If a funder has concerns about a community interest company (CIC) that it is funding, those concerns should be raised with the Regulator of CIC.
Sections 41 to 51 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 provide supervisory powers for the Regulator to intervene in the affairs of a community interest company (CIC) (for example by appointing or removing directors).
These powers are designed to be used where the Regulator considers that a CIC’s activities are giving serious cause for concern and action will be needed to maintain confidence in CICs generally. The main intervention powers can only be used where the “company default condition” set out in section 41(3) is satisfied
Section 42 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (“the Act”) allows the Regulator to investigate the affairs of any CIC, and Schedule 7 provides the necessary investigation powers. These powers are similar to the powers given to the Secretary of State by section 1038(2) of the Companies Act 2006, which are used by the Companies Investigation Unit (CIU) at the Department for Business, Energy and Industrial Strategy (BEIS).
The power of investigation enables the Regulator to examine the affairs of the CIC in relation to its CIC status; they do not replace the Companies Act 2006 investigation powers. Accordingly, CICs can be investigated in the same way as other companies as well as being investigated by the Regulator.
The Regulator’s powers of investigation are intended to enable her to gather information to establish whether her other supervisory powers should be exercised. The Regulator has the discretion to decide whether to launch a formal investigation in any particular case.
Launching a formal investigation is itself a serious step. Generally, a formal investigation will only be launched where the Regulator considers that there is a genuine and serious concern that circumstances may exist which would justify the use of her other supervisory powers, and considers that it is necessary to investigate in order to maintain confidence in community interest companies. In addition, the Regulator will also only investigate where this is a proportionate response. It is expected, therefore, that the Regulator’s power to investigate will only be used on rare occasions.
As with the exercise of all of the Regulator’s functions, the Regulator follows an approach to investigations which is based on good regulatory practice, having regard to the likely impact on those who may be affected and the desirability of using her resources in the most efficient and economic way.
You will appreciate that for an investigation process to be effective and not to risk unwarranted damage to the reputation of the CIC in question it is essential to maintain confidentiality at all stages. This includes the decision-making process and use of our investigation powers. That said, there may be circumstances when such information could already be in the public domain, for example, where an investigation leads to court proceedings and information is disclosed in open court.
It is not, therefore, the Regulator’s policy to confirm or deny the existence of an investigation to the complainant, or any other third party, or to publish or tell the complainant about the outcome. Nor is it the Regulator’s policy, for the same reasons, to confirm or deny whether she is pursuing a complaint against a CIC.
For more information please visit the CIC Regulators website.