Samuel R Beighton
Partner
Co-lead of the Family Matters network
Article
27
On 31 July 2019, the UK's Competition and Markets Authority ("CMA") publicised the disqualification of three individuals from acting as directors, as a consequence of their company's involvement in an infringement of UK competition law.
This announcement, together with the recent public statements of senior CMA officials:
This update considers the role of personal sanctions within the CMA's enforcement activities, and the extent of the CMA's director disqualification powers.
It also outlines the benefits of an effective compliance culture, and the steps that the CMA considers directors should take to create and maintain an effective culture of competition law compliance within their organisations.
In recent months, senior CMA officials have confirmed the authority's intention to ensure that directors continue to face personal consequences for infringements of UK and/or EU competition law committed by their organisations.
In May 2019, the CMA's Director of Litigation, made clear in a blog post that:
"…we now consider whether to pursue director disqualification in all cases where competition law has been broken - scrutinising the responsibility of individual directors to see whether they contributed to the breach, or had reason to suspect it but failed to stop it, or ought to have known about it"[1] (emphasis added).
Similarly, in June 2019, the CMA's Executive Director, Enforcement, stated that:
"…we have - as we said we would - ramped up our activity in seeking the disqualification of directors …We are determined to …send a clear message about the personal responsibility that business people have for ensuring compliance with competition laws"[2] (emphasis added).
To put into context this "ramping up" of the CMA's activity, since it began actively using its director disqualification powers in late 2016:
Details of these twelve CDUs are summarised within Table 1 below. The differing durations of the CDUs reflect the different facts of each case, including the differing extent of the individuals' involvement in the infringement in question.
Date CDU accepted by the CMA | Duration of CDU | Case |
---|---|---|
30 November 2016 | 5 years | Online sales of posters and frames |
21 March 2018 | 3.5 years | Residential estate agency services |
3 April 2018 | 3 years | Residential estate agency services |
26 April 2019[3] | 7.5 years | Supply of precast concrete drainage products |
26 April 2019[4] | 6.5 years | Supply of precast concrete drainage products |
26 April 2019 | 2 years | Design, construction and fit-out services |
29 April 2019 | 5 years | Residential estate agency services |
29 April 2019 | 2.5 years | Design, construction and fit-out services |
9 May 2019 | 5 years | Design, construction and fit-out services |
29 July 2019 | 4.75 years | Design, construction and fit-out services |
29 July 2019 | 2.75 years | Design, construction and fit-out services |
29 July 2019 | 1.5 years | Design, construction and fit-out services |
Importantly, although director disqualification has been a focus of the CMA's recent enforcement activities, this is not the only sanction individuals may face.
As we have considered previously, the CMA is also able to prosecute individuals under the criminal "Cartel Offence"[5] in relation to specific competition law infringements. Where individuals are convicted of the Cartel Offence on indictment, they face a maximum of five years imprisonment, and/or an unlimited fine. Notably, reforms to the Cartel Offence made in April 2014 have reduced the evidential burden upon the CMA, with the aim of increasing the number of successful criminal prosecutions brought.
The CMA[6] is able to apply to court for a CDO against an individual, or otherwise accept a legally binding CDU offered by an individual, with the maximum period of disqualification being 15 years.
Under the Company Directors Disqualification Act 1986 (the "CDDA 1986"), the CMA can seek the disqualification of an individual from holding company directorships, where that individual is a current or former director of a company that has infringed UK and/or EU competition law.
For the purposes of the CDDA 1986:
If the CMA's application is successful, the individual may be prevented for a period of up to 15 years[11] from:
Significantly, an individual commits a criminal offence if they breach a CDO.[13] Further, where an individual is engaged in the management of a company in breach of a CDO, they will be liable personally for the relevant debts of that company.[14]
Following an application, the court must make a CDO against an individual where:
In assessing the conduct of the individual, the court must consider whether:
The court may also have regard to the conduct of the individual as a director of a company in connection with any other breach of competition law.[18]
Under the CDDA 1986, director disqualifications can also be effected by the CMA accepting a CDU offered by an individual:
The CMA may proceed to accept the CDU instead of making (or progressing) an application for a CDO[19] where:
An individual can offer a CDU at any time. If an individual offers a CDU in terms acceptable to the CMA, the CMA will generally consider reducing the disqualification period.[21]
If the CMA accepts a CDU, the CDU has the same legal effect and consequences as a CDO, and may be accepted for a maximum period of 15 years.[22]
Where an organisation has an effective culture of competition law compliance, this can serve to protect the organisation, its staff, and its directors, including by:
As an advocate of competition law compliance, the CMA has jointly published "Competition Law Risk: A Short Guide" with the Institute of Risk Management, which is intended to help businesses comply with competition law.[24]
The publication promotes a proactive risk-based approach to compliance, tailored to the individual activities of each organisation, and underpinned by a "top down" commitment to compliance.
