Companies (Audit, Investigations and Community Enterprise) Bill [HL]

House of Commons

Session 2002 - 03
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Companies (Audit, Investigations and Community Enterprise) Bill [HL]

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 2 — Community interest companies
36

(4)
A Scottish charitable company may not by special resolution change its name
to comply with section 31 without the prior written consent—
(a)
if the company’s registered office is situated in Scotland, of the Scottish
Charity Regulator, or
(b)
if the company’s registered office is situated in England and Wales (or
5
Wales), of both the Scottish Charity Regulator and the Charity
Commissioners.
(5)
If a Scottish charitable company contravenes subsection (4)(a), the Scottish
Charity Regulator may apply to the Court of Session for an order quashing any
altered certificate of incorporation issued under section 28(6) of the Companies
10
Act 1985 (c. 6).
(6)
If a Scottish charitable company contravenes subsection (4)(b), the Scottish
Charity Regulator or the Charity Commissioners may apply to the High Court
for such an order.
(7)
If a Scottish charitable company becomes a community interest company, that
15
does not affect the application of—
(a)
any property acquired under any disposition or agreement previously
made otherwise than for full consideration in money or money’s worth,
or any property representing property so acquired,
(b)
any property representing income which has previously accrued, or
20
(c)
the income from any such property.
(8)
In this section “Scottish charitable company” means a company which—
(a)
is a Scottish charity, or
(b)
not being a Scottish charity, is registered in Scotland and established for
charitable purposes only.
25
(9)
Regulations under subsection (3) may define the expression “the Scottish
Charity Regulator” for the purposes of this section.
Supervision by Regulator
39
Conditions for exercise of supervisory powers
(1)
In deciding whether and how to exercise the powers conferred by sections 40
30
to 49 the Regulator must adopt an approach which is based on the principle
that those powers should be exercised only to the extent necessary to maintain
confidence in community interest companies.
(2)
No power conferred on the Regulator by—
(a)
section 43 (appointment of director),
35
(b)
section 44 (removal of director),
(c)
section 45 (appointment of manager), or
(d)
section 46 (property),

is exercisable in relation to a community interest company unless the company
default condition is satisfied in relation to the power and the company.
40
(3)
The company default condition is satisfied in relation to a power and a
company if it appears to the Regulator necessary to exercise the power in
relation to the company because—
(a)
there has been misconduct or mismanagement in the administration of
the company,
45

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 2 — Community interest companies
37

(b)
there is a need to protect the company’s property or to secure the
proper application of that property,
(c)
the company is not satisfying the community interest test, or
(d)
if the company has community interest objects, the company is not
carrying on any activities in pursuit of those objects.
5
(4)
The power conferred on the Regulator by section 47 (transfer of shares etc.) is
not exercisable in relation to a community interest company unless it appears
to the Regulator that the company is an excluded company.
40
Investigation
(1)
The Regulator may—
10
(a)
investigate the affairs of a community interest company, or
(b)
appoint any person (other than a member of the Regulator’s staff) to
investigate the affairs of a community interest company on behalf of the
Regulator.
(2)
Subsection (1)(b) is in addition to paragraph 5 of Schedule 3 (powers of
15
Regulator exercisable by authorised members of staff) and does not affect the
application of that paragraph to the Regulator’s power under subsection (1)(a).
(3)
Schedule 7 (further provision about investigations under this section) has
effect.
41
Audit
20
(1)
The Regulator may by order require a community interest company to allow
the annual accounts of the company to be audited by a qualified auditor
appointed by the Regulator.
(2)
A person is a qualified auditor if he is eligible for appointment as a company
auditor under section 25 of the Companies Act 1989 (c. 40) (eligibility for
25
appointment as auditor).
(3)
Sections 389A and 389B of the Companies Act 1985 (c. 6) (auditor’s rights to
information) apply in relation to an auditor appointed under this section as in
relation to an auditor appointed under Chapter 5 of Part 11 of that Act.
(4)
On completion of the audit the auditor must make a report to the Regulator on
30
such matters and in such form as the Regulator specifies.
(5)
The expenses of the audit, including the remuneration of the auditor, are to be
paid by the Regulator.
(6)
An audit under this section is in addition to, and does not affect, any audit
required by or by virtue of any other enactment.
35
42
Civil proceedings
(1)
The Regulator may bring civil proceedings in the name and on behalf of a
community interest company.
(2)
Before instituting proceedings under this section the Regulator must give
written notice to the company stating—
40
(a)
the cause of action,
(b)
the remedy sought, and

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 2 — Community interest companies
38

