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OFT to exclude corrupt directors

As part of its arsenal to tackle anti-competitive behaviour, the Office of Fair Trading (OFT) has published revised guidance setting out how and when it and other regulators will take action to disqualify company directors for anti-competitive or corrupt behaviour.

Under the new rules, the OFT can disqualify directors where it uncovers evidence that they were responsible for – or ought to have known about – competition-law breaches such as price-fixing, market sharing and bid-rigging agreements.

Personal liability

The OFT hopes that the changes to make directors personally accountable – even if they were not personally involved – will provide an added incentive for them to make sure that compliance with competition rules is properly embedded.

Under the Company Directors Disqualification Act, an individual can be disqualified from acting as a director for up to 15 years if their company is involved in a breach of competition law and the court considers that person unfit to manage a company as a result.

But there may be exceptional cases where it is appropriate to apply for a disqualification order, even where there is no prior decision or judgment on the infringement.

Potential problems

Some lawyers, though, have pointed out a potential hurdle in such cases, in that the OFT would still need to establish that an infringement of competition law had taken place.

The OFT has long held the desire to move competition law compliance up the boardroom agenda, yet – surprisingly – in the seven years it has enjoyed powers to apply for competition disqualification orders against directors, it has not done so until now.

Lawyers believe that greater OFT enforcement activity in this area could previously have been a powerful spur to compliance.

Yet despite the toughened approach, the OFT will continue to offer immunity from disqualification orders for any director who co-operates with its investigation.

“The general aim is to increase the incentives on company directors to take responsibility for competition law compliance, to keep informed about the company’s activities in matters of competition law compliance and to take proactive steps to avoid infringements of competition law,” says Suzanne Rab, counsel in law firm Hogan Lovells’ antitrust, competition and economic regulation team.

“The revised guidance is a clear indication that companies and their directors cannot afford to ignore competition law, even if they could not be considered directly involved in any infringing activity.”

Recommendations

To comply with the new regime, directors should:

1 Be aware of the OFT’s determination to pursue any director. Under the old guidelines the OFT would “not rule out” applying for a disqualifi­cation order against a director who did not keep themselves sufficiently informed of the company’s activities to be able to spot that there was an infringement.

Now, says Adam Collinson, partner in the commercial practice group at law firm Eversheds, such a director will be just as much in the firing line as a director who was directly involved in the competition law breach, or a director who had reasonable grounds to suspect that the company was in breach but took no steps to prevent it. “Absolute vigilance” will now be required at all times, he says.

2 Be aware of potential mitigating factors. Suzanne Rab, counsel in law firm Hogan Lovells’ antitrust, competition and economic regulation team, says that when determining an individual director’s responsibility, the OFT is likely to consider the director’s role in the company – including
his specific position, responsibilities and their relationship to those responsible for the breach; the general knowledge, skill and experience actually possessed by the director and that which should have been possessed by a person in his or her position; and the information relating to the breach which was available to the director.

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