Clause 19 - Power to require documents and information

Companies (Audit, Investigations and Community Enterprise) Bill [Lords] – in a Public Bill Committee at 8:55 am on 16 September 2004.

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Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs) 8:55, 16 September 2004

I beg to move amendment No. 17, in

clause 19, page 23, line 41, at beginning insert

'Where there appears to be good reason,'.

Photo of Derek Conway Derek Conway Conservative, Old Bexley and Sidcup

With this it will be convenient to discuss the following amendments:

No. 24, in

clause 21, page 25, line 24, leave out 'thinks' and insert 'reasonably believes'.

No. 25, in

clause 21, page 25, line 24, after 'thinks', insert 'on reasonable grounds'.

No. 28, in

clause 21, page 25, line 28, leave out 'thinks' and insert 'reasonably believes'.

No. 29, in

clause 21, page 25, line 28, after 'necessary', insert 'on reasonable grounds'.

No. 33, in

clause 21, page 26, line 19, at end insert—

'(c) the grounds for his belief that entry onto the company's premises will and that remaining thereon for a period will be necessary to materially assist him in the exercise of his functions under this Part,'.

No. 40, in

clause 39, page 36, line 42, after 'appears' insert 'on reasonable grounds'.

No. 38, in

schedule 7, page 70, line 14, after 'may', insert

'if it appears reasonably necessary for the purposes of the investigation'.

No. 39, in

schedule 7, page 70, line 19, at end insert—

'(1A) The investigator of a community interest company must give reasons in writing for any requirement imposed under sub-paragraph (1) above, such reasons to be given to the company or other person to whom the requirement is directed.'.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

I was about to start by gently chiding the Government Whip—I have developed a bond with him in this Committee—for the fact that we were not quorate, but, magically, and with only 30 seconds to go, enough Government Back Benchers suddenly arrived to make us quorate, so I cannot tease him. However, you will recall from our days in the

Government's Whips Office in the Parliament of 1992 to 1997, Mr. Conway, that the great thing was to get hold of as many pliant Members as possible and ensure that they turned up on time. Given the number of pliant, docile and subservient Government Back Benchers—[Interruption.]

Photo of Derek Conway Derek Conway Conservative, Old Bexley and Sidcup

Order. Is the hon. Member for Preseli Pembrokeshire (Mrs. Lawrence) in the right Committee? This Committee is debating the Companies (Audit, Investigations and Community Enterprise) Bill, and I do not want to embarrass the hon. Lady, but she has not been appointed to it by the Committee of Selection.

Photo of Mrs Jackie Lawrence Mrs Jackie Lawrence PPS (Team PPS), Department of Trade and Industry

I understood that I was standing in for my hon. Friend the Member for Falkirk, West (Mr. Joyce) this morning.

Photo of Derek Conway Derek Conway Conservative, Old Bexley and Sidcup

I am sorry, but it does not work like that.

Photo of Mrs Jackie Lawrence Mrs Jackie Lawrence PPS (Team PPS), Department of Trade and Industry

I think that I am in the wrong Room. My apologies, Mr. Conway.

Photo of Derek Conway Derek Conway Conservative, Old Bexley and Sidcup

Not at all, but we have to do these things right. The Committee of Selection rules on such matters.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs)

The House has had problems with people who are not supposed to come in wandering into debates, so we are grateful, Mr. Conway, for the sharp eyesight with which you are protecting the Committee.

I was making a point to the Government Whip about the importance of getting the people who actually are members of the Committee to turn up on time. I was drawing his attention to the pliant, docile and subservient nature of so many of Government Back Benchers. However, I am convinced that when hon. Members study my amendments today, they will find them so reasonable that I shall be able to secure their support. My attempts on Tuesday to seduce the Minister with my utterly reasonable, helpful, well honed and finely crafted amendments were, alas, unsuccessful; the hon. Lady remained icily resistant to what I proposed. However, I am ever optimistic, and I hope to make progress in that direction today.

Clause 19 deals with excessive investigatory powers. On Second Reading, I drew the House's attention to the fact that the Bill places only the barest limits on investigatory powers. My party's concern is that they may well give rise to abuse of power. I was particularly concerned about the powers for inspectors and investigators to enter and remain on premises, which considerably extends their existing powers; previously, they had no power of entry without a search warrant.

