Director Disqualification - the Risks Increase

Originally published 30 June 2010

Keywords: OFT, Company Directors Disqualification Act 1986, competition law infringement, compliance,

The OFT's new guidance on director disqualification orders in competition cases, published on 29 June 2010, creates increased risks for company directors. The OFT proposes to extend the circumstances in which it will use these sanctions. The aim is to increase incentives on company directors to take compliance seriously and deter anti-competitive activity.

Under the Company Directors Disqualification Act 1986, a director can be disqualified from acting as a director of any company for up to 15 years if his/her company is involved in a breach of competition law while he/she is a director and the court considers he/she is unfit to be concerned in the management of a company as a result. The breach of competition law may take any form and, unlike the cartel offence, is not confined to cartel activity. It can therefore include any conduct constituting abuse of market dominance and hardcore provisions in distribution and licensing arrangements.

Previous OFT guidance indicated that the OFT would focus principally on cases where a director was directly involved in a breach of competition law (e.g. cartel activity). The new guidance, the culmination of a consultation process held in the last quarter of 2009, makes clear that the OFT will take action not only in this situation, but also in circumstances where a director ought to have known about the competition law infringements.

The guidance sets out a five-step process for deciding whether to apply a disqualification order:

consider whether there has been a breach of competition law, consider the nature of the breach and whether a financial penalty has been imposed, consider whether the company in question benefited from leniency, consider the extent of the director's responsibility for the breach, and have regard to aggravating and mitigating factors The OFT may in certain circumstances also use this process in applying for a disqualification order against the directors or officers of a parent company where those directors are acting as shadow or de facto directors of the subsidiary.

The new guidance highlights an additional change in OFT policy. The OFT has decided that, in exceptional cases, it may not wait for a final infringement decision to be made (by it, by the UK sectoral regulators or by the European Commission) against the director's company, but could...