Disqualification of Directors for Competition Law Breaches

Section 204 of the Enterprise Act 2002 (the Act) introduces new provisions into the existing Company Directors Disqualification Act 1986 which provides for the disqualification of company directors in certain circumstances. Due to the serious impact which disqualification may have on the future career of a director these provisions are designed to encourage companies to be even more vigilant in ensuring compliance. Section 204 provides that a director of a company may be subject to a Competition Disqualification Order (CDO) if:

a company of which he is a director has committed a breach of competition law (defined as being the Chapter I and II prohibitions under the Competition Act and Articles 81 and 82 EC); and

his conduct as a director makes him unfit to be involved in the management of a company.

In considering whether a director is unfit the court must consider the extent to which the director was aware of or involved in the breach of competition law. A CDO may be imposed if:

the director contributed to the breach of competition law,

if his conduct did not contribute to the breach of competition law but he had reasonable grounds to suspect that the company was in breach of competition law and he did nothing to prevent it, or

if he did not know that the company was in breach, but ought to have done so.

Directors therefore have a considerable responsibility to ensure compliance with competition law by the companies they direct. Ignorance of whether a particular conduct breached competition law is not a defence to an application for a CDO. The risk of imposition of a CDO is increased where a director has been director of a company in relation to any other breach of competition law, for example where he was formerly director of another company which had breached competition law.

The maximum period for which a director can be disqualified is fifteen years. Whilst a person is subject to a CDO it is an offence not only for him or her to be a director of a company but also to act as a receiver of a company or as an insolvency practitioner or to be in any way, either directly or indirectly concerned with, or take part in, the promotion, formation or management of a company. These provisions are interpreted widely and the courts tend to look at the substance of the activities of a disqualified director rather than the formal job-title; in practice this will in most cases have a very serious impact on the career of the disqualified director. A...