“Volaw Trust” - A strengthening of the privilege against self incrimination from requests for pre-existing documents?
The recent practice of regulators – and the potential for future developments – means that company directors need to be increasingly aware of the risks associated with competition law compliance.
Although it had been around for some time, the specific regime which allows for the disqualification of directors of companies which breach competition law had been little used, certainly when compared to the regime used in relation to company insolvencies. This has all changed in recent times with increased use of the powers by regulators.
This is a trend which is expected to continue. In this blog, Jonathan Grimes explores the existing framework, the expected trends and some of the issues arising.
The nature of the competition disqualification regime means that a director of a company which is found by a regulator to have breached competition law is potentially liable to have proceedings commenced against them. The sanctions are serious: disqualification may be for a period of up to 15 years. While there is the possibility of seeking permission to act as a director during the disqualification period, the court has recently confirmed that such permissions will not be given readily.
Although the proceedings will be brought by the regulator (as explained further below), it is for the court to determine whether to order disqualification. The court must make a CDO against a person if the court considers if two conditions are satisfied in relation to that person:
In relation to the first of those criteria, any breach of competition law can in principle meet the condition: it applies to cartels and other forms of anticompetitive agreement and abuses of a dominant position. What might be more surprising to those unfamiliar with the regime is the relatively low bar of the second criterion. It is not necessary for the director concerned to have contributed through his own conduct to the breach of competition law or to have known that it constituted a breach. Indeed it is sufficient if the director did not know, but ought to have known, that the conduct of the undertaking constituted a breach.
It is not automatic however that once a breach of competition law is found that disqualification proceedings will follow: there is discretion on the part of the regulator to decide whether to commence those proceedings. Individuals facing such action also have the ability to offer legally-binding disqualification undertakings rather than going through those proceedings. This has the same effect as a disqualification order. Given the apparently low bar once matters get before the courts and the possible costs consequences for the individual concerned if the court makes an order (i.e. the risk they will have to pay both their own costs of defence and those of the successful regulator), it is not surprising that all of the cases to date have been dealt with by way of undertaking. Before getting to this stage however it is clear (not least from the failure to take any action in this space until recently) that discretion exists for the regulator.
Before answering that question it is relevant to note that any of the regulators with competition law jurisdiction in the UK have the power to commence such proceedings. As well as the Competition and Markets Authority, regulators which also have competition law powers in their sector (like Ofgem for energy, Ofcom for telecommunications and postal services and the Financial Conduct Authority for financial services for example) also have the power to bring these proceedings. All of these authorities in practice follow the approach set out in guidance by the CMA.
The CMA’s guidance makes clear that a number of factors will be considered in deciding to whether to commence proceedings. The factors identified are not exhaustive but include factors such as the nature of the alleged infringement and its impact on markets and customers (although the CMA is at pains to emphasise that it may pursue a case in respect of any breach), the conduct of the business during the investigatory process, the director’s own involvement in the infringing conduct (mirroring the factor the court must consider) and the extent of the director’s cooperation. The possible deterrent effect of an order on the wider market is also considered.
In simple terms the trend is for the CMA to seek disqualification in an increasing number of cases. Indeed in its recent statement on the design, construction and fit-out services director disqualifications, the CMA has described disqualification as an “essential measure to protect the public from directors of companies that break competition law” and confirmed that it will “seek further disqualifications of directors where appropriate."To date these cases have tended to display element of hardcore cartel conduct such as price-fixing or bid rigging (see for example Estate Agents in Burnham-on-Sea and Construction Cartel). These cases have been dealt with by undertakings so, to date, we have not yet seen a fully-contested case to conclusion before the courts. In addition, none of the other regulators have been involved in such proceedings to date although there has been an increase in competition activity by them in recent times. It is therefore surely only a matter of time before we see one or indeed both of these events occur.
The relatively recent letter from the Chairman of the CMA, Lord Tyrie to the Secretary of State - points to increasing individual accountability for breaches of competition law as a focus of the CMA’s work. Director disqualification will be a key part of this (it is noted that the CMA may wish for this to be expanded to breaches of consumer protection too) alongside enforcement of the criminal cartel offence (which remains relatively limited) and the possibility of civil penalties for individuals.
Obviously the first step for any director is to ensure competition law compliance measures are put in place by his or her company. That is likely to vary depending on the nature of the business but is likely to include, at a minimum, a risk assessment and regular review of it, together with appropriate guidance or training to staff. But even the best compliance measures cannot eliminate entirely the possibility that a regulator will call…
The CMA guidance explains that the manner in which the company and the director engages with the relevant regulator is likely to be a relevant factor to the question of whether proceedings should be commenced subsequently. This is particularly likely to be relevant when questions arise about participation in interviews with the regulator’s staff. For completeness many of the same issues may arise for individuals who are not directors but are subject to some other form of regulatory oversight on an individual basis – such as those who are authorised by the FCA.
Many key questions about the process have not been tested before the court in the competition law context. Based on court decisions in the wider (non-competition) disqualification regime there is at least the possibility that answers to questions put to the director under compulsion during the investigation of the company may be used against the director in subsequent disqualification proceedings.
In light of these complexities and the significant implications for the individual, it would be prudent for a director to take his or her own legal advice (separate from that of the company) at an early stage of the investigation.
Lawyers at Kingsley Napley have extensive experience of assisting individuals and organisations in connection with investigations of all kinds including competition law investigations. Jonathan Grimes or your existing Kingsley Napley contact would be happy to answer any questions arising out of this.
