UK: OFT Signals Tougher Stance on Director Disqualification Orders

Last Updated: 5 July 2010
Article by SJ Berwin's EU & Competition Team

Following a consultation process, the Office of Fair Trading ("OFT") has published new guidance setting out its revised approach to the use of director disqualification orders in competition cases ("CDOs").  With a view to increasing the incentives on company directors to take compliance seriously, the OFT warns that the new guidance should be taken as a clear message that the OFT will be actively seeking the disqualification of directors in appropriate cases. The prospect of being disqualified as a director is seen by the OFT as one of the most powerful deterrents to anti-competitive behaviour regardless of the size of the company.

Under the Company Directors Disqualification Act a director can be disqualified from acting as a director for up to 15 years if their company is involved in a breach of competition law and the court considers they are unfit to be concerned in the management of a company as a result.  Directors for this purpose include shadow directors and partners in limited liability partnerships.

Cases will be chosen based on the evidence available and seriousness of the conduct.  Aggravating factors (such as past involvement in competition breaches or obstructing a competition investigation) will increase the likelihood of a CDO being sought.

A key policy shift is the tougher stance the OFT will be taking on directors that are not directly involved in an infringement.  The new guidance clarifies that directors who ought to have known of a competition law breach (or suspected there may be a breach but took no steps to prevent it) will now be targeted to the same extent as those who are directly involved.  Accordingly, more than ever, directors need to keep themselves well informed of their company's activities and intervene as soon as any suspicious conduct comes to light.  The OFT considers this shift allows it to better target directors of large companies, who tend not to be involved in the day-to-day decision making.

The OFT also confirms that as part of its leniency package, immunity from a CDO is possible where the director's company is granted leniency in respect of the same activities, provided:

  • the director cooperates with the OFT's investigation, and;
  • he has not been removed or resigned from office in connection with the infringement.

The new guidance, which replaces the 2003 guidance, adopts most of the proposed changes that were consulted upon. In addition, the OFT has indicated that it will be developing further 'straightforward' guidelines for directors on their responsibilities under competition law.

To date the OFT's CDO powers have never been used.  The new guidance signals an apparently more pro-active approach by the OFT, although it remains to be seen how quickly the new policy is put into action and indeed the evidential thresholds that must be met before a court will grant a CDO, particularly in cases where a director is not directly involved in an infringement.

OFT responds to cash ISA super-complaint

This week, following a 90 day investigation into the market for cash ISA's, the OFT announced improvements for the 17.5 million cash ISA customers.

Cash ISAs were first introduced in the UK in April 1999 and have Ł143 billion of savings in them.  In March 2010, Consumer Focus lodged a super-complaint with the OFT, claiming that (i) the way that savings institutions operate cash ISAs is not-transparent, (ii) transferring cash between different ISA providers takes too long, and (iii) introductory bonus offers are being used in a way which is unfair to consumers (with high initial or bonus interest rates often dropping to uncompetitive long-term rates).

Although it found no actual structural features of the cash ISA market causing harm to consumers, the OFT has secured improvements by way of two voluntary agreements from the cash ISA industry:

  • interest rates will be clearly published on the cash ISA statements, and;
  • the industry guidelines on how long cash ISA transfers should take will be revised downwards from 23 to 15 working days, effective after December 31st 2010. 

In addition, the OFT recommends that HM Revenue and Customs and the FSA acknowledge the changes to the industry guidelines in their guidance; that the FSA be more vigilant in taking action in the case of breaches of the guidelines; and finally, that where delays occur when money is transferred between ISA providers, the providers ensure that consumers do not suffer as a result.

Introductory bonus rates were not found to be a problem as consumers are generally well informed as to when the introductory rates end. 

The OFT believes that its initiatives and further recommendations should give consumers the tools and information necessary to drive effective competition in the market, as well as addressing the concerns raised by Consumer Focus in its super-complaint.  There may also be some read across to other markets such as personal current accounts and pensions.

One option open to the OFT in response to a super-complaint is to make a market investigation reference to the Competition Commission for in-depth investigation.  In this case, the OFT has provisionally decided that such a reference is not merited given the limited scale of the problems.  The OFT is consulting on this conclusion, and comments are requested by 3 August 2010.

To view Community Week, Issue 478; 2 July 2010 in full, Click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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