The OFT is consulting on proposed changes to its guidance on Competition Disqualification Orders (CDOs) (Click here to access the consultation paper). The OFT is concerned that its current guidance does not maximise the deterrent effect of CDOs and the main aim of the proposed changes would therefore be to ensure that company directors have a greater incentive to take responsibility in respect of competition law compliance. The proposed revised guidance makes it clear that the OFT expects that company directors should appreciate that competition law is a crucial matter for their companies, and that it expects every director of every company to know that price fixing, market sharing and bid rigging arrangements are likely to breach competition law.
The Enterprise Act 2002 added new provisions to the Company Directors Disqualification Act 1986 which provide for the disqualification of company directors where a company of which they are a director has committed a breach of competition law, and their conduct as a director makes them unfit to be involved in the management of a company. A breach of competition law for these purposes means a breach of the Chapter I and Chapter II prohibitions of the Competition Act 1998 and of Articles 81 and 82 EC Treaty.
In May 2003 the OFT published guidance setting out the process the OFT will follow when deciding to apply for a CDO and some of the factors it will take into account when determining whether to apply for a CDO. It is now consulting on a number of proposed changes to the guidance which are aimed at increasing the deterrent effect of CDOs. OFT research has shown that the threat of disqualification is an important deterrent to company directors. For the purpose of CDOs, a director is any person occupying the position of director, regardless of title. This includes a shadow director (any person in accordance with whose directions or instructions the directors of a company are accustomed to act) and a de facto director (a person who assumes to act as a director).
The proposed changes can be summarised as follows:
- The OFT's guidance currently indicates that the OFT will focus on applying CDOs in cases where a director was directly involved in a breach of competition law, i.e. the director had an active role in causing his company to carry out the activity constituting the breach. Under the proposed changes, the OFT would also be likely to apply for CDOs in respect of directors who had reasonable grounds to suspect that the conduct constituted a competition law breach and took no steps to prevent it, or where a director should have known of a breach but did not. In considering whether a director should have known that his company was involved in a breach, the OFT will take into account factors such as:
- The director's role, position and responsibilities in the company
- The relationship of the director's role to those responsible for the breach
- The general knowledge, skill and experience of the director in question (and that which should have been possessed by a person in his position)
- The information relating to the breach which was available to the director
- Under the current regime the OFT will not apply for a CDO against a director of a company that benefits from immunity or leniency in relation to the infringement. The OFT is now considering limiting this protection from CDOs to directors of companies that benefit from full immunity only, i.e the company was the first to come forward. The OFT hopes this will encourage company directors to whistleblow as they would personally benefit from their company being the first to approach the regulators. The OFT may also decide to withdraw protection from CDOs for directors who fail to cooperate in an investigation, and for directors who resigned from the company as a result of their responsibility for the breach of competition law.
- The current OFT guidance provides that the OFT will only apply for a CDO where the breach of competition law has been established in an OFT/EC decision or in a Competition Appeal Tribunal judgment and this decision or judgment is not subject to appeal. The OFT believes however that there may be exceptional circumstances in which it will be appropriate to apply for a CDO where the breach of competition law has not been established by a decision or judgment in this way, for example where the breach has been established by a court in private litigation. The OFT is also proposing to remove the requirement that a company must have been fined before it will consider applying for a CDO.
To date the OFT has not yet used its powers to have a CDO imposed. Directors in the marine hose cartel were disqualified as directors under a different provision of the Company Directors Disqualification Act 1986 which gives the court the power to disqualify directors for breach of an indictable offence. The proposed changes to the OFT's guidance highlight its intention to make greater use of this tool in order to increase incentives on company directors to take responsibility for competition law compliance.
Comments on the OFT's consultation should be submitted by 20 November 2009.