Competition and Markets Authority ("CMA") secures disqualification of a director under the Companies Directors Disqualification Act 1986 ("CDDA")

Published 8 December 2016

Sections 9A-9E of the CDDA (as amended by the Enterprise Act 2002), which came into effect on 20 June 2003, gives the CMA the ability to apply to the court for a disqualification order against a director of a company for up to 15 years in circumstances where, a company of which he is a director, has breached competition law and where his conduct as a director makes him unfit to be concerned in the management of the company.

Background

In December 2015, the CMA commenced an investigation into a cartel selling posters and frames by two competing on line sellers, Trod Limited ("Trod") t/a Buy for Less and GB Eye Limited ("GB Eye"), on Amazon Marketplace via Amazon's UK website during the period March 2011 to July 2015. Trod and GB Eye, based in Birmingham and Sheffield respectively, sold licenced sport and entertainment merchandise and related products from the sport and entertainment world.

Searches were made of Trod's business premises and the residential premises of one of its directors and were coordinated with searches by the West Midlands police on behalf of the US Department of Justice in connection with a separate criminal investigation undertaken in connection with the sale of wall décor.

In March 2016, Trod went into administration. The administrators KPMG stated that Trod had experienced significant trading difficulties over a number of years, incurring losses which had ultimately proved unsustainable.

Following the conclusion of the investigation, on 21 July 2016, Trod admitted agreeing with GB Eye (trading as GB Posters) that they would not undercut each other's prices for posters and frames on Amazon. This agreement was implemented by using automated repricing software which the parties each configured to give effect to the illegal cartel. It accepted a fine of £163,371 for its participation in the cartel. This fine reflected a deduction of 20% in respect of Trod's cooperation in the process.

On 12 August 2016, the CMA issued a formal decision that two online sellers had broken competition law. GB Eye reported the cartel to the CMA and therefore applied for and obtained immunity from a prosecution under the CMA's leniency policy. This policy provides that a business involved in a cartel may be granted immunity from penalties.in return for reporting cartel activity and assisting the CMA with its investigation. Under the same policy, the CMA will also not apply for a disqualification order against a director whose company benefitted from leniency providing they cooperate in the process. Amazon was not involved in the cartel and was not involved in the investigation.

The CMA concluded that David William Aston ("Mr Aston"), Trod's Managing Director at the relevant period had personally contributed to Trod's breach of competition law and that his conduct made him unfit to be a company director. In consequence, they sought to have Mr Aston disqualified as a director under the CDDA from holding directorships or performing certain roles in a company.

On 6 October 2016, the CMA served Mr Aston with a notice pursuant to 9C of the CDDA setting out the grounds on which it proposed to rely in its application for a disqualification order. Mr Aston made oral and written representations in response and on 21 November the CMA indicated that proceedings would be commenced unless Mr Aston provided a disqualification undertaking.

On 1 December 2016, the CMA confirmed that they had accepted a director disqualification undertaking from Mr Aston not, without the permission of the court, to act as a director of an English company for 5 years.

Comment

Although the imposition of fines against companies who are found to have breached competition law are now common place, this is the first disqualification of a director of a company found to have infringed competition law. It is a signal that the CMA intend to take a tough line with any individual found to be breaking the law and indeed, have recently announced "The business community should be clear that the CMA will continue to look at the conduct of directors of companies that have broken competition law, and, where appropriate, we are absolutely prepared to use this power again."

In an attempt to ensure that on line sellers know how to avoid breaking the law, the CMA has announced a campaign simultaneously with obtaining the disqualification undertaking, and have stressed the responsibility on companies not to engage in anti competitive practices and for company directors not to "shirk" their responsibility in this regard.