The Competition and Markets Authority (CMA) recently secured the disqualification of three company directors for participating in anti-competitive conduct (in this case they were involved in bid rigging in the design, construction and fit-out services sector). These directors will now be unable to act as a company director for up to five years following action taken by the CMA.
The CMA has utilised this power to disqualify company directors three times in the past three months and this should be taken as a strong warning from the CMA that they are more than willing to exercise these powers and disqualify non-compliant directors who participate in anti-competitive conduct.
Competition Disqualification Orders
Under the Enterprise Act 2002, the CMA can seek to disqualify a person from acting as a company director for up to 15 years. In order to do so, the individual must have been a director of a company found to be in breach of competition law where their conduct makes them unfit to manage a company. For the CMA to decide an individual is unfit, the individual must have contributed to the breach of competition law, had reasonable grounds to suspect the conduct was a breach and took no steps to prevent it, or was unaware but should have known the conduct that was in breach of competition law.
The CMA, before exercising this power, needs to apply to the court to obtain a Competition Disqualification Order (CDO) or accept a Competition Disqualification Undertaking (CDU) from a director. CDOs have become easier for the CMA to obtain following revised guidance published in February 2019. Previously, the CMA had to follow a five-step process when deciding whether to apply for a CDO or CDU. The process now has a non-exhaustive list of principles and factors to consider when determining whether a CDO/ CDU is appropriate.
Under a CDU, the CMA is able to offer shorter disqualifications to directors who cooperate with an investigation.
Despite the fact the CMA has been able to secure director disqualifications since 2003, the first successful director disqualification was in 2016 – 13 years after the powers were introduced! To date, the CMA has obtained disqualifications for nine directors in total, all by way of CDU. Each disqualification was pursued as a result of participation in cartel conduct. Although directors can, under the CMA’s powers, face a disqualification from acting as a company director for any breach of competition law, the CMA has reserved such powers to date for the most serious anti-competitive conduct.
The CMA also has powers to pursue criminal charges for individuals involved in cartel conduct, however has not made use of this power; as such, the CMA is making greater use of the power to disqualify directors. The current rules permit the CMA to fine companies involved in anti-competitive conduct but not the individuals (such as directors) who may have instigated/led such conduct. At the beginning of this year, Andrew Tyrie, Chair of the CMA, put forward a proposal for radical changes to the current competition law regime to the Government. One of the proposed revisions would afford the CMA enhanced powers to impose civil fines on individuals, as well as companies, for breaches of competition law. The rationale behind this proposal is that personal liability for those involved acts as a stronger deterrent than collective responsibility (i.e. the company will pick up the bill for anti-competitive conduct).
These proposals are still in their infancy but a Green Paper is expected by the end of July 2019.
This article was co-written by Megan Lukins.