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Law for Business

Knowhow - guidance - precedents

06 SEP 2012

Disqualification for Competition Breaches

From March 2012 update of Jordans Company Administration and Governance: IN FOCUS

In June 2011, the OFT issued guidelines that explain the sort of risks of which directors should be aware and ways in which they can reduce the risk of their companies breaching competition law. The guidance is available on the OFT website under the title ‘Company directors and competition law'. It runs to some 34 pages in length and, while it would be unrealistic to expect that even a significant minority of directors will read it, their advisers should have at least some idea of its content.

Among the consequences of an infringement of competition law are financial penalties of up to 10% of group turnover, criminal prosecutions for those involved in a cartel and disqualification of directors of infringing companies, to say nothing of the potential risk to the reputation of the business concerned and the expense both in terms of time, resources and money in defending legal proceedings.   

Disqualification of a director for this reason under s 9A of the Company Directors Disqualification Act 1986 is a relatively recent reason for a director to be disqualified, which came into force on 20 June 2003. Such a disqualification is known as a competition disqualification order (CDO) and is made by the court following an application by the Office of Fair Trading (OFT) where there has been a breach of UK or EU competition law in regard to either the abuse of a dominant position or anti-competitive agreements.

In making its assessment whether a person is unfit to be concerned in the management of a company, the court will consider:

●        whether the director's conduct contributed to the breach of competition law;

●        whether the director's conduct did not contribute to the breach but that he had reasonable grounds to suspect that the conduct of the undertaking constituted a breach and that he took no steps to prevent it; or

●        whether the director did not know but ought to have known that the conduct of the undertaking constituted the breach.

The OFT makes it quite clear that all directors are expected to demonstrate a commitment to competition law compliance, and to ensure that their organisation is taking adequate steps to identify and assess the company's exposure to competition law risks and to put in place appropriate steps to mitigate those risks, and keeping these activities under regular review. It is considered as reasonable to expect all directors to understand that compliance with competition law is important and that breaches could lead to serious legal consequences for both themselves and their company. In particular, all directors should be aware that cartel activity constitutes a serious breach of competition law. This is where two or more businesses agree not to compete with each other, for example, in regard to price fixing, limiting production and sharing customers and markets.

It is suggested that all directors ask the following questions regarding competition law compliance:

●        What are our competition law risks at present?

●        What are the high, medium and low risks?

●        What measures are we taking to mitigate these risks?

●        When are we next reviewing the risks to check they have not changed?

●        When are we next reviewing the effectiveness of our risk mitigation activities?

 

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