The regime which allows for the disqualification of directors of companies that breach competition law has been around for some time but had been little used, certainly when compared to the regime used in relation to company insolvencies, until recently.
This is changing, however, with the increased use of powers by the Competition and Markets Authority in particular. Finance directors are therefore wise to be alert to the issues associated with competition law and should take steps to ensure compliance.
Otherwise, they run the risk of joining the small but growing number of individuals who have lost their ability to be directors and involved in the management of companies following a breach of competition law.
How does the regime work?
The competition disqualification regime, introduced in the early 2000s, can lead to a director of a company which is found by a regulator to have breached competition law, having proceedings commenced against them personally.
Any of the regulators with competition law jurisdiction in the UK have the power to commence such proceedings including the Competition and Markets Authority (CMA), Ofgem for energy, Ofcom for telecommunications and the Financial Conduct Authority for financial services.
The sanctions can be serious – disqualification may be for a period of up to 15 years, although recent practice has tended to involve periods of between 1 and 5 years. During the period of disqualification it is not possible for the individual to be involved in the management of a company unless permission is sought from the court. It cannot be presumed that such permission will be given in all cases and this process will be costly in any event.
Although the proceedings are brought by the regulator, it is for the court to determine whether to order disqualification.?Any breach by a company of competition law can in principle meet the condition, whether relating to a cartel, anti-competitive agreement or abuse of a dominant position.
Furthermore, it is not necessary for the director concerned to have contributed through his own conduct to the breach of competition law or to have known that it constituted a breach. Indeed it is sufficient if the director did not know, but ought to have known, that the conduct constituted a breach. The extent of the director’s knowledge and involvement is likely, however, to be a relevant factor in determining the length of the period of disqualification. The nature of a Finance Director’s role and the access to information which they have as a consequence may risk a longer period of disqualification.
Increasing regulatory spotlight
Back in February last year the Chairman of the CMA, Lord Tyrie made proposals to the Secretary of State for BEIS suggesting that seeking individual accountability for breaches of competition law was a priority area of the CMA’s work. Until such time as any additional powers are granted, director disqualification is likely to be a key tool for the CMA.
This was confirmed in a recent statement (in December 2019) by the CMA on the design, construction and fit-out services director disqualifications sought,?which described disqualification as an “essential measure to protect the public from directors of companies that break competition law” and stated that it will “seek further disqualifications of directors where appropriate.”
To date, and since its first disqualification in 2016, the cases the CMA has pursued have tended to display elements of hardcore cartel conduct such as price-fixing or bid-rigging (see for example?Estate Agents in Burnham-on-Sea,?Fit Out Services and?Construction cartel).
It is notable also that cases have been dealt with by means of undertakings. Rather than commence court proceedings, the regulator can use its discretion to allow individuals to offer a legally-binding disqualification undertaking instead (which has the same effect as a disqualification order). Given the apparently low bar once matters get before the courts and the possible costs consequences for the individual concerned if the court makes an order (i.e. the risk they will have to pay both their own costs of defence and those of the successful regulator), it is perhaps not surprising that all of the cases to date have been dealt with by way of undertaking.
Whilst none of the other regulators have been involved in such proceedings to date there has been an increase in competition activity by them in recent times. Hence it is surely therefore only a matter of time before we see enforcement action occurring.
What is the take-out for FDs?
A first step for any FD is to engage in discussions with his or her other board colleagues about this. The CMA’s own research carried out in 20191 showed that just 18% of those polled said their business had senior-level discussions about competition law, trailing far behind health & safety and employment law, despite the serious consequences for senior individuals and the company.
Such discussions should be with a view to ensuring that a culture of competition law compliance as well as appropriate compliance measures are put in place by his or her company. That is likely to vary depending on the nature of the business but is likely to include, at a minimum, a risk assessment and regular review of it, together with appropriate guidance or training to staff.
If the regulator does call, the manner in which the company and its Directors including the FD then engages with it is crucial and likely to be a relevant factor to the question of whether proceedings will be commenced.
Given all of the CMA cases to date have been dealt with by undertakings and that we have not yet seen a fully-contested case through to conclusion before the courts, many key questions about the process have not yet been tested before the court in the competition law context.
The stakes are rising for Directors of companies. Regulators across the board are keen to hold them to account, often personally, and competition law will need to be an area of focus going forward.
Written by Jonathan Grimes (Partner) and Mark Mills (Associate) in the Criminal Litigation team at Kingsley Napley LLP.