(c)
a summary of the facts on which the proceedings are to be based.
(3)
Any director of the company may apply to the court for an order—
(a)
that proposed proceedings are not to be instituted under this section, or
(b)
that proceedings instituted under this section are to be discontinued.
(4)
On an application under subsection (3) the court may make such order as it
5
thinks fit.
(5)
In particular the court may (as an alternative to ordering that proposed
proceedings are not to be instituted under this section or that proceedings
instituted under this section are to be discontinued) order—
(a)
that the proposed proceedings may be instituted under this section, or
10
the proceedings instituted under this section may be continued, on
such terms and conditions as the court thinks fit,
(b)
that any proceedings instituted by the company are to be discontinued,
or
(c)
that any proceedings instituted by the company may be continued on
15
such terms and conditions as the court thinks fit.
(6)
The Regulator must indemnify the company against any costs (or expenses)
incurred by it in connection with proceedings brought under this section.
(7)
Any costs (or expenses)—
(a)
awarded to the company in connection with proceedings brought
20
under this section, or
(b)
incurred by the company in connection with the proceedings and
which it is agreed should be paid by a defendant (or defender),

are to be paid to the Regulator.
43
Appointment of director
25
(1)
The Regulator may by order appoint a director of a community interest
company.
(2)
The person appointed may be anyone whom the Regulator thinks appropriate,
other than a member of the Regulator’s staff.
(3)
A person may be appointed as a director of a company under this section—
30
(a)
whether or not the person is a member of the company, and
(b)
irrespective of any provision made by the memorandum or articles of
the company or a resolution of the company in general meeting.
(4)
An order appointing a person to be a director of a company under this section
must specify the terms on which the director is to hold office; and those terms
35
have effect as if contained in a contract between the director and the company.
(5)
The terms specified must include the period for which the director is to hold
office, and may include terms as to the remuneration of the director by the
company.
(6)
A director appointed under this section has all the powers of the directors
40
appointed by the company (including powers exercisable only by a particular
director or class of directors).
(7)
A director appointed under this section may not be removed by the company,
but may be removed by the Regulator at any time.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 2 — Community interest companies
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(8)
Where—
(a)
a person is appointed to be a director of the company under this section,
or
(b)
a person so appointed ceases to be a director of the company,

the obligation which would otherwise be imposed on the company under
5
section 288(2) of the Companies Act 1985 (c. 6) (requirement that company
notify change among directors to registrar) is instead an obligation of the
Regulator.
(9)
But if subsection (10) applies, section 288(2) applies as if the period within
which the Regulator must send a notification to the registrar of companies is 14
10
days from the date on which the Regulator receives notification under that
subsection.
(10)
Where a person appointed to be a director of the company under this section
ceases to be a director of the company (otherwise than by removal under
subsection (7)), the company must give notification of that fact to the Regulator
15
in a form approved by the Regulator before the end of the period of 14 days
beginning with the date on which the person ceases to be a director.
(11)
If the company fails to comply with subsection (10) it commits an offence.
(12)
A person guilty of an offence under subsection (11) is liable on summary
conviction to a fine not exceeding level 5 on the standard scale.
20
(13)
The company may appeal to the Appeal Officer against an order under this
section.
44
Removal of director
(1)
The Regulator may by order remove a director of a community interest
company.
25
(2)
If a person has been removed under subsection (1)—
(a)
the company may not subsequently appoint him a director of the
company, and
(b)
any assignment to the person of the office of director of the company is
of no effect (even if approved by special resolution of the company).
30
(3)
The Regulator may by order suspend a director of the company pending a
decision whether to remove him.
(4)
The maximum period for which a director may be suspended under subsection
(3) is one year.
(5)
If the Regulator suspends a director under subsection (3) the Regulator may
35
give directions in relation to the performance of the director’s functions.
(6)
The Regulator may discharge an order made under subsection (1).
(7)
The discharge of an order made under subsection (1) does not reinstate the
person removed by the order as a director of the company, but on the discharge
of the order subsection (2) ceases to apply to the person.
40
(8)
The Regulator must from time to time review any order made under
subsection (3) and, if it is appropriate to do so, discharge the order.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 2 — Community interest companies
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(9)
Before making an order under subsection (1) or (3) in relation to a director, the
Regulator must give at least 14 days’ notice to—
(a)
the director, and
(b)
the company.
(10)
Where an order is made in relation to a director under subsection (1) or (3) the
5
director may appeal against the order—
(a)
in England and Wales, to the High Court, or
(b)
in Scotland, to the Court of Session.
(11)
The Regulator must, before the end of the period of 14 days beginning with the
date on which—
10
(a)
an order under subsection (1) is made or discharged,
(b)
an order under subsection (3) is made or discharged or expires, or
(c)
an order under subsection (1) or (3) is quashed on appeal,

