3[53] the liability of the fiduciary is in many situations not just compensatory; the law removes the profit that the fiduciary may get. As regards section 323, the counterparty will not be bound as the contract is unlawful.[54] Property transferred will normally be irrecoverable.
10.27 As to the third group, civil remedies to enforce a right to inspect a service contract and to enforce a right to inspect and receive a copy of the register of directors' interests are given by section 318(9) and 326(6) respectively. But in the remaining provisions an individual complainant is unlikely to want a remedy to compel compliance (see eg section 322B) or he is unlikely to know about the information which ought to have been disclosed in any event (sections 324, 322B, 326, 329 343).
(ii) Winding up by the court
10.28 Persistent non-compliance could provide grounds for winding up under the Insolvency Act 1986 on the "just and equitable" ground.[55]
(iii) Company Directors Disqualification Act 1986
10.29 Persistent default in compliance with a director's obligations under Part X could result in the court finding that the director was unfit to be a director.[56] Although disqualification proceedings are not penal, the making of a disqualification order does involve a substantial interference with the freedom of the individual and penal consequences for the director.[57] In the context of a breach of statutory provisions regarding accounting records, Sir Donald Nicholls V-C observed:[58]
10.30 However, it would probably be unusual for a director to be disqualified on the ground of unfitness solely on the basis of a failure to file returns or accounts.[59]It may be that, despite the disqualification provisions having been in operation for some years, there is still a lingering feeling in some quarters that a failure to file annual accounts and so forth is a venial sin. If this is still so, the sooner the attitude is corrected the better it will be. Judicial observations to this effect have been made before, but they bear repetition.
(iv) Section 459 unfair prejudice remedy.
10.31 In a serious case, non-compliance with Part X could amount to the conduct of a company's affairs in an unfairly prejudicial manner. This would enable the court to grant relief under section 461 of the Companies Act 1985, including an order for the purchase of the applicant's shares at their fair value.[60]
(v) Self-regulatory rules
10.32 Failure to put a service contract on display may result in a breach of the Listing Rules.[61] The consequences of a breach of the Listing Rules are set out in paragraph 1.25 above. With this exception, while provisions of the self-regulatory rules back up the provisions of the Act which carry criminal penalties, they do not in general cover the same ground.
(vi) Investigation
10.33 If there are circumstances suggesting possible contravention of sections 323, 324 or 328, the Secretary of State may appoint inspectors to carry out an investigation.[62]
(3) Are civil penalties appropriate?
10.34 Under section 242A a company is liable to a civil penalty where accounts are not delivered in time.[63] The penalty is recoverable by the registrar without an order of the court. The question arises whether this civil penalty approach would be of value in connection with reform of the Part X criminal provisions.[64] A similar approach is proposed in the context of financial services. On 6 May 1998 the Chief Secretary to the Treasury announced a package of measures to tackle market abuse, by means of providing the Financial Services Authority (FSA) with additional powers.[65] These include giving the FSA the power to make rules and levy fines where breaches occur.[66] The legislative proposals to achieve this have now been published.[67]10.35 A similar approach has been taken in the Social Security Act 1998 in relation to the recovery of unpaid national insurance.[68] Where it appears to the Secretary of State that the failure to make payment is attributable to the fraud or neglect of an officer of the company which ought to have made payment, he can serve a personal liability notice on the officer requiring him to pay a specified sum and interest. If there is more than one officer considered to be at fault the total amount is to be apportioned between them by the Secretary of State. There is a limited right of appeal against the Secretary of State's findings to the appeal tribunal set up under the Social Security Act 1998. It will be noted that the object of this provision is not to punish but to secure the recovery of unpaid national insurance.
10.36 Our provisional view is that there are clear advantages from the point of view of efficiency in having civil penalties in some cases, for instance where, as with the late filing of accounts, the facts do not admit of dispute, and where it is thought necessary to step up enforcement. On the other hand civil penalties would not be efficient if they depended on questions of fact of a wide variety so that in fairness the individual concerned would have to be given a right of appeal. (While there is no equivalent of the appeal tribunal established by the Social Security Act 1998, there could be a right of appeal to any court having jurisdiction to deal with application under the Companies Acts).[69] Likewise, it is unlikely to be efficient to have civil penalties if public resources would be involved in enforcing them disproportionate to the benefit to be obtained. If civil penalties were more widely imposed under Part X, there would have to be resources allocated to serving the notices and dealing with any right of appeal. At this stage, we are not aware that there is any need to do this but would be grateful for consultees' views.
