9 January, 2017
The UK’s Competition and Markets Authority (CMA) has disqualified the director of a UK company, Trod Ltd, from acting as a company director for a period of 5 years, having been a director of Trod Ltd during the time in which it infringed competition law.
This marks the first time the CMA has invoked its statutory powers to seek the disqualification of an individual director where their company has fallen foul of the competition regime.
The CMA had found that Trod Ltd and GB eye Limited (GB), competing sellers on Amazon Marketplace, had agreed to implement a mechanism intended to avoid price competition whereby automated re-pricing software monitored and adjusted their online prices, thereby ensuring neither undercut the other. The director was found by the CMA to have “personally contributed” to the conduct that resulted in a breach of the competition rules and was therefore considered unfit to be a company director.
During the disqualification period, the director will not be able to: undertake a role as a director of a company; act as a receiver of a company’s property; in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company; or act as an insolvency practitioner.
This case has attracted significant attention in the UK. It may be surprising to some that the CMA, after many years, has singled out a case in which it only issued a modest fine for the contravention as the first in which to pursue an individual under its powers to seek a disqualification order. This demonstrates that in the UK, the CMA is clearly prepared to go after directors where there is evidence of their direct involvement in the infringement, making them personally accountable for
the harm caused, regardless of the size of the company.
Director disqualification orders in Hong Kong
In Hong Kong, the Competition Commission (CC) has similar statutory powers to those that were used by the CMA in this case[1].
Under s101 of the Competition Ordinance (CO), the CC may apply to the Competition Tribunal (Tribunal) to seek disqualification of a director (including a shadow director, or person involved in the management of the company) where the company of which the person is a director has contravened a competition rule; and that person’s conduct as a director makes them “unfit to be concerned in the management of a company”.
Directors may be disqualified for a period of up to five years[2], preventing them from holding a directorship of any company, or from otherwise being involved in any company’s “promotion, formation or management”.
Directors should be aware that the Tribunal may issue a disqualification order even where the person’s conduct did not directly contribute to the contravention of a competition rule. Under s103 CO, the Tribunal may disqualify a director who has reasonable grounds to suspect that the company’s conduct contravenes a competition rule and takes no steps to prevent it; or ought to have known that the conduct constituted a contravention.
Contravening a director disqualification order in Hong Kong is a criminal offence and can result in fines of up to HK$1m and to imprisonment for 2 years.
Comment
Directors and those otherwise involved in the management of companies in Hong Kong should take heed of this case and ensure competition law compliance of their organisations, however small. This is particularly important because directors are at risk of disqualification even where they are not directly involved in the company’s contravention of a competition rule.
Although this is a UK case, the power of the Tribunal in Hong Kong to make a director disqualification order closely mirrors the tools available to the UK Courts. As the CC moves towards hard enforcement, all directors should therefore take this as a reminder of the importance of protecting their own positions by ensuring the risks of competition law are effectively managed throughout their companies; that they are well in tune with their company’s adherence to the competition rules; and they step in to prevent or tackle any potential contravention at the earliest opportunity.
[1] Under the Competition Disqualification Order provisions of the Company Directors Disqualification Act 1986, as amended by the Enterprise Act 2002.
[2] By comparison, in the UK directors of companies found to have infringed competition law may be disqualified for up to 15 years.
Adam Ferguson, Eversheds
adamferguson@eversheds.com
