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OFT to disqualify unwitting directors to deter competition abuses

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Directors who should have known that their companies were breaking competition laws will be just as likely to be pursued for disqualification as those who actively committed offences, the Office of Fair Trading (OFT) has said.

The OFT has published new guidance on when it will disqualify directors because of competition law breaches. It said that it wanted to clarify exactly what directors' responsibilities are in relation to competition law.

"The OFT will be just as concerned with directors who ought to have known of competition law breaches at a company as those who were personally involved in an infringement," said an OFT statement. "Cases will be chosen based on the evidence available and seriousness of the conduct."

The Company Directors Disqualification Act allows for the disqualification of a director for 15 years if a court rules that they are unfit to be involved in the management of a company following a competition law breach, the OFT said.

"The prospect of being disqualified as a director is one of the most powerful deterrents to anti-competitive behaviour across boardrooms and companies of all sizes. Today's guidance should be taken as a clear message that we will actively seek disqualification of directors found to have engaged in anti-competitive behaviour or who ought have known it was going on," said OFT senior director of policy Cavendish Elithorn.

The OFT said that companies and directors that co-operate with its competition investigations will still qualify from immunity from disqualification and leniency.

"Any director who suspects their company has been involved in cartel activities should take urgent steps to ensure their company approaches the OFT or European Commission for leniency at the earliest opportunity," said Elithorn.

Competition law expert Guy Lougher of Pinsent Masons, the law firm behind OUT-LAW.COM, said that the OFT decided to act after commissioning a report that found that just fining companies was not enough to make directors become actively involved in competition law compliance.

"A report by Deloitte into what the sanctions are and what motivates a company to comply with competition rules identified prosecutions and the disqualification of directors would be effective," said Lougher. "It found that fines are not sufficient to encourage compliance."

"The OFT is trying to change the thought processes and behaviour of individuals, and is being more transparent and precise about the circumstances in which it would consider director disqualification, and is lowering the threshold at which it would consider it," said Lougher.

The OFT's new guidelines indicate that it will act on disqualifications as a matter of course, which it hopes will change director behaviour, he said.

"This is moving towards a situation where as a matter of routine as investigations are opened, the OFT looks to identify whether a director is susceptible to disqualification," said Lougher. "The idea is that if individuals are concerned about what will happen to them and their ability to earn a living they will be much more cautions about engaging in behaviour that is or might be anti-competitive than they would be if the only sanction was that the company was fined."

Lougher said that the indication that directors who should have known about infringements will be pursued as well as those actively involved is also seeking to change director behaviour.

"They are trying to ensure directors are actively involved and not taking a purely passive role," he said. "The OFT wants to ensure that directors are asking the right questions and acting in a diligent way, asking does the company have the correct compliance training and procedures in place, and if not why not?"

"If the directors haven't asked those questions they might be found not to have met the relevant standard," said Lougher.

See: The guidance (18-page / 898KB PDF)

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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