Section 420 of the Companies Act 1997 is the Act’s central honesty provision, and it carries the highest penalty tier.
Section 420(1) — false statements in documents
(a) makes, or authorises the making of, a statement in it that is false or misleading in a material particular knowing it to be false or misleading; or
(b) omits, or authorises the omission from it of, any matter knowing that the omission makes the document false or misleading in a material particular,
commits an offence, penalty under section 413(4) — a fine not exceeding K200,000 or imprisonment for up to five years, or both.
That is a very wide class. It includes the application for incorporation, the annual return, notices of change of directors or registered office, financial statements, charge registrations, amalgamation proposals and the certificates supporting them, solvency certificates, receivers’ and liquidators’ reports, and creditors’ claims in a liquidation.
Note the two mental elements. The statement must be false or misleading in a material particular, and the person must know it to be so. Carelessness is not enough for section 420 — though a careless filing may still be an offence under the section that required it.
Paragraph (b) makes clear that omission is as serious as assertion where the omission is what makes the document misleading.
Section 420(2) — false reports about the company’s affairs
(a) a director, employee, auditor, shareholder, or debenture holder of the company; or
(b) a liquidator, liquidation committee, or receiver or manager of property of the company; or
(c) where the company is a subsidiary, a director, employee, or auditor of its holding company; or
(d) a stock exchange or an officer of a stock exchange; or
(e) the Registrar,
commits an offence, penalty under section 413(4).
Subsection (2) catches an internal statement or report. Misleading the company’s own auditor, its own board, a fellow director, a shareholder, or the parent company’s auditor is an indictable offence carrying up to five years’ imprisonment.
Paragraph (b) is aimed squarely at insolvency: giving a liquidator or a receiver a false account of the company’s affairs. That reinforces the obligations to make records and information available under section 311 and section 262, and to identify and give up property under section 322.
Note also who is caught: every director or employee — not only officers. And the conduct includes authorising or permitting the making or furnishing of the statement.
Section 420(3) — voting is authorising
For the purposes of this Act, a person who voted in favour of the making of a statement at a meeting is deemed to have authorised the making of the statement.
Both limbs of section 420 catch a person who authorises the making of a false statement. Subsection (3) deems a director who voted in favour at a board meeting to have done so.
So a director who knows that a set of accounts, a prospectus-style statement, or a certificate is materially misleading and votes to approve it cannot say they merely voted. The way to avoid the deeming is to vote against and have the dissent recorded — which is also what the section 419 defences require by way of evidence.
The provision applies “for the purposes of this Act”, so it also bears on the other offences and on the many certificates the Act requires directors to sign.
Where else false statements bite
| Provision | Conduct | Consequence |
|---|---|---|
| s 420 | False statement in a document or report, knowingly | Offence — K200,000 or 5 years, or both |
| s 422 | Falsifying records, or false entries, with intent to defraud or deceive — including in electronic systems | Offence — s 413(4) |
| ss 352(6), 353(11) | A knowingly false creditor’s claim or valuation in a liquidation | Offence — s 413(4) |
| s 152(5) | Signing a certificate required by the Act without reasonable grounds | Deemed unfairly prejudicial conduct — a civil remedy |
| ss 400–407 | The Registrar’s powers of inspection, requiring explanations and examining persons | How false statements are usually uncovered |
| s 415 | Where the offence was committed to derive benefits | An additional pecuniary penalty up to the value of the benefits |
Section 420 offences are punishable under section 413(4) and are therefore triable on indictment under section 417(2). An information may be laid within seven years of the offence (s 417(3)).
Under section 417(4), nothing in sections 420 to 423 affects liability under any other Act — the Criminal Code Act (Chapter 262) in particular — but no person may be convicted under both this Act and another Act in respect of the same conduct.
Prosecution is by the Registrar, or by a person with the Registrar’s written consent (s 418(1)).
Sources
- Companies Act 1997 — ss 152, 262, 311, 322, 352, 353, 400–407, 413–422
- Criminal Code Act (Chapter 262)
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.