Competition compliance programmes routinely warn that one of risks of breaching competition law is director disqualification. Powers to disqualify individuals from acting as company directors for breaching competition law have existed in the UK since 2003. But these have never been exercised – until now.
On 1 December 2016, the CMA announced that it had secured a director disqualification undertaking from Daniel Aston, managing director of the online poster supplier Trod Ltd ("Trod"), not to act as a director of any UK company for five years. Under the Company Directors Disqualification Act 1986 ("CDDA"), the CMA has the power to seek the disqualification of a director of a company which has breached competition law. This is the first time the CMA (or the Office of Fair Trading before it) has used this power.
On 12 August 2016, Trod was found to have breached competition law by agreeing with one of its competitors that they would not undercut each other's prices for posters and frames sold on Amazon's UK website. Trod was fined £163,371.
The CDDA sets out the circumstances in which a court may, or must, disqualify an individual from acting as a director of a company. The Enterprise Act 2002 amended the CDDA to enable the UK competition regulators to seek disqualification orders.
For a court (the High Court or the Court of Session in Scotland) to make a competition disqualification order ("CDO"), two conditions must be satisfied:
- an undertaking, which is a company of which the individual is a director, commits a breach of competition law; and
- the individual's conduct as a director makes him unfit to be concerned in the management of a company.
A breach includes any type of infringement of EU or UK competition law and may be evidenced by a decision of the European Commission or the CMA, a judgment of the European Court of Justice or the General Court, or a judgment of the Competition Appeal Tribunal.
To assess the extent of the director's responsibility relating to the breach, the CMA will consider whether:
- the director's conduct contributed to the breach;
- the director had reasonable grounds to suspect the breach but took no steps to prevent it; or
- the director did not know but ought to have known of the breach.
The director's direct involvement may be evidenced where he actively took steps to carry out the breach, for example, by drawing up a list of the company's prices and sending them to a competitor. Where there is no evidence of the director's involvement, the CMA may still conclude that the director had reasonable grounds to suspect a breach, for example, where he authorised expenditure of funds which were to be used to finance an activity relating to the breach.
While the CMA does not expect directors to have specific expertise in competition law, it still expects that every director of every company ought to know that price-fixing, market sharing and bid-rigging agreements are likely to breach competition law.
Where the CMA finds sufficient evidence of the director's conduct falling into one or more of these three categories, it is likely to apply for a CDO. Instead of applying for a CDO, the CMA may also accept a competition disqualification undertaking ("CDU") from the director concerned.
In the current case, Mr Aston was the managing director of Trod at the relevant time and personally contributed to the breach of competition law. The CMA considered his conduct made him unfit to be a company director. On 21 November 2016, the CMA determined to apply for a CDO but Mr Aston was willing to give a CDU before court proceedings were commenced. Given Mr Aston's willingness to offer a CDU, the period of disqualification was reduced to five years where the maximum period under a CDO would have been 15 years.
Michael Grenfell, Executive Director for Enforcement at the CMA, said: "[t]he CMA will continue to look at the conduct of directors of companies that have broken competition law, and, where appropriate, we are absolutely prepared to use this power again."
Disqualification as a director can have a damaging impact on a personal level and a professional level for the individual concerned. This clearly has the potential to act as an effective deterrent against breaching competition law. It is advisable for companies to continue to create a compliance culture and to have a compliance programme in place.