Competition law and director disqualification
Any collusion between companies supposed to be competitors risks breaching UK competition law and possible director disqualification. This factsheet, written by the Competition and Markets Authority, tells company directors what to be aware of, and what to do if their business is at fault.
A director falls foul of competition law
Before 1 December 2016, Daniel Aston was managing director of Trod Ltd. His company sold frames and posters on Amazon Marketplace featuring stars such as Justin Bieber and One Direction.
But on that day, he stopped being a director and became the first person in the UK to be disqualified as a director following a breach of competition law by his company.
His company breached competition law when it agreed not to undercut the prices of a competitor, GB eye Ltd. It used automated software to monitor and adjust its prices accordingly.
This was a type of illegal price-fixing. It meant that customers potentially ended up paying more when buying these products online. Not only was Mr. Aston responsible for his company as a director at the time, but he was also directly involved in the arrangement.
The Competition and Markets Authority (CMA) conducted a thorough investigation and when presented with the evidence, Trod Ltd. agreed to accept the penalty and was fined £163,371. For their admission, Trod Ltd. had a streamlined CMA investigation and the fine was not as high as it otherwise would have been. GB eye Ltd were the first to admit their involvement to the CMA and received immunity from fines under the CMA’s leniency policy.
The Company Directors Disqualification Act gives the CMA power to apply to the court for an order disqualifying an individual from holding company directorships where that individual was a director of a company that breached competition law and their conduct makes them unfit to be concerned in the management of a company. The CMA can also accept a disqualification undertaking from a director instead of bringing proceedings. A disqualification undertaking has the same legal effect as a disqualification order.
Mr. Aston gave an undertaking to the CMA not to be a company director for five years. The CMA has subsequently accepted a number of undertakings from other company directors in separate investigations, following findings that their companies had breached competition law.
Michael Grenfell, Executive Director for Enforcement at the CMA, said:
“The responsibility to ensure that companies don’t engage in illegal anti-competitive practices is an important one, and company directors should not shirk that responsibility.”
What Directors need to know
Directors have a feel for what is fair and not fair in their business dealings and want to do the right thing. But do they always have a practical understanding of competition law? When we surveyed UK businesses, we found there were some potentially dangerous misunderstandings:
- 41% didn’t know that attending a meeting where rivals agree prices is illegal,
- just under half (48%) didn’t know that bid-rigging – where competing bidders secretly agree who will win a contract and submit fake bids – is illegal, and
- over half (59%) didn’t know that agreeing to split up and share customers with competitors is illegal.
As a consequence, many directors may be unaware they are engaging in anti-competitive behaviour. This creates the perfect storm for competition rules to be broken and for businesses, and their directors, to pay the price.
However, being alert to competition law risks and knowing what to do if your business has been involved can provide directors with a lifeline. The CMA offers a leniency policy for those who report themselves first and are willing to cooperate with an investigation. In some circumstances, this may provide a business and its directors with immunity from fines and other sanctions.
What is anti-competitive behaviour?
Anti-competitive actions and ‘business cartels’ happen when business rivals get together and agree not to compete against each other. They may agree to fix prices, divide and share markets between them, rig bids for contracts so they decide who wins or share commercially sensitive information.
Cartels are a form of cheating that rips customers off and ultimately deprives them of a fair deal. They also make it extremely difficult for other competing businesses that aren’t part of the cartel to survive and grow.
Business owners who get involved in anti-competitive business practices can face serious consequences. As the UK’s competition watchdog, the CMA has powers to investigate suspected business cartels and to issue sanctions against them. Legally, company directors have a special responsibility to ensure their company complies with the law.
Consequences of breaking competition law
- Directors may be disqualified from acting as company directors for up to 15 years.
- Businesses that breach competition law can be fined up to 10 per cent of their global turnover.
- Involvement in a cartel is also a criminal offence – individuals can go to prison for up to 5 years.
Directors need to take action
- know what is happening in your company and make sure you have a culture of compliance, led from the top down;
- lead by example – know the principles of competition law and make sure your staff do as well; the CMA has a range of short and simple training guides to help;
- have a system to flag up any suspected illegal practices within your company, and
- immediately take action to stop any anti-competitive practices and obtain independent legal advice – the CMA offers a leniency policy, so those that come forward first may avoid fines and other penalties.
Test your company’s compliance
Here are some questions to ask:
- What are our present competition law compliance risks?
- What are the high, medium and low risks?
- What measures are we are taking to reduce these risks?
- When are we next reviewing the effectiveness of these measures?
Encourage and facilitate reporting
- Identify an independent, trustworthy person in your company for staff to report concerns to such as the company secretary.
- Seek independent legal advice if you have a competition law concern.
What you can do
- Make use of a range of guides and resources to help businesses know what to look out for www.gov.uk/cma/competing-fairly-in-business.
- Visit our website on business cartels, www.gov.uk/stopcartels
- The CMA has specific videos on:
If you’ve been involved in an illegal cartel yourself, under certain conditions, you can benefit from lenient treatment by being the first to come forward to the CMA.
Find out more about leniency: Cartels: come forward and apply for leniency
If you wish to report a cartel:
When it comes to cartels, it’s better to be safe not sorry.
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