In this context, the CMA makes clear that while the board and senior management have overall responsibility for instilling a commitment to compliance, managers at all levels of an organisation also need to demonstrate this commitment.[25]
Building upon this "top down" commitment, the CMA advocates a four step, risk-based approach to competition law compliance:
In relation to directors, the publication provides that directors are responsible for ensuring that their organisations have taken adequate measures to ensure that relevant staff know, and are reminded regularly:
In view of the CMA's commitment to enforcement action, and to ensuring that directors are held personally responsible for competition law compliance, individuals and organisations should:
Our International Trade and Customs team advises clients upon achieving their commercial aims in compliance with UK and EU competition law. The team also acts on high profile competition law investigations, and frequently advises clients upon making immunity and leniency applications. With our dedicated Dawn Raid Response Unit of specialists across our UK offices, and our track record of successfully delivering client-focussed outcomes, organisations ranging from publicly listed companies to family-owned businesses rely upon us to safeguard their interests when faced with the threats posed by competition law investigations.
Footnotes
[1] See, Radke, J., "Director disqualification: an increasing risk", CMA Blog, 22 May 2019, available at: https://competitionandmarkets.blog.gov.uk/2019/05/22/director-disqualification-an-increasing-risk
[2] See, Grenfell, M., "UK Competition Law enforcement: the post-Brexit future", speech given at City & Financial Global 'Future of UK Competition Law' summit on 11 June 2019, speaker's notes available at: https://www.gov.uk/government/speeches/uk-competition-law-enforcement-the-post-brexit-future
[3] Date of the CMA's announcement of the CDU being accepted; the date of acceptance is not publicly available.
[4] Date of the CMA's announcement of the CDU being accepted; the date of acceptance is not publicly available.
[5] See, section 188 of the Enterprise Act 2002.
[6] In addition to the CMA, the following "specified regulators" are also able to exercise these powers: the Office of Communications; the Gas and Electrical Markets Authority; the Water Services Regulation Authority; the Office of Rail and Road; the Civil Aviation Authority; NHS Improvement; the Payment Systems Regulator; and the Financial Conduct Authority (see, section 9E(2) CDDA).
[7] See, section 22(4) CDDA, and section 9E(5) CDDA.
[8] See, section 22(2) CDDA.
[9] See, sections 22A - 22C CDDA.
[10] See, Limited Liability Partnerships Regulations 2001 (SI 2001/1090), Regulation 4(2).
[11] See, section 9A(9) CDDA.
[12] See, section 1(1)(a) CDDA. In addition, during the period of the CDO, the individual will be unable to act as an insolvency practitioner (see, section 1(1)(b) CDDA).
[13] See, section 13 CDDA.
[14] See, section 15(1) CDDA.
[15] Being, any of the Chapter I Prohibition and/or the Chapter II of the Competition Act 1998; and/or Article 101 of the Treaty on the Functioning of the European Union ("TFEU"); and/or Article 102 TFEU.
[16] See, sections 9A(1) - (3) CDDA.
[17] See, section 9A(6) CDDA.
[18] See, section 9A(5) CDDA.
[19] See, section 9B(2) CDDA.
[20] See, section 9B(1) CDDA.
[21] See, CMA 102, "Guidance on Competition Disqualification Orders", 6 February 2019, paragraph 3.7.
[22] See, section 9B(5) CDDA.
[23] See, for example, www.gov.uk/guidance/cartels-confess-and-apply-for-leniency
[24] See, the joint publication by the CMA and the Institute of Risk Management, "Competition Law Risk: A Short Guide Version: 2.0", available at: assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/587464/CMA-risk-guide-2016-revised.pdf
[25] See, "Competition Law Risk: A Short Guide Version: 2.0", page 19.
[26] See, "Competition Law Risk: A Short Guide Version: 2.0", page 19.
[27] See, "Competition Law Risk: A Short Guide Version: 2.0", Chapter 7.
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