When competition sanctions get personal – director disqualification as an enforcement tool

On 11 January 2022, the CMA announced that it had secured an undertaking from a director of Lexon (UK) Limited not to act as a company director in the UK for 4 years. Lexon had been found to have engaged in anticompetitive information exchange with three other pharmaceutical companies in relation to the drug Nortriptyline, used in the treatment of depression. Directors of the other three participants had previously given similar undertakings.

This is the eighth case in which the CMA has secured such an undertaking, or obtained an order disqualifying an individual from acting as a company director following an infringement of competition law by the relevant company. We take a look at the role director disqualification plays in competition enforcement in the UK.

Disqualifying directors by order or undertaking

The power to disqualify directors of companies that infringe competition law in the UK has existed since 2003. The CMA can apply for a Competition Disqualification Order (CDO) or obtain a Competition Disqualification Undertaking (CDU) from a relevant director that was either involved in, or had sufficient proximity to, the infringing conduct. While the power was not used until 2016, since then the CMA has routinely considered as part of its competition investigations whether a CDU or CDO would be appropriate.

Are individual sanctions effective?

There is much academic literature on whether the threat of individual, criminal sanction is an effective deterrent to would-be participants in cartel activity. But the history of individual sanctions in UK competition law suggests there are practical obstacles to effective enforcement. Previous prosecution of individuals for the criminal cartel offence in the UK has not been a success story and even after the removal of the dishonesty requirement the CMA seems to have virtually no appetite for devoting resources to costly criminal investigations.
Director disqualification may go some way to filling the void. The relative ease with which a CDU, at least, can be obtained means the CMA can send regular warnings to would-be infringers of the potential personal consequences of anticompetitive behaviour. In addition, director disqualification is available in all cases where there is an infringement of competition law, and not only for cartels (albeit to date no case involving abuse of dominance has led to a CDU or CDO).

What is the role of director disqualification?

Perhaps a key element of the director disqualification regime is that the CMA will not seek disqualification of a director of a company that applies for leniency (and cooperates with the investigation). This means a director who is or becomes aware of anticompetitive conduct within their organisation may have a personal incentive to report the conduct to the CMA and seek leniency for their company. Given the huge significance of leniency programs for the enforcement of competition law (at least in respect of anticompetitive agreements) the director disqualification regime is an important feature of UK competition enforcement.

One area where the future use of CDOs and CDUs is less certain, though, is in relation to abuses of dominance. This is not least because the existence of unlawful conduct may be less clear cut than unlawful cooperation between competitors, and the CMA may therefore be less willing to assert (and no doubt a director would be less willing to accept) that a director knew or ought to have known that conduct was unlawful.

The future of personal sanctions

While director disqualification was initially slow to take off as a competition enforcement mechanism in the UK, in the last 5 years this has become an important part of the CMA’s armoury. With disqualification now routinely considered in every case, we expect to see further disqualifications in the coming years, alongside a growing awareness among business professionals at c-suite level of what competition infringements may mean for them personally.