The UK's Competition and Markets Authority (CMA) has secured its first disqualification of a director of a company found to have infringed competition law. On 1 December 2016, the CMA announced that Daniel Aston, managing director of Trod Ltd ("Trod"), had provided a disqualification undertaking not to act as a director of any UK company for 5 years.
This development shows the CMA's renewed determination to pursue both companies and individuals for competition law infringement.
What are the CMA's powers to disqualify directors?
The Enterprise Act 2002 amended the Company Directors Disqualification Act 1986 ("CDDA") to give the CMA the power to apply to the court for a competition director disqualification order ("CDDO"). This order can be made against a director for up to 15 years if the company, of which that person is a director, is involved in a breach of competition law and their conduct as a director makes them unfit to be concerned in the management of a company.
The CMA can accept a disqualification undertaking from a director instead of bringing proceedings before the court to obtain a CDDO. Where a disqualification undertaking is accepted, this will normally result in a shorter period of disqualification that the CMA may otherwise be prepared to accept.
It is a criminal offence for any person to act in contravention of a CDDO or undertaking punishable by imprisonment and/or a fine.
The CMA has stated that (subject to limited exceptions) it will not apply for a CDDO against a current director in cases whether the relevant company has benefited from leniency. However, that will only be the case where the individual has co-operated with the CMA as part of the leniency process.
Despite the fact that the powers have existed since 2003, the CMA has not used them until now. Although in 2008 the three individuals who were imprisoned for cartel activity in the market for marine hoses were made the subject of disqualification orders, those disqualifications were based on powers that were available to the court because the individuals had committed a criminal offence.
What happened in this case?
On 12 August 2016, the CMA issued a decision finding that Trod had infringed competition law by agreeing with GB eye Ltd ("GBE") that they would not undercut each other's prices for posters and frames sold on Amazon's UK website. The agreement was implemented by both parties through the use of automated repricing software which was configured to give effect to the agreement. The CMA fined Trod Ltd £163,371. GBE was not fined, having received immunity for reporting the cartel to the CMA and cooperating with the investigation.
Following its infringement decision, in October 2016 the CMA served Mr Aston with a notice setting out the grounds and evidence on which it proposed to rely in applying for a disqualification order. In November 2016, the CMA determined that it would bring proceedings for an order unless Mr Aston agreed to give a disqualification undertaking.
Mr Aston has now given that undertaking. He has undertaken that, for a period of 5 years, he will not, without the leave of the court, "be a director of a company, act as a receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company; or act as an insolvency practitioner."
Mr Aston had been the managing director of Trod since its incorporation in 2005, and was the managing director throughout the period of infringement. In the schedule to the disqualification undertaking, Mr Aston states that he does not dispute (solely for the purposes of the CDDA) that he caused Trod to make and implement the illegal agreement, in particular through the use of automated repricing software, and that he took steps to ensure implementation.
If Mr Aston had not given the undertaking, he could have faced a longer period of disqualification. The CMA has stated that it agreed in this case to accept a shorter disqualification period of 5 years "in the light of Mr Aston's conduct and the fact that Mr Aston was willing to give an undertaking before court proceedings were commenced".
Tougher stance toward directors
This development is part of the CMA's strategy to take a tougher stance toward directors of companies involved in competition law breaches. The CMA appears determined to show that this first use of a tool, which has been available since 2003, will not be a one-off. In the CMA's accompanying press release, Michael Grenfell, Executive Director for Enforcement at the CMA, comments: "The business community should be clear that the CMA will continue to look at the conduct of directors that have broken competition law, and, where appropriate, we are absolutely prepared to use this power again."
In this first case, the CMA has targeted a managing director who appears to have been heavily involved in the initiation and implementation of the infringement during its lifetime. It remains to be seen whether the CMA will seek to use its disqualification powers on less obvious targets. But the talk is tough. In its 2010 guidance note Director disqualification orders in competition cases, the CMA (OFT as it then was) makes clear that it will not just seek CDDOs against directors who are directly involved in a competition law infringement. The CMA will also consider seeking CDDOs against directors who had reasonable grounds to suspect that competition law had been breached and took no steps to prevent it, or where a director ought to have known that the conduct of the company constituted a breach.
Expectations on directors are high. In its revised guidance Company Directors and Competition Law, the CMA makes clear that it expects all directors to understand that compliance with competition law is important, and that infringing competition law could lead to serious legal consequences for the company and for them as individuals. It also expects directors to demonstrate a commitment to competition law compliance, and to have sufficient understanding of the principles of competition law to be able to recognise risks, and to realise when to make further enquiries or seek legal advice.
The UK is not unique in seeking to deter individuals through director disqualification in relation to competition law breach. A number of jurisdictions worldwide have introduced or are in the process of introducing director disqualification for competition law breach.
This development provides a strong additional incentive for competition law compliance to be elevated as a central boardroom issue. There is now more pressure than ever for directors to take greater responsibility for checking that their companies have the most effective competition law compliance programmes, and that appropriate training and detection systems, such as competition law audits and whistle-blower hotlines, are in place.