Directors that breach competition law can be disqualified from acting as a director or managing a company for up to 15 years. But what steps should you take to ensure you don’t qualify to be disqualified? Corporate Partner and Professional Support Lawyer, Sophie Brookes, explains what to do – and provides a cautionary tale of someone who got it wrong.
The power to disqualify
The Competition and Markets Authority (CMA) can apply for an individual to be disqualified from holding company directorships where that individual has been a director of a company which has breached competition law. A disqualification order can be made if the conduct of the relevant individual makes him/her unfit to be concerned in the management of a company. Whether the director knew of the breach is irrelevant: since 2010, a disqualification order can be made where the director ought to have known that competition law had been breached.
Instead of taking proceedings to disqualify a director, the CMA can accept a disqualification undertaking from the individual. Since this reduces the costs and time associated with the disqualification process, it typically results in the director receiving a shorter period of disqualification.
‘60 second summary’
To help directors get to grips with the complex area of competition law, the CMA has published a 60 second summary on avoiding disqualification. This provides some practical advice on the steps a director should take to help his/her company avoid breaking competition law, including:
- ensuring you are sufficiently in touch with your company’s affairs to spot and stop any illegal practices as soon as possible;
- investigating any business practices which you suspect might be illegal;
- taking immediate steps to stop any anti-competitive practices that come to your attention and taking independent legal advice; and
- leading by example, making sure you are familiar with competition law risks and cascading information to staff.
The advice also recommends designating someone independent and trustworthy within the company to whom staff can report any concerns.
How not to do it
Although the CMA has been able to disqualify directors for breaches of competition law since 2003, it was only in December 2016 that the first disqualification on those grounds actually took place. The dubious honour of being the first went to Daniel Aston, managing director of the online poster supplier, Trod Limited.
Trod was found to have breached competition law by agreeing with one of its competitors not to undercut each other’s prices for sales via Amazon’s UK website. Trod and the competitor implemented their agreement using automated re-pricing software. Although Trod was fined over £160,000 for the breach of competition law, since Mr Aston’s personal actions were found to have contributed to the breach, the CMA also accepted an undertaking from him not to act as a director of any UK company for five years.
The action taken against Mr Aston suggests the CMA may be adopting a tougher stance with directors whose companies breach competition law. It’s important for directors to remember that there are personal (not just corporate) risks associated with these breaches. Now is a good time for directors to use the CMA’s summary to ensure internal practices are compliant and to make sure appropriate systems are in place to prevent illegal activities.