As I said on Second Reading, I am not against giving inspectors and investigators powers of entry, but I am firmly against allowing them entry when they only ''think'' that it would materially assist their work. I hope to persuade the Committee that all of us, on behalf of our constituents, should be wary of giving powers to investigatory officials to go on fishing trips.

The inspectors and investigators must reasonably believe that entering and remaining on the premises will materially assist them.

I draw the Committee's attention to amendment No. 17, which would insert the words:

''Where there appears to be good reason''.

Clause 19 reformulates section 447 of the Companies Act 1985. The new form excludes the requirement in subsections (1) and (2) of the existing section 447 for the Secretary of State to act only if he or she thinks there is good reason to do so.

The amendment would retain an express and specific requirement for the Secretary of State to act only if there were good reason to do so. A similar amendment was proposed and defeated in the other place on 22 March. The Government's answer, as foreshadowed in the explanatory notes, was that the words were superfluous and added nothing to the requirements imposed by general administrative law—that the Secretary of State would need a good reason to act, and could not act on grounds that were trivial, irrelevant or irrational.

We maintain that it is desirable in such cases, in which the Government could visit intrusive actions on companies and individuals, that the Act should plainly state the obligation of the Secretary of State to act for ''good reason''. The companies and individuals affected by the actions of the Secretary of State should be able to see from the statute that those powers are limited. Individuals and small companies should not be expected to have a compendious knowledge of administrative law. It was not suggested that the general administrative law did not impose such obligations upon the Secretary of State at the time of the 1985 Act, yet it was thought important to include those words then. It remains desirable today.

It will help to consider the provisions of the Financial Services and Markets Act 2000, which was passed under the present Government. Section 165 of that Act, which gives the Financial Services Authority the power to require information, provides in subsection (4) that that power applies

''only to information . . . reasonably required in connection with the exercise by the Authority of functions conferred on it by or under this Act.''

Similarly, section 167 of the 2000 Act, which provides the FSA's power to appoint persons to carry out general investigations, provides in subsection (1) for that power to be available

''If it appears to the Authority or the Secretary of State . . . that there is good reason for doing so''.

Let the Government be consistent and accept the amendment. If those words were necessary in parallel provisions in the 2000 Act, why are they unnecessary now?

I now turn to amendments Nos. 25, 28, 24, 29 and 33. The latter would insert into proposed new section 453B(4) of the 1985 Act a new paragraph (c):

''the grounds for his belief that entry onto the company's premises will and that remaining thereon for a period will be necessary to materially assist him in the exercise of his functions under this Part''.

That flows directly from what I said about amendment No. 17. The other amendments refer to new sections 453A and 453B, which clause 21 will insert into the 1985 Act. The first two amendments should be treated as pairs, but they are alternatives; each pair may stand alone, but it is preferable that one or other of the two pairs be adopted.

The exercise of the power of entry and the right to remain on relevant premises, which may include residential premises, depends presently only on what the inspector or investigator thinks will materially assist him. The amendments impose an express requirement that the official in question must have reasonable grounds for so thinking, or must reasonably believe something to be so. Those requirements would be given practical effect, and companies and individuals given proper notice of why their homes or premises were being intruded upon, by amendment No. 33, which would require the inspector to set out his grounds in the notice that must be given to an appropriate recipient under new subsection 453B(4) to the 1985 Act.

I have already dealt with an amendment to replace the word ''thinks'' with the words ''reasonably believes''. Such an amendment was also dealt with in the House of Lords on 7 July and rejected. I regret that, and hope that I will have more luck with the Minister this time. The Government have argued in the other place that the words ''reasonably believes'' or ''thinks on reasonable grounds'', which are hallowed through usage, are unnecessary verbiage because the general administrative law applies to officials carrying out public functions.

In Grand Committee, the Minister in the other place said:

''It is not necessary, however, to write in an express reasonableness requirement. Inspectors and investigators perform public functions and the ordinary principles of administrative law apply to their exercise of powers. If no reasonable person in the inspector's or investigator's position could think that to require access to the premises in question will advance the investigation, the power to require access will not be available.''—[Official Report, House of Lords, 22 March 2004; Vol. 659, c. GC258.]

The Minister went on to make a number of similar points, but that was the heart of his speech.

On Report in the House of Lords, the Minister said:

''In my view, the use of the word ''thinks'' is very much to be preferred to the use of ''reasonably believes''. There are a number of potential variations on the latter; for example, ''believes on reasonable grounds'', ''has reasonable grounds to believe'' or ''reasonably considers''. Effectively they all mean the same thing and ''thinks'' encapsulates them all.''

