It’s Competition Time….

It has now been a year since the Competition and Markets Authority (CMA) secured its first director disqualification undertaking.

We thought this would be an opportune time to highlight again the details of this case and the risks (sometimes ignored) this exposure presents to a companies Directors and Officers (D&O’s) and their personal liabilities.

Under the Company Directors Disqualification Act 1986 (the Act) the CMA since 2003 has had the power to seek the disqualification of an individual from acting as a company director for a period of up to 15 years, where:

  • a company of which he/she is a director has breached competition law; and
  • his/her conduct makes them unfit to be concerned in the ownership or senior management of a company.

The CMA can either apply to the court for an order disqualifying a director or accept a disqualification undertaking from a director to avoid the need for court proceedings. In the latter example the director would be doing so in order to try and secure a reduction to the period of disqualification that the CMA is prepared to accept. Court orders and director undertakings are both legally binding, with the result that individuals can be criminally prosecuted if they act in breach of the disqualification.

The Particulars of the Case

In the secured disqualification, the Managing Director of Trod Limited was disqualified for 5 years after agreement from the CMA to accept a disqualification undertaking, rather than them needing to go to court, where a disqualification of 10 years was being sought. Trod Limited was also fined £163,371. The case was based on evidence obtained via dawn raids (both the business and MDs home) of price fixing with a competitor. Between them they agreed that they would not undercut each other for a period of 4 years. The other party, GB Eye Limited was granted immunity from fines having acted as the whistle-blower. This marked the first time the CMA had obtained a disqualification undertaking from a company director under the Act.

A Warning to Directors

After the conclusion of the case the Executive Director for Enforcement at the CMA, Michael Grenfell, stated:

"the business community should be clear that the CMA will continue to look at the conduct of directors of companies that have broken competition law and we are absolutely prepared to use this power again".

Any breaches of competition law can have serious consequences for D&O’s both in terms of them personally and their businesses. Even directors not personally involved in any criminal activity are at risk of disqualification if the CMA found they either had reasonable grounds to suspect a breach but did not prevent it, or they ought to have known about the breach. 

Where Can Having The Right D&O Policy Help

There are a number of elements to this case where a D&O policy might assist, both in terms of covering costs and expenses and getting access to third parties for advice and services to mitigate the impact to companies. When considering a D&O policy the following elements of coverage should be included:

  • Coverage for Pre-Investigation and Investigation Expenses
  • Crisis event cover should there be a dawn raid
  • Affirmative civil fines and penalties cover
  • Corporate legal liability cover (if available)
  • A broad definition of Executive including Non-Executive Directors
  • Attendance compensation costs coverage, should the matter go to court
  • Access to a legal helpline for advice and assistance

For more information on how our D&O policy can provide straightforward protection, please contact us today.

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