In the recent case of TMG Brokers Ltd (In Liquidation) (also known as: Baker v Staines) the High Court held a director of a company to be jointly and severally liable for payments made by his co-director out of the company’s bank account which were made without proper authority and amounted to disguised distributions of capital. The fact that he had placed trust in the other director for the company's financial affairs did not excuse him from performing his duties.
Following the release of the Hill Report at the start of last month, the FCA has announced that it is going to open a consultation into changing the Listing Rules and connected guidance with a view to encouraging the listing of Special Purpose Acquisition Vehicles (SPACs).
Following a request by the Department of Business, Energy and Industrial Strategy (“BEIS”) ICSA has prepared a report assessing the effectiveness of the independent board evaluation process introduced in the 2018 update of the UK Corporate Governance Code (the “UK Code”).
What happens when a director commits fraud by misappropriating company assets? Or what of the director who continues trading knowing that the company has no realistic prospect of paying its debts as and when they fall due? To whom does a director owe duties at that point and what recourse is there against that director? This article explores these questions.
Disputes between directors often arise because of, and/or result in, disputes about company money. Directors need to be alert to how they are required to act, particularly in times of conflict.
It is well known that directors owe duties to the company of which they are a director and, in certain circumstances, its shareholders, creditors and employees. Many people believe that if you have not been formally appointed as a director, i.e. you do not appear on Companies House records as a director, you will not owe the usual directors’ duties and, therefore, cannot be in breach of such duties or subject to sanctions for breach.
All providers registered with the Care Quality Commission (“CQC) must assure themselves that all directors who are responsible for delivering care to service users are fit and proper – in other words, they must be able to diligently carry out their responsibility to ensure the quality and safety of care. This forms part of the providers’ duty to ensure the service is well-led, which is one of the focus points during an inspection. Not only does the CQC monitor compliance at the point of registration, but it is an on-going duty and can lead to enforcement action where it is not met.
In the recent case of Barrowfen Properties Ltd v (1) Girish Dahyabhai Patel (2) Stevens & Bolton LLP (3) Barrowfen Properties II  EWHC 2536 (Ch), the High Court extended the iniquity exception to breaches of a director’s statutory duties.
It goes without saying that Insolvency Practitioners must behave honestly and with integrity in all their professional dealings. IPs must handle money and assets in a way which justifies the trust placed in them, but some professionals don’t realise that the way they behave on a Saturday night may be just as relevant to their ability to continue in their chosen profession as the way they behave on a Monday morning.
In response to the coronavirus (“COVID-19”) pandemic, the government introduced a number of loan schemes in order to assist businesses struggling financially. Recent reports suggest that these schemes, as outlined below, have become a target for fraudulent loan applications, by both genuine businesses and also organised criminal enterprises. This blog briefly examines the various loan schemes in place and the criminal offences which are likely to be the focus of investigating authorities in the coming months.
Court of Appeal overturns injunction in favour of son who sought to restrain his family from participating in the management of their caravan park business - Loveridge –v- Loveridge  EWCA Civ 1104.
Brother and sister Mark and Rachel Penfold were directors of a waste management company. In February 2016 an employee of the business suffered a serious injury when his arm was caught in a conveyer he was operating whilst at work. The Health and Safety Executive prosecuted the company and both individuals under the Provision and Use of Work Equipment Regulations 1998 (PUWER).
We live in uncertain and financially very troubling times. The coronavirus pandemic and the unprecedented measures put in place to tackle it have caused severe disruption to businesses. Big names such as Harveys, TM Lewin, Intu and the owners of Café Rouge and Bella Italia all went into administration at the beginning of the month. They will not be the last.
It is a sad reality that the Covid-19 Pandemic is likely to lead to a spike in the number of companies being put into insolvency. This has the potential to leave parties with claims against those companies with a reduced prospect of full recovery, even if their claims are strong. As a result, claimants may look for alternative targets, including ways in which they could sue directors personally.
Company succession planning is critical to ensure that a company can continue to run in the unfortunate event that a director (or shareholder) dies. If there are other surviving directors, they are able to step in and run the company, but what happens when a sole company director dies?
The impact of COVID-19 is being felt in many different ways. For those going through a separation or divorce, the pandemic has added a layer of uncertainty and stress to an already difficult process. This is particularly so for those who own a business (or whose spouse does), where the value of their business may have been affected and they are concerned with the impact on a financial settlement. In this blog, we look at the complexities of valuing businesses in divorce proceedings at this unprecedented time and provide some practical considerations.
In Hunt (as Liquidator of System Building Services Group Ltd) v Michie & Ors  EWHC 54 (Ch), ICC Judge Barber has confirmed that directors of insolvent companies remain subject to fiduciary duties, even after those companies enter into an insolvency procedure.
The case of the Secretary of State for Business, Energy and Industrial Strategy v Kevin William Eagling  EWHC 2806 (Ch) was the first brought by the Secretary of State under a regime in the Company Directors Disqualification Act 1986 providing for compensation orders. The court found in favour of the Secretary of State and made its first ever compensation order under the regime requiring a company director to provide compensation.
When is a director a director? At first glance this may appear to be a facile question. Why would individuals who only carry the title “director” fall within this group? Surely a director must be someone who has been formally appointed as a director? Well, yes and no. For instance, someone who is involved in the day to day management of a business, but has not been formally appointed as a director or someone who tells the board what to do may also be considered to be a director for the purposes of company law.
We are living in unprecedented times. Boris Johnson’s announcements each day, whilst aimed at slowing the growth of the global pandemic which is COVID-19 (Coronavirus), will undoubtedly have a drastic effect on businesses in all sectors.
Skip to content Home About Us Insights Services Contact Accessibility