A Briefing for Directors: Director Disqualification for Competition Law Violations and the Revised OFT Guidance

The Office of Fair Trading, ("OFT"), has issued a revised guidance on its new approach to director disqualification orders in competition cases. The OFT now appears to be taking a far tougher stance towards directors who are held responsible for competition law breaches and although the law itself has not changed, companies (and you as a director), will need to take this new approach seriously. Sanctions in such circumstances are very severe as disqualification can result in a director being barred from directorship for 15 years.

What is the New Standard and What Does it Mean?

As a director you should be aware that the main change to the OFT position relates to the implementation of the "knowledge standard". Previously the OFT would look for the active involvement of a director in a breach of the competition rules before it would contemplate disqualification. Under the new guidance, however, a director who had reasonable grounds to suspect a breach, but took no steps to prevent it, or was completely unaware of it but ought to have known, will now be susceptible to disqualification. Hence, ignoring or simply not knowing about an infringement will not mean that you can escape being subject to an application.

You should also note that, in considering what a director "ought to have known", the OFT will give regard to your role, including your specific position and responsibilities; your relationship to those who committed the breach; the knowledge, skill and experience which someone in your position should possess, and the information relating to the breach that was available to you.

Leniency and Disqualification

Significantly, this new approach means that leniency does not necessarily provide full protection against director disqualification, signalling a substantial move away from the old OFT approach. The OFT may still apply to disqualify you as a director even if you have been removed or otherwise cease to act in that capacity with such action being hinged on the argument that a director should not be able to escape disqualification simply by resigning. However, it is worth noting that the OFT has indicated outside the new guidance that it may offer immunity from disqualification to ex-directors who co-operate with their ex-employer's application.

Practical Implications

Lastly, the final issue to consider is how you, as a director, should respond to this new approach. You may seek to protect yourself by taking practical steps such as:

• Implementing robust compliance programmes and early detection systems (for example, spot audits) as evidence of a genuine attempt to create and maintain a compliance culture.
• Ensuring that there are regular updates circulated about the law, possibly coupled with tailored training for those in senior positions.
• As a director, you should also routinely ask questions of managers and challenge information which you consider suspicious (for example, large profits in a particular division or subsidiary that appear abnormal).

Though these measures do not guarantee immunity from an application, they will stand as evidence of good practice and a strong effort to create and maintain a compliance culture.

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.