The Opposition disagree with the argument of the Minister in the other place that the word ''thinks'' necessarily means the same thing as ''reasonably believes'', ''believes'' or ''thinks on reasonable grounds''. It is one thing to be able to show, as the Minister put it, that

''no reasonable person could believe''—[Official Report, House of Lords, 7 July 2004; Vol. 663, c. 836-7.] that access would advance the investigation. It is a different and a higher test to have to show positively that any reasonable person would believe access to be

necessary. My comments apply equally to the test of the words ''thinks necessary'', which are applied in section 453A(2)(b) to the power to remain on premises.

We are discussing a serious potential intrusion by officialdom into companies' premises and even into individual private homes occupied by directors and their families. The requirement for access ought to be subject to a higher test than that encapsulated in the word ''thinks''.

It is instructive in this context to consider again the Financial Services and Markets Act 2000, to which I referred earlier. I referred then to section 165; I draw the Committee's attention now to section 167, which deals with the Financial Services Authority's powers to appoint persons to carry out general investigations. Subsection (2) provides

''If a person appointed under subsection (1) thinks it necessary for the purposes of his investigation, he may also investigate'' certain other parties. At first glance, that might seem to give some support to the Government's position. However, a closer inspection shows otherwise.

First, as I have already pointed out in connection with the proposed amendment to clause 19—that is, to new section 447—section 165(4) of the Financial Services and Markets Act 2000, unlike the Bill, subjects the authority's power to require information to an express test that it be ''reasonably required''. That is the answer to the Government's argument in the other place that the use of the words ''reasonably believes'' or ''on reasonable grounds'' is undesirable because it might affect other parts of the Bill that do not impose a reasonableness requirement: we should insert the reasonableness requirement in those places also, as we have proposed for clause 19. The Government should not tolerate error in one part of the Bill for fear of causing more work for themselves.

Secondly—unlike the provisions in this Bill relating to the much more intrusive powers of entry on to premises—where the investigator thinks it necessary to exercise the power to investigate under section 167 of the Financial Services and Markets Act, he is required first to give written notice to the person concerned. That is clearly set out in section 167(3).

There is a further and fundamental reason why the amendments should be accepted. Particularly where small or one-man businesses may be affected by the exercise of intrusive state powers, the enabling statute should contain the obligations and duties of the officials. It should be a complete code, which is transparent and comprehensible to the individual citizen. It is unacceptable to require the director of a small company, as the Government do, to have a detailed knowledge not only of company statutory and regulatory provisions—which the Government are, sadly, ever keen to impose on businesses—but of administrative law, in order to understand his position. He should not have to go to specialist lawyers to find out whether the Secretary of State, or his or her officers, are entitled do what they are doing.

In that connection, I refer specifically to amendment No. 33. Section 453B(4) requires an investigator to serve on the appropriate recipient as soon as possible after entry a notice setting out, as regulations may

prescribe, matters such as a statement of the investigator's powers of entry and the occupier's rights and obligations. The amendment would require the list to include a statement of the grounds on which the investigator or inspector saw fit to exercise his powers. In practice, it would require officials to consider carefully the justification for exercising the significant powers conferred on them. It would also inform, in a transparent manner, persons affected by the exercise of those powers and give them the practical means to ascertain whether those powers were being abused.

I shall now dart towards the community interest companies regulatory amendments. I draw the Committee's attention to amendments Nos. 40, 38 and 39. Amendment No. 40 would apply an express requirement of reasonableness to a decision by the regulator of community interest companies that the conditions for exercising his wide-ranging powers had been satisfied. Amendments Nos. 38 and 39 would clarify the powers of a person appointed by the regulator to investigate a CIC and require that person to provide reasons in writing for requiring the production of documents or information. The amendments therefore marry with the protective amendments that I sought to persuade the Government to accept to the earlier part of the Bill.

As I said, amendment No. 40 would apply an express requirement of reasonableness to a decision by the regulator that the condition for exercising their wide-ranging powers had been satisfied. In effect, clause 39(3) defines when the regulator is entitled to exercise his extensive powers, including those relating to the removal of directors, the appointment of a manager and the compulsory appropriation of property belonging to a CIC—significant powers indeed. Those powers are exercisable only when the company default condition referred to in the Bill is satisfied. Clause 39(3) provides that that will be the case when

''it appears to the Regulator necessary'' to exercise his powers.

