Directing and Neglecting: CMA promises greater sanctions for directors who breach competition law

July 30, 2019

2 min read

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What's going on here?

The risks and sanctions for company directors who breach competition law have never been greater. This is now the case after the Competition and Markets Authority (CMA) released new guidance promising to ramp up its use of a statutory power to investigate and disqualify directors.

What does this mean?

Directors are the key decision-makers in a company and their instructions inform the company’s strategy. If mistakes are made, a company could find itself insolvent (unable to pay its bills) and at this point, a director’s behaviour may come under scrutiny. Ordinarily, in the event of insolvency, a liquidator will remark on whether a director has proved themselves unfit to be concerned in the management of the company. If so, they will refer them to The Insolvency Service. Directors found unfit will be disqualified from managerial roles in companies for a period between 2 and 15 years. Disqualification can also be relevant in the competition law context should a director involve their company in a cartel, collude with competitors, or dominate a market to the detriment of consumers (which is contained in Articles 101, 102 Treaty on the Functioning of the EU).

What's the big picture effect?

Director disqualification is one part of a patchwork system of regulating senior management in UK companies called ‘corporate governance’. Corporate governance rules provide a system of checks to encourage fair trading and ward off managerial calamities (think BHS, Carillion etc). This new guidance is notable because it weaponises personal liability for directors for negligent breaches of competition law. On top of a potential disqualification, if a director breaches their order they may even face criminal charges.

The effectiveness of the hard-line approach of the CMA in policing directors’ actions relies on the awareness of the rules at boardroom level. This is the case because disqualification penalises offences after they have occurred. Moves like this by the CMA hope to instil a culture of compliance in companies so that the anti-competitive practices that warrant disqualification are deterred. Regrettably, recent research by the CMA claims only 18% of UK directors polled have a comprehensive knowledge of disqualification for competition offences. Unless directors and their advisors fully embrace the new guidance, there will remain a lot of work to be done to improve the health and competition of businesses in the UK.

Report written by Sam Denison

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