Directors strike back: collateral consequences of the CMA's approach to director disqualification

When a company is found to have breached competition law, the CMA can apply to court for a competition disqualification order (CDO). Alternatively, it can accept legally binding competition disqualification undertakings from directors (CDUs). These have the same effect – i.e. prohibiting the individual from being a director, or directly or indirectly taking part in the management of a company, for up to fifteen years. The CMA’s powers extend beyond current company directors to former and shadow directors.

The CMA has recently issued a number of infringement decisions for various breaches of competition law (including market-sharing, price-fixing, quantity-setting and pay-for-delay) in connection with its long-running investigations in the pharmaceutical sector. Similar decisions have been reached in the fit-out and estate agency services cartels we have recently reported on. A number of companies have been fined, but the CMA has also pursued the directors – some of whom are turning to the courts.

One example is Amit Patel, former director of Auden Mckenzie (fined for market-sharing in the CMA’s nortriptyline investigation) and existing director of Amilco (fined for pay-for-delay in the fludrocortisone investigation). Another is Michael Martin, former director of a number of real estate agencies in the Burnham-on-Sea area found by the CMA to have engaged in cartel conduct. The directors’ approach serves to highlight the potential flaws in the CMA’s guidelines on disqualification, and the CMA’s aggressive stance to disqualification more generally. It may act as a course correction for the CMA.

The plight of the former director?

The CMA has extracted CDUs from a number of former directors who stepped down from their roles before infringement decisions were issued. It also pursued CDOs in a small number of cases where the directors refused to sign CDUs – not without a fight in some instances. Some of these directors (e.g. in the fit-out cartel) stepped down during the course of proceedings, maintaining close involvement in the CMA’s investigation. Some also remained financially involved (e.g. as shareholder) in the companies under investigation.

Amit Patel, on the other hand, had sold his company Auden Mckenzie several years prior to the CMA’s investigation. But the conduct related to a time when he was a director, and his five-year CDU also relates to Amilco’s infringement of competition law. The disqualifications are concurrent. Nevertheless, his case raises interesting questions about potential disadvantages for former directors in disqualification proceedings.

Procedural (un)fairness?

In February 2019, the CMA adopted new guidance that was intended to give the CMA greater procedural flexibility and discretion in the exercise of its powers. The guidance allows CDOs to be sought before the CMA has reached a final decision and appeals have been exhausted. It also incentivises directors to work closely with the CMA and to offer CDUs early in the process. Moreover, the CMA watered down its guidance on the circumstances in which it will pursue CDOs/CDUs. It replaced its previous five-step analysis with a more flexible, “principles-based” approach, now making assessments “in the round” on whether to pursue a particular director.

The new guidance recognises material assistance and co-operation from directors as mitigating factors that may reduce their disqualification period. In the case of former directors, whilst they could, for example, still provide key witness evidence, there are questions as to how any further material assistance and co-operation can realistically be achieved. Are directors who no longer have links to a firm inherently disadvantaged by the process?

What can we learn from Mr. Patel’s “almost” appeal?

Patel had filed an appeal to the CAT challenging the CMA’s infringement decision issued in March 2020 in the context of its nortriptyline investigation that found Auden Mckenzie in breach of competition law. He appealed on two grounds, one on the substance of the infringement; the other that the CMA committed a “fundamental procedural error”. On the latter, Patel argued that the CMA did not allow for the facts and conclusions reached in the CMA’s decision to be properly established and tested by a former director in his position, particularly, that he did not have a fair right to respond to the Statement of Objections (SO) before the CMA reached a conclusion.

Whilst his appeal was ultimately withdrawn after he signed the CDU, it raised an important question as to his standing to challenge the CMA’s finding of infringement. In the UK, it is only possible to bring civil proceedings for infringements of competition law against “undertakings”. Directors cannot, in their personal capacity, be addressees to the SO nor the CMA’s decision. It is therefore difficult to see how a former director’s procedural rights were infringed. Directors have no separate standing to make submissions on the CMA’s finding of an infringement against their company – as distinct from their ability to comment on the findings of fact and their roles in the anticompetitive conduct giving rise to the CMA’s director disqualification proceedings. On the other hand, although less intrusive than imprisonment, disqualification can have significant implications for an individual’s career. The damage to an individual’s reputation as a result of the disqualification being pursued cannot be reversed, unlike an infringement decision subject to appeal. The CMA’s approach must afford directors sufficient opportunity to respond to the allegations against them at a sufficiently early stage of the process.

Where do we go from here?

There is no doubt that director disqualification has become a preferred weapon in the CMA’s armoury. But directors are also shielding themselves from the CMA’s fire, with Patel arguably achieving some success in this respect. The CMA reduced the duration of his disqualification from “at least six years” to five, given the “public interest benefit of securing an immediate disqualification, without the time and cost of court proceedings.” As reported in December, two directors of companies involved in the fit-out cartel were successful in overturning their disqualifications entirely.

These challenges recast the procedural protections provided for directors in disqualification proceedings into the spotlight and raise important questions as to their adequacy – particularly in so far as former directors are concerned. Whether challenges such as these will serve to correct the CMA’s course is yet to be seen. However, this week sees former real-estate agency director Michael Martin in court challenging a CDO the CMA is seeking. This is the first CDO case to make it to court and one which will no doubt further test the strength of the CMA’s armoury.