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Directors disqualified for breach of competition law

For only the second time in its history, the Competition and Markets Authority (CMA) has secured the disqualification of directors whose companies have infringed competition law.

In May 2017, the CMA concluded its investigation into the conduct of six residential estate agents operating in the Burnham-on-Sea area. The CMA found that the estate agents had breached competition law by participating in a cartel agreement to fix their minimum commission rates at 1.5%.

On 10 April 2018, the CMA announced that it had secured legally binding undertakings from two directors of one of those estate agents. The undertakings effectively disqualify them as directors and prevent them from being involved in the management of any UK company. One director will be disqualified for 3 years and the other for 3.5 years.

The CMA can apply to court (under the Company Directors Disqualification Act 1986) for a disqualification order to be made against a company director for up to 15 years where: the company of which the individual is a director has breached competition law; and that individual’s conduct renders them unfit to be a director. Alternatively, the CMA may accept a disqualification undertaking from a director to avoid the need for proceedings (as it has done in this case). This will usually result in a reduction in the disqualification period.

This is only the second time that disqualifications have been secured by the CMA in connection with a company’s breach of competition law. In December 2016, Daniel Aston (managing director of Trod Ltd) gave undertakings not to act as a director of any UK company for five years. The CMA had concluded that Trod Ltd, an online poster supplier, breached competition law by agreeing with one of its competitors not to undercut each other’s prices for posters and frames sold on Amazon.

In a speech in November 2017, CMA Executive Director Michael Grenfell described the use of disqualification from company directorships as an “innovation” in enforcement by the CMA, “ensuring personal responsibility for competition law compliance”. Though the CMA’s use of director disqualifications has so far been underwhelming, Grenfell’s speech and the Burnham-on-Sea case may signal a shift towards a greater application of this enforcement tool.

The Burnham-on-Sea case also demonstrates the CMA’s continued interest in estate agency services. The Authority said the case “raises concerns that the sector does not properly understand the seriousness of anti-competitive conduct and the consequences of breaking competition law”.

Participation in a cartel in the UK can also constitute a criminal offence under Section 188 of the Enterprise Act 2002. A person found guilty of this offence may be liable to an unlimited fine and up to five years’ imprisonment. The CMA may also impose fines on companies which are found to have broken competition law – the fines imposed in this case totalled £370,084.

Case: Residential estate agency services, Case 50235