Companies Act 2006 – PART 36

OFFENCES UNDER THE COMPANIES ACTS

1433. The CLR sought to draw out the basis on which criminal liability for a breach of
Companies Act requirements is allocated under existing legislation to companies and to
officers of companies. It stated in its final report that a reformed Companies Act must be
underpinned by effective and proportionate sanctions and enforcement.

1434. The key changes in the Act are:

• refinements to the “officer in default” provisions to make it clearer which individuals
in which circumstances may be liable for a breach; and

• removal of criminal liability from the company itself in certain circumstances.

1435. The general principle adopted as to whether a company should be liable for a breach
of requirements of the Companies Acts is that where the only victims of the offence are the
company or its members, the company should not be liable for the offence. On the other
hand, where other persons may be victims of the offence, then the company should be
potentially liable for a breach, whether or not the offence may also harm the company or its
members.

Section 1121: Liability of officer in default

1436. This section specifies which persons may be liable as an officer of a company for an
offence committed by the company under the Act (or the other Companies Acts). It only
applies where another provision expressly states that an offence is committed by every officer
of a company who is in default.

1437. An “officer” of a company is defined as including a director, manager or (company)
secretary, and any person who is to be treated as an officer of the company for the purposes
of the provisions in question. An officer is liable for an offence when he is “in default”,
meaning he authorises or permits, participates in, or fails to take all reasonable steps to
prevent the offence being committed.

Section 1122: Liability of company as officer in default

1438. Under this provision, where a company is an officer of another company, liability for
an offence can be fixed upon the company as an officer in default only if one of its officers is
in default.

Section 1123: Application to bodies other than companies

1439. This clause provides that section 1121 applies to persons in bodies other than
companies where their role is equivalent to that of an officer of a company. It makes specific
provision for bodies corporate, partnerships and unincorporated bodies.

Section 1124: Amendments of the Companies Act 1985

Schedule 3: Amendments of remaining provisions of the Companies Act 1985 relating to
offences

1440. Section 1124 introduces Schedule 3, which contains amendments to certain provisions
relating to offences which remain in Parts 14 and 15 of the 1985 Act.

1441. Many of these amendments are necessary due to the repeal by the Act of Schedule 24
to the 1985 Act. Schedule 24 set out the level of punishment for offences under the 1985 Act.
The provisions in Parts 14 and 15 are amended so that the applicable punishments are now
included alongside the description of the offence instead of in Schedule 24.

1442. Schedule 3 also makes amendments to the offences provisions remaining in Parts 14
and 15 of the 1985 Act to reflect the (non-textual) changes made to that Act by the Criminal
Justice Act 2003. Section 282 of the Criminal Justice Act increases from 6 months to 12
months the maximum term of imprisonment to which a person is liable on summary
conviction of an offence triable either way, and section 154(1) of that Act gives power to
magistrates to impose a 12 month term of imprisonment. The increased penalties only apply
in England and Wales; in Scotland and Northern Ireland the maximum term of imprisonment
that may be imposed on summary conviction remains 6 months. When the Act received
Royal Assent, neither section 282 nor section 154(1) of the Criminal Justice Act 2003 had
come into force (which is the reason for the transitory provision in section 1131).

1443. A number of the amendments make reference to “the statutory maximum fine”. This
was set at £5,000 at the time the Act received Royal Assent.

1444. Schedule 3 makes only one substantive change to the offence provisions in Parts 14
and 15. This is to include a daily default fine, of one-fiftieth of the statutory maximum, for
continued contravention of section 444(3) (failure to provide information about interests in
shares).

Section 1125: Meaning of “daily default fine”

1445. This section defines “daily default fine”. It replaces provision currently in section
730(4) of the 1985 Act.

Section 1126: Consents required for certain prosecutions

1446. This section provides that certain proceedings can only be brought with the consent of
specified persons. It replaces section 732(1) and (2) of the 1985 Act.

Section 1127: Summary proceedings: venue

1447. This section restates section 731(1) of the 1985 Act. It specifies the possible venues
for summary proceedings for any breach of Companies Acts requirements. For a body
corporate the venue may be any place at which the body corporate has a place of business,
and for any other person, it may be at any place that the person is.

Section 1128: Summary proceedings: time limit for proceedings

1448. This section restates section 731(2) to (4) of the 1985 Act. It sets out time limits for
summary proceedings. The prosecution must be commenced within three years of the offence
being committed, and within one year of the prosecuting authorities receiving sufficient
evidence to justify the prosecution.

Section 1129: Legal professional privilege

1449. This section restates section 732(3) of the 1985 Act and applies its provisions to all
offences prosecuted under the Companies Acts, rather than just those instituted by the
Director of Public Prosecutions or the Secretary of State. It provides that the Companies Acts
provisions on offences are not to be read as requiring any person to disclose information that
is protected by legal professional privilege.

Section 1130: Proceedings against unincorporated bodies

1450. This section restates section 734(1) to (4) of the 1985 Act. It provides for proceedings
for offences under the Companies Acts committed by unincorporated bodies to be brought
against such bodies as if they were corporate bodies.

Section 1131: Imprisonment on summary conviction in England and Wales: transitory
provision

1451. This section provides for the period before the commencement of section 154(1) of
the Criminal Justice Act 2003, which makes new provision about the powers of magistrates’
courts in England and Wales to impose sentences of imprisonment on summary conviction.
For offences committed before section 154(1) is brought into force, the maximum term of
imprisonment in England and Wales for a person guilty of an offence on summary conviction
under the Companies Acts is to be 6 months (as it is at present) instead of 12 months.

Section 1132: Production and inspection of documents where offence suspected

1452. This section restates section 721 of the 1985. It makes provision about orders for the
production of documents where there is reasonable cause to believe that an offence has been
committed.

Section 1133: Transitional provision

1453. This section provides that this Part of the Act (with the exception of section 1132)
does not apply to offences committed before the commencement of the provision relevant to
the offence.