(4) The arguments for and against attaching criminal sanctions to breaches of Part X
10.37 We take first the arguments against criminalisation of Part X:
- The criminal offences are rarely enforced, and this is evidence that the offences are not required.
- It would greatly simplify Part X if these various offences were removed.
- It is not right or fair to subject conduct to criminal penalties if those offences are not required in the public interest and are not enforced.
- The offences have no deterrent value.
10.39 Second, even where alternative civil sanctions exist, there are grounds for retaining each of the criminal offences in Part X. In the case of sections 314(3) and 318(5) they underpin the director's duty to disclose information which it may well be he is the only person within the company to have. In the case of the offences created by sections 318, 322B, 324, 326 and 329 which involve disclosure of information, there may well be no individual who is concerned to take civil proceedings to enforce compliance. In the case of section 323, the real victims (if there are any) are the company and other users of the market. Their interests in the observance of the section can really only be reflected by imposing criminal sanctions. That leaves section 342; the Act gives substantial civil remedies in the event of the prohibitions on loans and similar transactions. However the victims here will often be creditors in a subsequent insolvency. By that time the civil sanctions are equivalent to shutting the stable door after the horse has bolted. Therefore, given the scale of the loss that can be inflicted on creditors, a criminal offence is arguably appropriate.
(5) Should a new offence be created where payments are made in breach of sections 312-316 of the Companies Act 1985?
10.40 We have referred in paragraph 4.25 to the concern that companies are paying compensation for loss of office ostensibly using the exemption section 316(3) when they were not entitled to it. We have sought consultees' views and evidence on this. We have suggested a new disclosure requirement for the annual accounts.[72] The question arises whether if consultees consider that there is significant non-compliance with the section, a new criminal offence should be created for breach of section 312. The offence would be committed by the company which made the payment, any director who knew the facts which gave rise to the need for disclosure and approval of the payment under section 312 and that such disclosure and approval had not taken place, and the director who (with the same knowledge) received the payment.
Consultees are asked:
(i) whether they agree with our provisional view that the two benchmarks to be applied in determining whether there should be criminal liability for breaches of Part X are proportionality and efficiency;
(ii) whether any of the criminal offences in Part X should be repealed;
(iii) whether, if any provision of Part X is decriminalised, the civil remedies should remain as if the provision had not been decriminalised;
(iv) whether, if any provision of Part X is decriminalised, civil penalties along the lines of section 242A should replace any of the existing offences;
(v) whether a new offence should be created where payments are made in breach of sections 312-316 of the Companies Act 1985 along the lines described in paragraph 10.40 above.
Note 1 Paras 3.79-3.84 above. [Back] Note 3 The Home Office keeps records of 'principal offences' under a particular section where the offence committed is an indictable one. A 'principal offence' is the most serious of a number of offences charged. The Home Office has no such recorded prosecutions in relation to offences under Part X during the period January 1990 to December 1996 (the latest date for which figures are available). Prosecutions for summary offences under Part X are kept by the Home Office only as part of a global figure relating to all summary offences under the Companies Acts. The DTI, on the other hand, keeps figures for all offences committed under each section of the Companies Acts. In their records, dating back to 1991, they have just one recorded prosecution under the sections in Part X, which was for a summary offence under s 326(2). [Back] Note 4 See para 1.11 above. [Back] Note 5 There is useful discussion of regulatory offences in general