Obstructive directors face jail threat

Political Correspondent Company directors could be jailed if they refuse to co-operate with investigations into their financial reporting under powers in the companies bill.
The legislation, published yesterday, would allow the Financial Reporting Review Panel to apply for a court order to release documents related to a company's
accounts. Failure to comply with an order would be contempt of court, punishable by imprisonment or a fine.
The companies bill is designed to improve the reliability of financial reporting and the independence of auditors, raising confidence in UK corporate governance standards following the Enron and WorldCom scandals in the US.
Jacqui Smith, junior industry minister, described
it as the "logical legislative conclusion" to complement other measures, such as the Higgs review, changes to the corporate governance code and the government's consultation of "rewards for failure".
The government believes the FRRP needs powers to demand access to documents if it is to become more proactive in ensuring compliance with reporting standards, although it will not be
able to use court order powers for random surveys. The bill will also allow t he Inland Revenue to pass information on a company's accounts to the FRRP.
Companies could face a levy - added to their annual listing fees - to pay for the Financial Reporting Council, which encompasses the FRRP, if voluntary arrangements breakdown.
As expected, there is no provision to limit auditors'
liability, despite lobbying by the accountancy profession for legal protection in litigation cases. Ernst & Young, one of the big four firms, could be destroyed if a £2.6bn negligence claim by Equitable Life, the troubled life assurer, succeeds against its former auditor.
Instead, a consultation on the "state of concern around auditor liability" and "a range of options, including the status quo" would be
launched "hopefully by the end of the year", she said. Ms Smith conceded that liability limits could be added at a later stage but that it was "probably better dealt with in the larger company reform legislative process". There was no indication of when the government would introduce a larger overhaul of company law.