How to Avoid being Disqualified as a Director

Company directors have a special responsibility and need to be well informed about what's happening in their company. On top of this, your employees will look to you for guidance and how to carry out their roles.

You should be aiming to lead by example. Just don't forget, if something goes wrong, the buck ultimately stops with you.

The Competition and Markets Authority (CMA) has been ramping up how they use their power of disqualification to hold account companies that break the competition law. As a result of this, a director can be disqualified if they engage in activities such as:

  • Price fixing;
  • Bid rigging; and
  • Market sharing.

How does the disqualification power work?

Under the Company Directors Disqualification Act, Companies House can seek the disqualification of a director and ban them from being a company director. This ban can also prevent the director from performing certain roles within the company. This can be in effect for up to 15 years.

This can be done in one of 2 ways:

  1. By accepting a legally binding undertaking (a commitment) from the individual.
  2. By seeking a court order to disqualify.

If you choose to go through option 1 and cooperate with Companies House, there may be another option of having a reduced period of disqualification.

Companies House are using their power in new ways

Their processes have been updated to fit in better with the court system which increases the efficiency to use the power. This allows more cases to be pursued.

In addition, cases are now pursued where the competition law has been broken. Responsibilities of individual directors will be scrutinised to see if they:

  • contributed to the breach;
  • had reason to suspect it but failed to stop it;
  • should have known about it.

Hierarchy of risk

There are different levels of risk when you're facing disqualification. Director level involvement with competition law breaches can include:

  1. You've got your hands all over it and are complicit in breaking the law - this can be either directly, or if you've ordered it to be done.
  2. It happened on your watch but your failed to stop it from happening.
  3. It happened on your watch but you didn't realise it, you should have been more diligent and taken action to stop it.

If you're found doing any of the above, you will be at risk of disqualification if you've been investigated and found to be in breach of the competition law.

If a director is found to be involved in the breach, any fine that has been imposed on the company may be increased.

How to protect yourself and your business

Being clear on the rules is crucial to safeguarding your company and your standing as a director. The majority of directors want to do the right thing and comply with the law and there is advice on how to go about this on the Companies House Website.

In short though, directors need to embrace their responsibility in all aspects, including competition law due diligence. Scrutinise every aspect of how your company runs and challenge any risky practices. If you suspect a breach of the competition law, immediately take steps to stop it and seek independent legal advice.

If you think your company has been involved in anything, report it to HMRC and you may benefit from disqualification immunity, as well as immunity from fines and further prosecution.

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