and in other fields in the literature: see for example AI Ogus, Regulation: Legal Form and Economic Theory (1994); G Richardson, "Strict Liability for Regulatory Crime" [1987] Crim LR 295; Rowan-Robinson and others, "Crime and Regulation" [1988] Crim L R 211; Coffee, "Does unlawful mean criminal? Reflection on the Disappearing Tort/Crime Distinction in America Law," in Foundations of Corporate Law, R Romano ed (1993). [Back] Note 6 For instance, we consider in Part 9 whether s 323, for which the Act imposes a criminal sanction, should be repealed: see para 9.33 above. [Back] Note 7 Its role may be as a deterrent; see para 10.7 below. [Back] Note 8 Issued by the Director of Public Prosecutions under the Prosecution of Offences Act 1985, s 10. The DTI, which follows the Code, is able to prosecute all offences under Part X. In Scotland, where prosecutions are controlled by the Lord Advocate, the Procurator Fiscal is responsible to the Lord Advocate for dealing with alleged offences in the most appropriate way, having regard to the public interest. He can decide to take no proceedings or he can select one of a number of alternatives to prosecution. It is neither necessary nor appropriate for the Procurator Fiscal to institute court proceedings in every case reported to him, even though there may be sufficient evidence that a crime has been committed. The Procurator Fiscal is entrusted by the Lord Advocate with considerable discretion and uses his professional judgment in the light of his knowledge of the particular problems or features of his own jurisdiction, the Lord Advocate's policy in respect of certain classes of case and Crown Counsel's instructions in respect of individual cases when deciding whether to institute criminal proceedings or to take alternative actions. See the statement of the Lord Advocate, Lord Mackay of Drumadoon to the Scottish Grand Committee (1996 SLT (News) 51) and Renton & Brown Criminal Procedure (6th ed) para 4.01. [Back] Note 9 See paras 10.13-10.23 below. [Back] Note 10 See paras 10.24-10.33 below. [Back] Note 11 See paras 10.34-10.36 below. [Back] Note 12 See paras 10.37-10.39 below. [Back] Note 13 See para 10.40 below. [Back] Note 14 Had we been so concerned, we might have wished to seek consultees views on whether there should be separate offences in the same circumstances but with the added ingredient of intention to defraud. [Back] Note 15 Such as the new Financial Services Authority. [Back] Note 16 As to which see Sched 24. Ignoring the impact of daily default fines, the offences which Sched 24 treats as most serious are those created by ss 323(2), 324(7), 328(6), 342(1), 342(2) and 342(3) where the maximum penalty is two years' imprisonment. [Back] Note 17 Sections 311-313 make payments unlawful but in our view breach of these sections does not, in the context of Part X, constitute an offence at common law. This is because Part X contains a number of specific offences for which the mode of trial and punishment is set out in Sched 22: see eg, R v Lennox-Wright [1973] Crim LR 529 (a case under the Human Tissue Act 1961). [Back] Note 18 Burson v Bevan [1908] 2 Ch 240, 247, per Lord Parker CJ (the case concerned civil proceedings under the Companies Act 1900, section 5). Nelsonian knowledge may suffice: see Mallon v Allon [1964] 1 QB 385 at 394, per Lord Parker CJ (a case under the Betting and Gaming Act 1960). [Back] Note 19 R v Senior [1893] 1QB 283, 291 (a case under the Prevention of Cruelty to Children Act 1894). [Back] Note 20 Sections 324(7), 342 and 343. [Back] Note 21 See para 4.33 above. [Back] Note 22 Section 314(3). [Back] Note 23 See para 4.62 et seq above. [Back] Note 24 Including any transaction or arrangement (whether or not constituting a contract) made after 22 December 1980: s 317(5). [Back] Note 25 Section 317(7). [Back] Note 26 See para 4.119 above. [Back] Note 27 Section 730(5). [Back] Note 28 Section 318(7). [Back] Note 29 Section 318(8). [Back] Note 30 See para 4.210 above. [Back] Note 31 Section 730(5). [Back] Note 32 Section 322B(4). Compare ss 382A(3) and 382B(3) of the Companies Act 1985. [Back] Note 33 See para 4.214 above. [Back] Note 34 Section 323(2). [Back] Note 35 See para 5.6 above. [Back] Note 36 Section 324(7); s 328(7). [Back] Note 37 Sections 324(8) and 732. See n 8 above for the position in Scotland. [Back] Note 38 See para 