Director liability for competition law breaches - the CMA's first UK director disqualification

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Financial penalties being imposed on companies for breaches of competition law are well known, particularly because of the very significant amounts involved. However, fines are only one aspect. In the UK, along with lots of other countries (including at least 19 of the 28 EU Member States, the US, Australia, and Hong Kong, to name a few), there can also be consequences for the individuals involved. In the UK, any individual can be fined, or the CMA can seek the disqualification of a director for a period of up to 15 years [1].

On 1 December, the the Competition and Markets Authority (CMA) announced that it had secured the first UK director disqualification undertaking after Daniel Aston, the managing director of the online poster supplier Trod Ltd (Trod) agreed not to act as a director of any UK company for 5 years. This follows from the CMA's decision on 12 August 2016 finding that Trod breached competition law by agreeing with GB eye Ltd (GB eye, one of Trod's competitors) that they would not undercut each other's prices on particular products sold on the marketplace.

The CMA also launched a campaign to ensure online sellers know how to avoid breaking UK competition law, by reminding them that discussing and agreeing price levels with competitors is illegal, and can result in serious penalties.

Disqualification undertaking

The CMA has the power to apply to the court for an order disqualifying a director from holding company directorships or performing certain roles in relation to a company for a specified period. However, the CMA also has the power to accept a disqualification undertaking from a director instead of the CMA bringing proceedings.

Mr Aston offered a director disqualification undertaking which states that he will not "without the leave of the court be a director of a company or act as a receiver of a company's property; or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company; or act as an insolvency practitioner."

The CMA's approach

The CMA takes a relatively balanced approach when considering whether a director should be disqualified by considering the level of the director's involvement, their awareness of the wrong-doing and their subsequent behaviour, such as cooperation with the investigation. In contrast, in Ireland for example, director disqualification is automatic following a criminal conviction. However, the CMA wants to clearly demonstrate that those who show a disregard for the rules and breach competition law will be punished.

It should be noted that GB eye obtained immunity from fines for having blown the whistle and it is the CMA's policy not to seek disqualifications of directors of leniency applicants. This policy helps protect the incentive for whistle-blowers to come forward and encourages cooperation with the CMA's investigation. However, it has been the CMA's stated intention to use this sanction for some time and its use is likely to increase.

Compliance is a necessity

Director disqualifications are seen by competition authorities across Europe as having a powerful deterrent effect due to the negative reputational and professional consequences it can have on the individuals involved, especially if the director's name is made public (as in the present case). In addition to the burden for companies having to pay fines, the other deterrent effect is having to search for new management, which could have a crippling effect on a company.

Companies should always make sure that:

(i) they have effective and up-to-date compliance policies and training in place for all employees; and

(ii) directors engage with the compliance activities because they can be held directly accountable for any breaches.

If a competition law breach is discovered or if there is any doubt over the level of compliance, legal advice should be sought in order to pro-actively take steps to protect the company, its directors and employees.

[1] Under the Company Directors Disqualification Act 1986. The court must make a disqualification order against a person if: (i) a company of which he is a director has breached competition law; and (ii) the court considers that his conduct as a director makes him unfit to be concerned in the management of a company