That provision is too broad, given the scope of the powers that the regulator can seek to exercise. It is conceivable that an innocent CIC will fall foul of the regulator without knowing that it is doing so, simply because it appears ''necessary'' to the regulator that he should exercise his powers, although no objective criteria are satisfied. The amendment would make it clear that the regulator must have reasonable grounds on which to conclude that it is necessary for him to exercise his powers. That would provide a necessary protection for the CIC concerned. I should add what I know the Minister will find to be the clinching argument: the amendment is consistent with similar amendments proposed to earlier clauses relating to auditors' rights to information.

Amendments Nos. 38 and 39 would, let me remind the Committee, clarify the powers of a person appointed by the regulator to investigate a CIC. The powers of an investigator of a CIC are set out in schedule 7. From the definition, it is clear that such a person is either the regulator, a member of his staff to whom his powers have been delegated, or some other

person appointed by the regulator under clause 40(1)(b). The regulator does not currently have to give any reasons why he has decided to investigate a CIC under clause 40(l)(a) or why an investigator has been appointed under clause 40(l)(b). Those provisions do not appear to be covered by the obligation to give reasons in clause 59(4), as they are not provisions against which an appeal lies.

The powers of an investigator in schedule 7 are wide-ranging and, as presently drafted, not subject to any express limits. Paragraph 1(1) of schedule 7 simply empowers an investigator to require the production of documents or information without having to give any reason. Furthermore, the investigator can seek them not only from the CIC being investigated but from ''any other person'', including, it seems, persons not directly connected with the CIC under investigation.

It is wrong to allow both elements in the investigation process—namely the appointment and the subsequent conduct of the investigation—to proceed without any reasons being provided to the CIC being investigated or to the third party being required to comply with a direction from an investigator. At present the only right is to require the investigator to provide evidence of his authority, as set out in paragraph 1(2) of schedule 7.

The amendments therefore impose a requirement on the investigator both to have reasonable grounds for requiring the documents or information and to set those out in writing. That will not impinge upon the wide power of the investigator, but will provide proper protection to the CIC being investigated or the other person being obliged to comply with the direction, who will be entitled to know why they are being ordered to produce documents or information. Given that a failure to comply may result in contempt proceedings, as set out in paragraph 4 of schedule 7, it is only right that that information is provided. Finally, given that the regulator has to give reasons when orders other than the investigation provisions are made, it is inconsistent for the powers of investigation to be free from any such fettering.

Such matters are detailed and they dart about within the Bill, from the beginning to the provisions covering the new CIC. However, they are at the heart of what Parliament should do to protect our citizens from invasive regulatory and investigatory powers. For those reasons, I hope that the Minister will be able either to satisfy me that adequate protection is already available in the Bill—she should bear in mind that my hon. Friends and I were not satisfied with any of the assurances that were given in the other place—or to accept the amendment on the grounds that it does what Parliament is here for, which is to protect the rights and privileges of individuals in their own homes.

Photo of Jacqui Smith Jacqui Smith Minister of State (Industry and the Regions and Deputy Minister for Women), Department of Trade and Industry 9:15, 16 September 2004

We now move to chapter 3, which concerns company investigations and, with the amendment, to the clauses that relate to improved powers to gain

information and to enter and remain on premises, which are linked to the constrained powers of the community interest company regulator.

Although the vast majority of the 1.8 million companies operating in the UK are honest and do the right thing by their workers, shareholders, suppliers and creditors, a small minority do not. It is right that we have a strong and effective investigations regime, in order to maintain faith in the basis of corporate Britain. That regime has to have suitable safeguards—I hope that I will reassure the hon. Member for Sutton Coldfield (Mr. Mitchell) of that—but must nevertheless take into consideration the experience of the people involved in the investigation regime and their knowledge of what we need to do to the law to facilitate their work. I will deal with the relatively narrow definition with respect to the CIC regulator later.

The clause replaces section 447 of the Companies Act 1985, which contains the powers used to carry out most company investigations. The powers of investigators in new section 447 are wider than those currently available to investigators under the existing section 447: for example, the general power to require information from anyone is wider than the existing powers to require explanations of documents and information about the whereabouts of documents.

