CMA secures first director disqualification for breach of competition law

On 1 December 2016, the Competition and Markets Authority (CMA) announced that it has secured the disqualification of an individual from acting as a director of any UK company for a period of 5 years. This marks the first time the CMA has exercised its powers to disqualify a director for a breach of competition law under the Company Directors Disqualification Act 1986. This disqualification follows the CMA’s decision of 12 August 2016 which found that two online resellers had infringed competition law by agreeing not to undercut each other’s prices for posters and frames sold on Amazon’s UK marketplace (implemented using automated pricing software). The investigation involved CMA searches coordinated with West Midlands Police searches which were carried out on behalf of the US Department of Justice in connection with a separate criminal investigation into sales of wall decor in the US (see here for our earlier update on this case).

The disqualification was secured by means of a disqualification undertaking given by the individual, who was the managing director of Trod Limited at the time of the infringement. The CMA may disqualify a director by way of a disqualification order or by accepting an undertaking instead of bringing proceedings. The CMA has the power to seek a disqualification up to a maximum period of 15 years. Where the CMA accepts a disqualification undertaking, then according to the CMA this will normally result in a reduction of the period of disqualification which the CMA is prepared to accept. In this instance the CMA considered 5 years to be appropriate in light of the individual’s conduct and his willingness to offer an undertaking before court proceedings were brought. The undertaking means that he may not act as a director, receiver or be in any way involved in the management of a company without leave of the court. The other party to the infringement, GB Posters, applied for and obtained immunity, which meant that under CMA policy its directors are protected from disqualification provided they cooperate with the leniency process.

Comment

This case presents a number of remarkable features: the infringing agreement was implemented by means of automated pricing software; despite the regional and relatively small size of the businesses involved, the investigation was coordinated with a criminal investigation by the US Department of Justice; and finally it marks the first time the CMA has sought a director disqualification.

The CMA has made a clear statement that company directors have an important duty to ensure compliance with competition law and should not “shirk” this responsibility. It has issued a clear warning that it is prepared to take action: 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 is “absolutely prepared to use this power again” if appropriate. Companies should ensure adequate compliance programmes are in place – and that directors are appropriately trained to spot issues if they arise.