The first six months of 2019 have provided several interesting headlines as director disqualification starts to wield greater influence in the world of competition law.
What is director disqualification?
Disqualification orders (by the court) or disqualification undertakings (agreed by the director) are perhaps more commonly known as being imposed upon directors of insolvent companies when the Secretary of State for Business, Energy and Industrial Strategy considers their conduct (as directors) to be “unfit”.
However, disqualification can also be relevant in the competition law context when (i) a company of which that person is a director commits a breach of competition law, and (ii) that person’s conduct as a director makes him/her unfit to be concerned in the management of a company.
The relevant statutory provision is section 9A of the Company Directors Disqualification Act 1986 (CDDA), with the CMA having the power to apply to the court for a disqualification order following its own investigations into the company.
How is this applied to competition law and company directors?
Court proceedings commence after the CMA has served on a director a Section 9C Notice (in terms of the CDDA) putting the director on notice of the grounds for the application. A successful application to the court can result in a period of disqualification of up to 15 years depending on the seriousness of the conduct.
A breach of competition law is defined as being an infringement of any of: the Chapter 1 or Chapter 2 prohibitions of the Competition Act 1998 or Articles 101 or 102 of the TFEU (put shortly, agreements affecting trade, or abuse of dominance).
However, on 6 February 2019, the CMA issued its revised Guidance in relation to the disqualification regime.
The guidance is detailed, but what is clear is that the CMA (i) will recognise material assistance and co-operation by the director to the CMA as mitigation, and (ii) will take the stage at which an undertaking is offered into account when considering the appropriate period of disqualification.
It is worth reflecting that whilst only 3 directors had been disqualified between 2003 and 2016 (the first disqualification undertaking having been obtained in December 2016), that number was exceeded in the following five months and so marking a clear change that the CMA intends to use the powers open to it more frequently.
Recent disqualification undertakings
This has resulted in directors being disqualified as a result of (a) the company being involved in collusive tendering – 5 years, and (b) the company fixing or coordinating prices – 7.5 years. So far, all cases have resolved by way of undertaking but it is unlikely to be long before the CMA obtains its first disqualification order from the courts.
Continuing to act as a director in breach of a disqualification order or disqualification undertaking is a criminal offence.
Certainly, these are significant periods of disqualification. However, company directors should be aware that the guidance does recognise that the nature and extent of the director’s responsibility for, or involvement in, the breach are very relevant considerations. Each case is to be judged on its own facts and circumstances.
What the CMA (and ultimately the court) will be concerned with is whether the director’s conduct contributed to the breach of competition law, or the director took no steps to prevent the company breaching competition law, or the director had no knowledge of the breach but ought to have known.
On the other hand, the CMA will not apply to court for a disqualification order if a director has been convicted of a cartel offence. The question of disqualification in such circumstances would be one for the convicting court. Nor will the CMA apply for an order against any beneficiary of a no-action letter in respect of cartel offences or who has benefitted from leniency.
Culture of compliance
The focus for many regulators in recent years has been the issue of the culture of compliance within an organisation suspected of having committed a regulatory offence. The recent guidance from the CMA, bolstered by the CMA’s recent enforcement activity, is another reason why directors should be considering their compliance policies, both generally but also in the sphere of competition law.
S+W has considerable experience in dealing with investigations and court proceedings under the CDDA, and has the knowledge to advise directors who may be subject to investigation and/or negotiation of undertakings.