Amendment No. 17 seeks to impose an express restriction on the Secretary of State's ability to exercise her own powers—in other words, her power to require information from companies and her power to appoint investigators—under new section 447. She would be able to use the powers only where there appeared to be good reason. The phrase ''good reason'' is, of course, not defined—indeed, I believe that even the hon. Gentleman has not attempted to define it this morning. In our view, that phrase contributes nothing to section 447, nor will it contribute anything to new section 447. The hon. Gentleman will argue that it is better to clarify the legislation, but the problem is that where we cannot be very clear about the intention behind words in legislation, we should always be aware that if we are not careful and insert words into legislation that do not need to be there, they will be interpreted in ways that do not fulfil the intention of what we are setting out to do.

I hope that I can reassure hon. Members that whether the legislation refers to ''good reason'' or not, the Secretary of State will have to have a very sound reason for using the powers. She cannot act lawfully without such a reason. Her decision to act must be within the legal scope of the provision and must pursue the policy and objects of the Act. It must also be reasonable. Those are some of the principles of administrative law that apply. Of course, no investigation will have been started without a very thorough vetting process.

An investigation will usually result from a complaint either from a member of the public or from evidence passed on by another regulator. That information is then thoroughly vetted to establish whether an investigation is warranted. Investigations under section 447 are started when, for example, there

are grounds for suspicion of fraud, misfeasance, misconduct, conduct that is unfairly prejudicial to shareholders, or a failure to supply shareholders with information that they may reasonably expect. That thorough approach to vetting complaints will not change as a result of omitting references to ''good reason''.

As I suggested, there is no legal definition of the phrase ''good reason'' in existing legislation. The courts have not given any special meaning to the words here. It may be a somewhat antiquated expression with no transparent, obvious and precise meaning. So there is real concern, as I suggested, that those words might be construed not simply as expressing the ordinary principles of administrative law, but as a much greater limitation on the powers, which would be very undesirable. They might also be construed as allowing the powers to be used more widely than we believe they can and should be used. That is the risk of using words that are legally unnecessary, as I believe these are.

I suggest, therefore, that it is obvious under the clause as it stands that the Secretary of State's decisions are constrained by the principles of administrative law and by the vetting process that I have outlined. A reference to ''good reason'' would not help anyone. At best the phrase would be superfluous. At worst it could, over time, produce a result that we do not want to achieve by narrowing or widening the circumstances in which the powers can be used.

Amendments Nos. 24, 25, 28, 29 focus on the word ''thinks'' in new section 453A(l) and (2), and offer, as the hon. Gentleman says, two alternatives. He is very generous with his amendments. Indeed, he offers us a cornucopia of them. Unfortunately, I do not particularly fancy any of them. I will explain why, and, I hope, reassure the hon. Gentleman. Amendments Nos. 24 and 28 would replace ''thinks'' with ''reasonably believes''. Alternatively, amendments Nos. 25 and 29 would change the formulation to ''thinks on reasonable grounds''.

Let us remind ourselves that clause 21 inserts new sections 453A and 453B to provide new powers to enable an inspector or investigator to enter and remain

on premises if he is authorised to do so by the Secretary of State—that is an important proviso—and if he ''thinks'' that to do so will materially assist him in the exercise of his investigatory functions. He may remain on premises for as long as he ''thinks'' necessary. The amendments seek to tackle those references to what the inspector or investigator ''thinks''.

We could spend time debating the relative merits of ''thinks'' in comparison with other phrases such as ''reasonably believes'' or ''thinks on reasonable grounds'', as proposed by the hon. Gentleman. In practice, however, there is no difference in legal effect between them. Whichever word or phrase is used, the inspector or investigator cannot use the powers on an unreasonable basis; they are performing public functions. They need reasonable grounds to think that it will help their investigation to gain access to the premises, and they can stay only for as long as they think, on reasonable grounds, to be necessary. More words are not needed in this case.

The law is clear, and inspectors and investigators know what their obligations are: they must act within the law, which means that they must act reasonably. They must have reasonable grounds to think that their investigation will be helped by gaining access to the premises in question. They are working within a clear statutory framework, performing public functions—and when they come to use these powers the investigation will have already started.