5.27 above. [Back] Note 39 See para 5.31 above. [Back] Note 40 Within the meaning of the Financial Services Act 1986. [Back] Note 41 Sections 329(3) and 732. See n 8 above for the position in Scotland. [Back] Note 42 See para 6.31 above. [Back] Note 43 See paras 6.10-6.12 above. [Back] Note 44 Section 331(6). [Back] Note 45 Section 342(2). [Back] Note 46 Section 342(2) and (5). [Back] Note 47 Section 242(3). [Back] Note 48 Section 343(2) to (5). [Back] Note 49 Section 343(8). [Back] Note 50 Section 343(8)(a). [Back] Note 51 Section 343(8)(b). [Back] Note 52 See para 3.84 above. [Back] Note 53 Paras 3.73-3.78 above. [Back] Note 54 The rights of a person who is a party to an illegal contract will be considered in the Law Commission's forthcoming consultation paper on illegal transactions. [Back] Note 55 Section 122(1)(g). [Back] Note 56 Namely under s 6 of the Act. Section 3 of the Act gives the court power to disqualify a person who has been in persistent breach of filing requirements under the Act: see eg Re Artic Engineering Ltd [1986] 1 WLR 686. Mithani and Wheeler, The Disqualification of Company Directors (1996) contains a very full analysis of the law. 1219 disqualification orders were notified to the Secretary of State in 1996-7 arising under the CDDA 1986. [Back] Note 57 See Re-Lo Line Electric Motors Ltd [1988] Ch 477. [Back] Note 58 Secretary of State for Trade and Industry v Ettinger and another; Re Swift 736 Ltd [1993] BCLC 896, 900. [Back] Note 59 Lord Hoffmann, in "The Fourth Annual Leonard Sainer Lecture" (1998) Co Law 194 stated: "I cannot say I have ever heard of a director being disqualified solely on the basis of a failure to file accounts". [Back] Note 60 Shareholder Remedies, Law Com No 246, para 3.30. [Back] Note 61 See para 4.125 above. [Back] Note 62 Section 446 of the Companies Act 1985. [Back] Note 63 In 1996-7, 50,846 private companies and 657 public companies were up to 3 months late in England and Wales, and a total of £5.41m was levied. A further £12.88m was levied on other firms in 1996-7 for longer periods of late filing. In the same year in Scotland, 3,350 private companies and 35 public companies were up to 3 months late and a total of £335,000 was levied. A further £740,750 was levied on other firms in 1996-7 for longer periods of late filing. The costs incurred by Companies House in 1996-7 for administering the system of late filing penalties for the whole of the UK was £1.52m. [Back] Note 64 It would not be possible to obtain punitive damages. The circumstances of a breach of Part X would not satisfy the conditions laid down by Lord Devlin in Rookes v Barnard [1964] AC 1129 because it would fail the cause of action test, which restricts the award of damages to those situations where punitive damages were awarded preRookes. See Aggravated, Exemplary and Restitutionary Damages, Law Com No 247 (1997) pp 53-63. [Back] Note 65 Written Answer, Hansard (HC), 6 May 1998, vol 311, cols 383-384. [Back] Note 66 Criminal offences for market manipulation and insider dealing will however be retained. See further Market Abuse Part 1: Consultation on a draft Code of Market Conduct; Part 2: Draft Code of Market Conduct published by the Financial Services Authority, June 1998. [Back] Note 67 Financial Services and Markets Bill: A Consultation Document (July 1998), para 13.4. See paras 1.25, n 28 and para 5.32, n 39 above. [Back] Note 68 Section 64, which inserts ss 121C and 121D into the Social Security Administration Act 1992. [Back] Note 69 Section744 of the Companies Act 1985 defines "the court" in relation to a company as any court having jurisdiction to wind up the company. In England and Wales this includes the High Court and any county court having bankruptcy jurisdiction over the company in question. In Scotland this would include the Court of Session and any Sheriff Court having bankruptcy jurisdiction over the company in question. See ss 117 and 120 of the Insolvency Act 1986. [Back] Note 70 Phrase taken from para 3.82 above. [Back] Note 71 The British Venture Capital Association, the Law Society, the Law Society of Scotland, the Institute of Chartered Accountants in Scotland, the Stock Exchange and Osborne Clark all considered that criminal sanctions acted as an important deterrent. Only two respondents, Professor Sealy and Michael Wyatt, argued that they were not. [Back]
