On 18 August 2009 the Office of Fair Trading (OFT) published for consultation proposed changes to its guidance on director disqualification orders. These changes would broaden the scope for the OFT to issue Competition Disqualification Orders (CDOs) against the directors of companies involved in anti-competitive activity, including cartels. The OFT considers that the deterrent effect of such orders is not being fully achieved. The suggested changes would aim to encourage directors to blow the whistle on anti-competitive activity and to take increased responsibility for the business practices of the company. The OFT (or a sectoral regulator such as Ofcom) can apply to the court for a CDO against a director, and this must be granted if:
- the relevant company has committed a breach of competition law (such as being involved in a cartel or abusing a dominant position on a market); and
- the director’s conduct makes them unfit to be involved in company management.
Such disqualification can be for a maximum of 15 years, during which time it is a criminal offence for the individual to be a director of any company, or in any way take part in the promotion, formation or management of a company. For the purposes of a CDO, the position of director includes shadow and de facto directors, as well as appointed directors. The most significant proposals made by the OFT are discussed below.
Extent of director’s responsibility
The OFT’s focus has previously been on those cases in which directors are directly involved in illegal anti-competitive activity. The OFT is concerned that its current approach:
‘May not sufficiently encourage directors to take positive steps to uncover potentially anti-competitive behaviour or monitor their companies’ competition law compliance.’
The OFT therefore proposes to consider each case on its individual facts and is more likely to issue a CDO in cases where there is evidence that the director had reasonable grounds to suspect that the behaviour constituted a breach but took no steps to prevent it. This also applies in cases where the director ‘did not know, but ought to have known’ that the behaviour constituted a breach of the competition rules. The OFT has specifically stated that it is keen to ensure that CDOs act as an effective deterrent for directors of large companies, as well as those of smaller enterprises.
Leniency
The OFT is considering altering the position for directors of companies that have successfully applied for leniency from fines under UK or EU leniency programmes. At present, the OFT will not consider issuing a CDO against any current director of a company that has been granted leniency, whether this constitutes total immunity or a reduction in fine. However, the OFT is considering reversing this position in relation to directors of companies that have not obtained total immunity from fines. In this way, the OFT hopes to encourage company directors to ensure that their companies are the first to report any cartel activity to the competition authorities. However, it is arguable that this could create conflicts of interest between directors and the companies for whom they work.
Need for a final decision
The OFT is also considering removing, in certain exceptional cases, the obligation for the breach of competition law to be proven in a final decision or judgment, and a financial penalty imposed (with no pending appeal).CommentIf the suggested changes take place, the levels of responsibility and risk will alter significantly for directors of companies, who will need to pay greater attention to the business practices and market positions of the companies for which they are responsible. In launching the consultation, Ali Nikpay, OFT senior director of policy, stated that:
‘We know that the prospect of being disqualified as a director is one of the most powerful deterrents to anti-competitive behaviour. Our proposals aim to increase the incentives for company directors to take responsibility for competition law compliance and tackle behaviour that harms competition.’
The consultation period is open until20 November 2009. For further information see the OFT website at:http://www.oft.gov.uk/news/press/2009/102-09.
By Rachel Cuff, senior associate,Berwin Leighton Paisner LLP.
E-mail: rachel.cuff@blplaw.com.