I suspect that there will be more discussion later when we consider the amendments to clause 21 in detail. There seems to be a feeling in the air that the investigators will be acting on a whim, trampling into people's homes and businesses; that is why I was at pains to emphasise the vetting process that will have happened before the investigation starts. For that investigation to take place, the inspectors or investigators will have been appointed by the Secretary of State, because the Department of Trade and Industry had received a complaint or other suggestion of possible misconduct. That complaint would have gone through a two-stage vetting process, which weeds out 90 per cent. of complaints received, including those that are simply malicious.

In addition, to use the power to enter or remain on premises, the investigator or inspector will have to have been specifically authorised to use it by the Secretary of State. The power can be exercised only at reasonable times; the investigators or inspectors must produce evidence of their identity and of their appointment or authorisation; they must provide a written statement of their powers and of the rights of the company or other occupier and of persons present on the premises, and they must produce a written record of the visit.

I emphasise that the power is not about breaking down doors or getting on to premises to seize incriminating evidence. Under these provisions, investigators cannot use force and will have no power to search or seize. Instead, clause 21 gives investigators and inspectors a right of access, which will increase their ability to progress an investigation, for example when faced with obstructive or unco-operative behaviour.

Amendment No. 33 relates to the written statement, which is a description of the inspector or investigator's grounds for belief that the use of the power of entry will materially assist him. I appreciate that the hon. Gentleman believes that it would provide a measure of protection to explain in the written statement the basis for an inspector or investigator's belief that access to premises will materially assist the investigation.

However, let us think about the situation in which the written statement is administered. It will be given to what is described as an ''appropriate recipient'' at the point at which the investigator enters the premises. That ''appropriate recipient'' does not necessarily have to be an officer of the company; it could be the landlord, or another occupier, of the premises. The hon. Gentleman is suggesting that it would be appropriate for the investigator to hand over to

someone who perhaps does not have direct knowledge of, or a stake in, the company a written explanation of what the problem might be, and of the investigation.

It is not appropriate for people unconnected with the company to know the grounds for the investigator's decision. An investigation will be carried out in such a way that the fact that it is taking place is not brought to everybody's attention. I think that the hon. Gentleman would agree that that is right. An investigation can always conclude that the suspicions are without foundation. However, if a written statement suggesting what the basis of the investigation might be had been handed to the landlord before the investigation started on the premises, it would be difficult to put back into the box the reasons why the investigation was started, and unfounded rumours could damage a company's reputation.

It is right that there is a written statement setting out the powers and rights of the company and the power of the inspector or investigator. In fact, we recently published a consultation document seeking views from interested parties on what such a statement should include. However, it would be wrong, and potentially injurious to the company being investigated, for the statement to include all the reasons for the investigation.

Amendments Nos. 38 and 39 concern the investigation powers available to the new regulator of community interest companies. Amendment No. 38, to schedule 7, which sets out the detail of those powers, states specifically that the regulator may use the powers only if he believes that that is

''reasonably necessary for the purposes of the investigation''.

The amendment is unnecessary and, potentially, less restrictive than the restrictions that the Bill places on the regulator. Clause 39 already restricts the exercise of all the regulator's supervisory powers, including those of investigation, so that they may be used only if necessary to maintain confidence in CICs, and even then

''only to the extent necessary to maintain confidence in community interest companies.''

That means that the regulator cannot request information and documents unless he considers that such a request is necessary to maintain confidence in CICs. That imposes a stronger restriction on the use of the powers of investigation than the amendment proposes.

In addition, clause 25 requires the regulator to have regard to the impact of an investigation on those affected and to the need to use resources efficiently and economically. Schedule 7 contains additional protections—for example, an investigator may not override ''legal professional privilege''. Finally, the regulator, and anyone investigating a CIC on his behalf, will face the additional constraints of administrative law, which provides that powers must not be exercised unreasonably.

Amendment No. 39 would insert into schedule 7 a duty for an investigator of a CIC to give reasons for any requirement made for information or documents. Again, because of the practical issues relating to investigations, the amendment would be inappropriate. It would create a significant practical risk that the giving of such reasons would interfere with the investigation by revealing information that might thwart it or alert others.

Of course, we expect investigators, when appropriate, to provide reasons for any requirement that they make for documents or information. However, they should not be required to do so in all situations, irrespective of the need for an effective investigation. Saying to the company under investigation, ''The reason why we want to look at these documents is that we think you're doing this dodgy thing,'' would enable it to hide precisely the documents and information that the investigator needs to carry out the investigation. No such requirement is imposed by legislation in respect of company investigations under the Companies Act 1985, or investigations by the Charity Commission or the Housing Corporation, and we do not believe that there is good reason to do so in this case.