give notification of that event to the registrar of companies in a form approved
by the registrar of companies.
15
(12)
Where subsection (11) imposes an obligation to notify the registrar of
companies of an event, section 288(2) of the Companies Act 1985 (c. 6)
(requirement that company notify change among directors to registrar) does
not apply in respect of the event.
45
Appointment of manager
20
(1)
The Regulator may by order appoint a manager in respect of the property and
affairs of a community interest company.
(2)
The person appointed may be anyone whom the Regulator thinks appropriate,
other than a member of the Regulator’s staff.
(3)
An order under subsection (1) may make provision as to the functions to be
25
exercised by, and the powers of, the manager.
(4)
The order may in particular provide—
(a)
for the manager to have such of the functions of the company’s
directors as are specified in the order, and
(b)
for the company’s directors to be prevented from exercising any of
30
those functions.
(5)
In carrying out his functions the manager acts as the company’s agent; and a
person dealing with the manager in good faith and for value need not inquire
whether the manager is acting within his powers.
(6)
The appointment of the manager does not affect—
35
(a)
any right of any person to appoint a receiver or manager of the
company’s property (including any right under section 51 of the
Insolvency Act 1986 (c. 45)), or
(b)
the rights of a receiver or manager appointed by a person other than the
Regulator.
40
(7)
The manager’s functions are to be discharged by him under the supervision of
the Regulator; and the Regulator must from time to time review the order by
which the manager is appointed and, if it is appropriate to do so, discharge it
in whole or in part.

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 2 — Community interest companies
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(8)
In particular, the Regulator must discharge the order on the appointment of a
person to act as administrative receiver, administrator, provisional liquidator
or liquidator of the company.
(9)
The Regulator may apply to the court for directions in relation to any matter
arising in connection with the manager’s functions or powers.
5
(10)
On an application under subsection (9) the court may give such directions or
make such orders as it thinks fit.
(11)
The costs of any application under subsection (9) are to be paid by the
company.
(12)
Regulations may authorise the Regulator—
10
(a)
to require a manager to make reports,
(b)
to require a manager to give security (or, in Scotland, to find caution)
for the due exercise of the manager’s functions, and
(c)
to remove a manager in circumstances prescribed by the regulations.
(13)
Regulations may—
15
(a)
provide for a manager’s remuneration to be payable from the property
of the company, and
(b)
authorise the Regulator to determine the amount of a manager’s
remuneration and to disallow any amount of remuneration in
circumstances prescribed by the regulations.
20
(14)
The company may appeal to the Appeal Officer against an order under this
section.
46
Property
(1)
The Regulator may by order—
(a)
vest in the Official Property Holder any property held by or in trust for
25
a community interest company, or
(b)
require persons in whom such property is vested to transfer it to the
Official Property Holder.
(2)
The Regulator—
(a)
may order a person who holds property on behalf of a community
30
interest company, or on behalf of a trustee of a community interest
company, not to part with the property without the Regulator’s
consent, and
(b)
may order any debtor of a community interest company not to make
any payment in respect of the debtor’s liability to the company without
35
the Regulator’s consent.
(3)
The Regulator may by order restrict—
(a)
the transactions which may be entered into by a community interest
company, or
(b)
the nature or amount of the payments that a community interest
40
company may make,

and the order may in particular provide that transactions may not be entered
into or payments made without the Regulator’s consent.
(4)
The vesting or transfer of property under subsection (1) does not constitute a
breach of a covenant or condition against alienation, and no right listed in
45

Companies (Audit, Investigations and Community Enterprise) Bill [HL]
Part 2 — Community interest companies
42

subsection (5) operates or becomes exercisable as a result of the vesting or
transfer.
(5)
The rights are—
(a)
a right of reverter (or in Scotland, the right of the fiar on the termination
of a liferent),
5
(b)
a right of pre-emption,
(c)
a right of forfeiture,
(d)
a right of re-entry,
(e)
a right of irritancy,
(f)
an option, and
10
(g)
any right similar to those listed in paragraphs (a) to (f).
(6)
The Regulator must from time to time review any order under this section and,
if it is appropriate to do so, discharge the order in whole or in part.
(7)
On discharging an order under subsection (1) the Regulator may make any
order as to the vesting or transfer of the property, and give any directions,
15
which he considers appropriate.
(8)
If a person fails to comply with an order under subsection (1)(b), the Regulator
may certify that fact in writing to the court.
(9)
If, after hearing—
(a)
any witnesses who may be produced against or on behalf of the alleged
20
offender, and
(b)
any statement which may be offered in defence,

the court is satisfied that the offender failed without reasonable excuse to
comply with the order, it may deal with him as if he had been guilty of
contempt of the court.
25
(10)
A person who contravenes an order under subsection (2) or (3) commits an
offence, but a prosecution may be instituted in England and Wales only with
the consent of the Regulator or the Director of Public Prosecutions.
(11)
A person guilty of an offence under subsection (10) is liable on summary
conviction to a fine not exceeding level 5 on the standard scale.
30
(12)
Subsections (8) to (10) do not prevent the bringing of civil proceedings in
respect of a contravention of an order under subsection (1)(b), (2) or (3).
(13)
The company and any person to whom the order is directed may appeal to the
Appeal Officer against an order under subsection (1) or (2).
(14)
The company may appeal to the Appeal Officer against an order under
35
subsection (3).
47
Transfer of shares etc.
(1)
If a community interest company has a share capital, the Regulator may by
order transfer specified shares in the company to specified persons.
(2)
If a community interest company is a company limited by guarantee, the
40
Regulator may by order—
(a)
extinguish the interests in the company of specified members of the
company (otherwise than as shareholders), and