Investigation of affairs of a Private Company by the Inspector

The Registrar of the Companies (the “Registrar”) in the pursuit of the Registrar objectives and to investigate an alleged contravention of DIFC legislation can appoint an Inspector to investigate the affairs of the Private Company and submit a written report to the Registrar.

The Registrar may appoint one or more Inspectors to investigate the affairs of the Private Company.

In accordance with Article 23(2) the Inspectors can investigate and report on the affairs of another Registered Person that is or was related to the Private Company in respect of which they were initially appointed. Therefore, the Inspectors can investigate not only the Private Company but also its current and previous Subsidiaries, agents, business partners, Holding Company of the Private Company etc., if the Inspectors think it is necessary and appropriate. However, the prior consent of the Registrar must be obtained. It is also worth mentioning that if the Private Company or another Registered Person who is under investigation is licensed or registered by the DFSA, the Registrar shall inform the DFSA prior to appointing Inspectors.

N.B. Registered Person means every:

(a) Public Company;

(b) Private Company;

(c) Recognised Company;

(d) General Partnership;

(e) Recognised General Partnership;

(f) Limited Partnership;

(g) Recognised Limited Partnership;

(h) Limited Liability Partnership;

(i) Recognised Limited Liability Partnership;

(j) Incorporated Organisation;

(k) Foundation;

(l) Recognised Foundation; or

(m) any other legal body or structure created by Legislation administered by the Registrar,

which has been incorporated, registered or continued under the DIFC legislation.

Once an Inspector is appointed, they will typically provide the entity with a formal notice of inspection. This notice will inform the entity that an inspection will be conducted, and it will specify the scope and purpose of the inspection. However, DIFC Operating Law and Operating Regulations do NOT provide any specification about notification of the Private Company after the Inspector is appointed.

The Inspector has the power:

  • to enter the business premises of any person during normal business hours for the purpose of inspecting, obtaining and copying information or documents stored in any form on such premises;
  • require any person to produce, or procure the production of, any books, records or other documents in such person’s custody or power relating to the investigation;
  • require any person to give, or procure the giving of, specified information relating to the investigation;
  • require any person to attend before the Inspector for a compulsory interview;
  • require any person to give reasonable assistance to the Inspector in connection with the investigation.

In accordance with Article 1(b) of Schedule 1 of the DIFC Operating Law the word “Person” means any natural person, body corporate or body unincorporate, including a registered person, partnership, unincorporated association, government or state. Consequently, the Inspector can utilise his power not only to the Private Company but also to the Private Company’s current and previous shareholders, directors, CEO, secretary (the director, CEO, secretary together mentioned – “Officers”), employees, the Private Company’s current or previous Subsidiaries, Holding Company and its officers and employees and any other person, body corporate or body unincorporate that the Inspector consider may be able to give information or produce a document which is or may be relevant to the investigation.

Officer or former Officer, affiliate or other party related to the Private Company who maintains or has maintained a bank account, whether alone or jointly with another person, into or out of which has been paid money which is in any way related to the affairs of the Private Company must provide to the Inspector all books and records in such person’s custody or power relating to the bank account.

Where a Person is unable to produce information or documents, the Inspectors may require the Person to state, to the best of that Person’s knowledge or belief, where the information or documents may be found and who last had possession, custody or control of the information or documents.

If a Person fails to comply with requirements of the Inspector indicated above, such Person is liable to a fine up to US$25,000.

If a Person knowingly or recklessly makes a statement which is false, misleading or deceptive in a material particular or knowingly or recklessly withhold any information the omission of which makes the information which is furnished misleading or deceptive in a material particular is liable to a fine up to US$25,000.

If any Person breached the Inspector’s powers, the Inspector may certify such breach in writing to the DIFC Court. The Court may thereupon inquire into the case and make such orders as it sees fit.

Information given or a document produced as a result of the exercise by the Inspectors of its powers is admissible in evidence in any proceedings, provided that any such information or document also complies with any requirements relating to the admissibility of evidence in such proceedings. However, such information or document shall not apply if it is subject to legal professional privilege.

The Inspectors may retain possession of any information and documents for so long as is necessary for the purposes of the investigation, or for a decision to be made about whether or not a proceeding to which the information or documents would be relevant should be commenced or for such a proceeding to be completed.

The Inspector may direct a Person who receives a notice of production of information or documents not to disclose the receipt of a notice or any information relating to it to any other Person, other than his legal representative under a duty of confidentiality. This power should be used by the Inspector only if the Inspector considers that the disclosure may hinder the investigation.

A Person, in accordance with Article 25(8), is entitled to legal representation during the course of an investigation.

A Person shall NOT conduct the:

  • destruction of documents;
  • failure to give or produce information or documents specified by the Inspector;
  • failure to attend before the Inspector at a specified time and place to answer questions;
  • giving of information that is false or misleading; or
  • failure to give any assistance in relation to an investigation which the Person is able to give.

If Person conducts any of the above mentioned actions, such Person is liable to a fine up to US$25,000.

The Inspector shall make such a written report to the Registrar that the Registrar may require at the conclusion of the investigation of the Inspector. If the Registrar requires, the Inspector shall make the interim report.

The Registrar, in accordance with Article 27(3), may:

  • provide a copy of the report to the Private Company to which the report relates with or without a direction that it be disclosed to the Shareholders;
  • provide a copy of the report to any person whose financial interests may have been affected by the matters dealt with in the report;
  • cause the report, or such parts of the report as the Registrar considers appropriate, to be published; or
  • in the case of a Registered Person licensed, Registered or registered by the DFSA, provide a copy of the report to the DFSA.

The Registrar, in accordance with Article 28, may apply to the Court, if from any report made or information obtained, the Registrar considers that the Private Company’s affairs are being, or have been, conducted in a manner which is contrary to DIFC legislation or unfairly prejudicial to the interests of any Person having an interest in the Private Company or an actual or proposed act of the Private Company (including an act or omission on its behalf) is, or would be, so contrary or prejudicial.

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