In December 2016 the UK Competition and Markets Authority (CMA) used its statutory powers to disqualify a person – Daniel Aston, a director of Trod Limited - from being a company director. The CMA found Trod Limited guilty of having entered into an agreement with its competitor, GB eye Limited, not to undercut each other’s prices for posters and frames sold on Amazon UK’s website. The CMA determined that both Mr Aston’s position as Managing Director at the relevant time and the fact that he personally contributed to the breach of competition law meant his conduct rendered him unfit to be a company director. He was disqualified for five years.
This is the first time the CMA has exercised its power to disqualify a director as a result of a breach of competition law since the rules were introduced in 2003. Some commentators have dismissed the action as a “one-off”, citing the fact that Mr Aston was a sole director who was clearly responsible for instigating and maintaining a cartel as evidence that he was an easy target – in effect, suggesting that the CMA could hardly not disqualify him given the circumstances. But, we suggest it would be wrong to dismiss this action as being the exception to the rule. Having cut its teeth on what was undoubtedly a relatively straightforward case, the CMA has indicated that it is “absolutely prepared to use this power again”1 and we have every reason to expect it will do so.
In this article, we summarise the UK rules on directors disqualification for competition law breaches, we explain why these are important and identify what steps directors can take to protect themselves. We then examine how similar rules are applied in other jurisdictions.
UK rules on director disqualification for competition law breaches
In the UK, under section 9A to 9E of the Company Directors Disqualification Act 1986, as amended, the CMA has the power to seek the disqualification of an individual by applying to the court for a competition disqualification order (CDO) or by accepting a legally binding undertaking from a director (CDU), from holding company directorships or performing certain roles in relation to a company for up to fifteen years where that individual has been director (or de facto director) of a company which has breached either UK or EU competition law (excluding merger control).
The court must make the order against a person if (i) the director’s company commits a breach of competition law, and (ii) the court considers that person’s conduct as a director makes him or her unfit to be concerned in the management of a company. The second condition includes situations where the director did not know but ought to have known that the conduct of the undertaking constituted a breach.
It is a criminal offence if a person contravenes either the CDO or CDU and is punishable by imprisonment of no more than two years and/or a fine. Furthermore, any contravention would expose the director to personal responsibility for all the debts and liabilities of the company incurred during the time when he was involved in the management of the company.
Why should directors be worried?
The threat of disqualification was originally introduced to act as a powerful deterrent against anticompetitive behaviour, motivating directors to embed a “top-down” compliance culture with competition law. Indeed, a decade ago the CMA’s predecessor, the OFT, commissioned a study which found that companies' average ranking of the factors that motivate compliance from highest to lowest were: (1) criminal penalties (2) disqualification of directors (3) adverse publicity (4) fines and (5) private damages actions.2
Given the authorities’ failure to exercise these powers over the past decade, and the rise in private damages actions over a similar time frame, we might now expect to see a reversal in the relative positions of these particular factors. However, having succeeded in securing a CDU from Mr Aston, the CMA has renewed confidence in this deterrence tool. Indeed it is hard to see why it hasn’t been better utilised in recent years given there is no need for (a) a trial; (b) the director to have personally breached competition law - inaction in respect of the conduct of their employees is sufficient; or (c) the authority to demonstrate that the individual was aware the conduct was a breach of competition law. We therefore expect the CMA to catch more individuals going forwards.
What can directors do to protect themselves?
In order to protect themselves against the threat of personal sanctions, directors must be able to demonstrate that they have taken reasonable steps to prevent breaches of competition law by your company and its employees. This includes:
- training: you must check that appropriate training is being provided to ensure that employees are aware of the types of actions that could breach competition law; and
- maintaining fit-for-purpose compliance procedures: you must maintain appropriate competition compliance procedures and policies and ensure these are enforced.
What if my remit as a director extends outside of the UK?
You may of course be responsible for managing your company’s business affairs in numerous countries, operating as a regional directors. If so, you ought to consider your potential liability in these jurisdictions.
Competition disqualification regimes tend to fall into two categories (i) jurisdictions that provide for individual disqualification for competition law breaches as a stand-alone sanction, or (ii) jurisdictions that make disqualification contingent on being found liable for a criminal law offence for breaching competition laws.
European competition law does not provide for any sanctions against individuals, however, the national authorities of EU member states may decide to make provisions in national law to allow for competition disqualifications/debarments of individuals. In the EU, the UK and Sweden are the only countries to have a stand-alone competition disqualification sanction. Whereas Estonia, Germany (exclusively in the case of bid-rigging), Ireland, Romania and Slovenia are examples of countries which all fall under the second category, operating contingent regimes.
Further afield, the trend is strongly in favour of stand-alone regimes, for example in Hong Kong, New Zealand, Russia and Brazil, although South Africa has recently adopted a contingent regime. The United States does not currently have a formal competition disqualification mechanism, however, there has been extensive commentary about its introduction. A movement towards greater introduction and enforcement of disqualification sanctions for competition law breaches seems to be emerging, with both Ireland and South Africa implementing their new legislation as recently as 2016.
The increasing scope and level of enforcement of director disqualification both in the UK and around the world makes it vital that directors understand both competition laws and the associated risks. In particular, directors should ensure their company and/or in-house legal team are providing them with support to facilitate implementation of adequate competition compliance procedures, policies and training. Directors should also familiarise themselves with the relevant jurisdictions and regimes to which they are exposed in their role as director, and where necessary seek local legal advice.
Michael Grenfell, the Executive Director for Enforcement at the CMA accessed at https://www.gov.uk/government/news/cma-secures-director-disqualification-forcompetition-law-breach.
A report prepared for the OFT by Deloitte, The deterrent effect of competition enforcement by the OFT, November 2007. Accessed: http://webarchive.nationalarchives.gov.uk/20140402141250/http:/www.oft.gov.uk/shared_oft/reports/Evaluating-OFTs-work/oft962.pdf.