Last month, the UK's Competition and Markets Authority (CMA) announced that it had secured its lengthiest disqualifications yet, with two former directors of concrete supplier FP McCann agreeing to disqualification undertakings for 11 and 12 years respectively. While the CMA’s use of its director disqualification powers is still in its relative infancy (the CMA’s first director disqualification was in 2016), this latest announcement is indicative of a recent trend of lengthier disqualification terms, which suggests an active step by the CMA to calibrate its fledgling enforcement activity to the traditional disqualification regime for breaches of company legislation and fraudulent behaviour under the Company Directors Disqualification Act 1986 (the CDDA).
The CMA's renewed focus on this tool in the competition law context (which has been on the statute books since 2003), has seen it now secure disqualifications against 25 directors since 2016 for their contribution to competition law infringements. It is clear that the CMA sees director disqualifications as an important deterrent to competition law infringements in the UK: the CMA wants its message of pinning responsibility on individuals to be taken seriously, and this latest message couldn't be more unequivocal.
The trend to longer disqualification terms
The CMA’s first use of its director disqualification powers in late 2016 saw Daniel Aston agree to a 5-year disqualification for his part in a price fixing agreement for posters and frames sold on Amazon, a type of infringement that is often regarded as one of the most serious. Between 2016 and February 2021, the CMA agreed undertakings varying from 18 months to 7 years, covering the full spectrum of infringements under Chapter I of the Competition Act 1998, including cover bidding, the exchange of commercially sensitive information, market sharing and price fixing.
The direction of travel in the last two years, however, may suggest that the days of agreeing a short disqualification term in exchange for early settlement may be limited, as the CMA looks to secure terms that it sees as more fitting for what it regards as serious misconduct by directors. Indeed, the CMA appears to be actively taking on board the guidance it received from the High Court in its judgment in Stamatis and Davies v. Competition and Markets Authority (see Freshfields acts in first case regarding CMA’s exercise of directors disqualification powers for breaches of UK competition law).
In Stamatis and Davies, Deputy Insolvency and Companies Court Judge Baister highlighted that the short periods of disqualification for Mr Stamatis and Mr Davies (two years and nine months and one year and six months respectively) were indicative of less serious offences, when applying the traditional criteria for assessing disqualification periods set out in Re Sevenoaks Stationers (Retail) Limited ( Ch 164). The Re Sevenoaks ‘brackets’ are a guiding principle in traditional director disqualification cases as follows:
- ‘top bracket’: over ten years for particularly serious behaviour;
- ‘middle bracket’: six to ten years for serious cases which do not merit the top bracket; and
- ‘minimum bracket’: two to five years where the case is, relatively, not very serious.
According to Re Sevenoaks, the periods of disqualification agreed between the CMA and Mr Stamatis and Mr Davies would fall into the lowest bracket of not very serious offences. This ultimately contributed to the Court’s decision to grant leave to act (i.e. permission to continue acting as directors in prescribed circumstances, throughout the duration of their disqualifications) in that case, despite the CMA's strong objections and arguments that the conduct of Mr Stamatis and Mr Davies was so serious that such permission should not be granted.
While in Stamatis and Davies Judge Baister made some suggestions that disqualifications in the competition law context may warrant a slightly different approach when assessing seriousness, the CMA appears to be taking no chances in coming up against such arguments again by calibrating more closely to the traditional Re Sevenoaks criteria.
Of the 12 disqualifications the CMA has announced since the judgment in Stamatis and Davies, 9 of the disqualifications have been for a period of 5 years or more, with the latest disqualifications of 11 and 12 years against the former FP McCann directors falling squarely in the top bracket of the Re Sevenoaks criteria, typically reserved for particularly serious cases.
Limited guidance for directors
While the CMA sets out the factors it must consider when determining the level of fine to be imposed on a company for an infringement of competition law, such transparency does not exist for the determination of the disqualification term the CMA will consider acceptable by way of an undertaking from a director (or would seek by way of a Competition Disqualification Order from the Court). The CMA’s Guidance on Competition Disqualification Orders (CMA102) makes limited references to factors the CMA will consider when determining a disqualification term. These references are also only to circumstances when a ‘reduction’ might be considered, rather than a clear set of criteria which would allow directors to understand how their disqualification term was calculated by the CMA. The fall back, which also appears to now reflect the CMA’s practice, is therefore the Re Sevenoaks ‘brackets’.
Whatever the motivation, it is clear that the CMA is now set on using these sanctions on individuals as a key part of its enforcement tool kit. While 2-3 year disqualifications, plus reputational damage, are likely to have severe consequences for an individual's career, disqualifications in the 11-12 year category could be career ending. In this regard, an individual's rights at common law and under the European Convention on Human Rights become ever more engaged and the CMA must take care to ensure it is protecting such rights as it carries out its investigations.