Finally, amendment No. 40 would amend one of the key constraints—as I said, there are already considerable constraints—on the community interest company regulator's use of his supervisory powers. The amendment would expand clause 39(3), which currently prevents the regulator from using four of the key supervisory powers in clauses 43 to 46, unless certain conditions are satisfied. As the hon. Gentleman said, those powers are: to appoint new directors to a CIC; to remove or suspend an existing director of a CIC; to appoint a manager to a CIC; and to place certain constraints on the use of property held by a CIC.

Those are significant powers, and the Bill provides that the regulator may use them only if the company default condition is satisfied. Therefore, they can be used only if the regulator concludes that it is necessary to use them because: there has been misconduct or mismanagement in the running of the company; action is needed to secure the proper use of the company's property; the CIC is failing to satisfy the community interest test; or the CIC is not acting in pursuit of any community interest objects to which it has committed itself. Those are reasonable, but constrained, reasons allowing the CIC regulator to operate.

Amendment No. 40 would add a small hurdle to the company default condition, in that the regulator could not exercise his powers unless it appeared to him on reasonable grounds that the default condition had been reached. I do not argue with the intention of the amendment, but as was suggested in the discussions on amendments Nos. 24, 25, 28 and 29, it would add nothing to the existing requirements, which already provide that the regulator could not act on what appeared to him to be unreasonable grounds, or to the restrictions already in the Bill.

In conclusion, I hope that I have reassured the hon. Gentleman about the specific and relatively onerous requirements necessary to begin an investigation and use the powers in clauses 19 and 21 for company investigations. Safeguards already exist for those being investigated, and we must maintain the investigators' ability to carry out the necessary investigations in practical ways. I hope that I have also made clear the constrained ability and remit of the community interest company regulator. Having heard my reassuring words this morning, I hope that the hon. Gentleman will withdraw the amendment.

Photo of Andrew Mitchell Andrew Mitchell Shadow Minister (Home Affairs) 9:30, 16 September 2004

I listened with care to the Minister, and we will read what she said, as it will be on the record, and consider which issues we shall return to on Report and Third Reading. The issue is not about her reasonable interpretation of the words in the Bill. We are clear that she is a reasonable Minister who listens to representations that she receives and would exercise the considerable powers judiciously. The issue is not about this Minister or this ministerial team at the DTI—indeed, as I said on Tuesday when discussing auditor liability, I would like to come along and support them in their negotiations with the Treasury. However, what would happen if there were a serious problem and lawyers were examining the legislation? An official who may not be as temperate as the Minister and may not have the same balanced approach to life, could get hold of the powers in the Bill. If someone asked them, ''Why are you doing this?'' they could reply, ''You can't question me; I think I should be doing it, and that is why I am doing it.''

Parliament should be careful about giving excessive powers to officials, when the reasonableness of Ministers beguiles Committees such as this to allow the legislation through. As I listened to the Minister's honeyed words, I realised that she was putting the most scurrilous argument when she said that it was better to keep investigations secret from those being investigated. It is as if I were investigating you, Mr. Conway, in pursuit of your actions as director of a CIC, but not telling you why. The Minister said that it was better to keep the reasons from the person being investigated; otherwise unfair and inaccurate allegations might be brought before more people. But what on earth happens when someone goes to court and is tried for an offence? That is an exact parallel. I am sure that when we have looked carefully at the Minister's arguments, we will want to return to these matters on Report.

Among the 14 or so excellent and hard-working officials from the Minister's Department in the Committee Room this morning, there are perhaps representatives from the Home Office. The Home Office, which will be watching the Committee's attitude towards the community interest companies, will also know of the read-across to the charitable incorporated organisations—the CIOs—that appear in the draft Charities Bill, and were raised on Second Reading. In view of your past outside this House, Mr. Conway, you will be an expert on that area.

Without breaching the confidentiality of the Joint Committee on the draft Charities Bill, the scrutiny report from which will be published on 30 September—I had the honour to serve as the only Conservative MP on it—I can tell hon. Members that it takes a view on giving people information about CIO investigations different from that taken by the Department of Trade and Industry on CIC investigations. The Minister should think again about those arguments, and I hope that she will have the opportunity to do so on Report.

The next group of amendments, which would affect clause 21, are similar to, and as important as, the ones that we have already discussed, so in view of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.