Don’t take it personally – impact of competition enforcement on individual directors.

A recent Competition and Markets Authority (CMA) investigation involving UK company Lexon (UK) Limited has resulted in a 4 year disqualification for one of the company directors.

The CMA launched its investigation and enforcement action against Lexon after the company was found to be involved in anticompetitive conduct. Specifically Lexon, a pharmaceutical company, was engaged in exchanging information with three other companies in the industry in relation to a particular depression treatment drug.

On the face of it the companies in question should be the parties in the firing line. Limited companies in the UK have their own separate legal identity and generally a company will itself be responsible for its own actions. There are only limited circumstances in which directors can become personally liable as a result of the actions of a company and competition enforcement is one of these circumstances.

Directors Disqualification for Anticompetitive Behaviour

In the event that a company has been found to be engaged in anticompetitive conduct the CMA can impost individual sanctions on its directors. In particular the CMA can apply for a disqualification order against a director who has been involved in the conduct. The director must have had sufficient proximity to the anticompetitive conduct. For example, where the conduct in question involved an information exchange, such as in the Lexon case, if the director was the individual exchanging the information or was involved in directing other individuals to do so this could be sufficient grounds for a disqualification order.

An alternative to the CMA obtaining a disqualification order is a disqualification undertaking. This is where a director of the company being investigated agrees to an undertaking preventing him or her from acting as a director for a period of time. This was the case in Lexon as the director in question voluntarily agreed to the undertakings. Where directors feel the case is clear cut they may be minded to agree to such an undertaking as it draws a line under the matter and can result in a slightly more favourable arrangement.

Disqualification orders and undertakings will often be in the mind’s eye of the CMA when investigating anticompetitive behaviour. This is in part due to the relative ease with which the CMA can obtain such a sanction in comparison to imposing criminal sanctions. Furthermore, the circumstances in which disqualification can apply are wider than the other criminal sanctions available to the CMA.

The Purpose of Disqualification

Aside from the obvious outcome of preventing an offending director from repeating his or her actions with another company, the spectre of disqualification serves some key purposes.

Firstly, the notion of disqualification can serve as a deterrent to other would-be offenders. Generally such outcomes of investigations are public record and so it is clear that the CMA will take action.

In addition, the disqualification regime serves as an incentive for directors to report to the CMA if they become aware of any anticompetitive conduct within their company. The CMA will not seek disqualification against a director who does so and seeks leniency for their company. Thus the disqualification regime goes towards encouraging cooperation.

Why is this important?

Apart from making sure you are aware of the potential consequences of any anticompetitive behaviour, the Lexon case serves as a good reminder for relevant businesses to be on top of competition and antitrust matters.

It is important to assess your competition law risk and ensure that your team are fully trained on what to look out for and what kinds of discussions to avoid. Exchanging information can sometimes happen inadvertently at industry events and so it is always best for the business to ensure staff are trained. We regularly provide such training to businesses who have a higher competition law risk and in undertaking this training those companies, and the directors of, will be able to point to these steps as part of their attempts to avoid anticompetitive behaviour.

Personal sanctions for breaches of competition law are not going anywhere and have become a very important tool to the CMA. It is likely that disqualifications will become even more prevalent so now is the best time to ensure your businesses awareness of competition and antitrust issues is maintained.