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Bidding Farewell to the Boardroom: Directors Barred for Collusive Tendering

June 2023
Paul Henty and Nathan Penny-Larter


In its recent investigation into anti-competitive conduct in the construction services industry, the Competition and Markets Authority (“CMA”) concluded that ten construction firms had engaged in collusive tendering for several main contract and sub-contract opportunities.  This conduct contravened Section 1 of the Competition Act 1998, leading the CMA to impose financial penalties totalling £60 million.

Pursuant to the Company Directors Disqualification Act 1986 (“CDDA”), the CMA has authority to seek the disqualification of any director if a company they serve has been found to have infringed competition law.   As an alternative to courtroom action, the CMA may negotiate disqualification undertakings that the defendant director agrees not to act as a director for a specified period.    In the context of this investigation, the CMA has now secured the disqualification of four directors working for the corporate defendants.

Director disqualification orders and undertakings

One of those Directors is Nicholas Brown.  He is the current managing director of the Brown and Mason Group, a position he held when the company became involved in certain illegal cartel activity. Mr. Brown admitted his personal involvement in two violations of competition law concerning demolition service contracts valued at over £30 million.  The anti-competitive agreements involved Brown and Mason receiving payments totalling £700,000 from two competitors.  Mr. Brown also acknowledged his central role in orchestrating these actions, including issuing invoices for fictitious services and goods. He admitted awareness of the wrongful nature of his actions and his personal gain from the payments.

On 25 May 2023, the CMA announced it had accepted a Competition Disqualification Undertaking from Mr. Brown. He has agreed not to act as a director of any UK company for seven years, starting from 28 July 2023.

Contesting disqualification in Court

Pursuant to Section 17 of the CDDA, a director may apply to the High Court to continue to act as Director, even after giving a disqualification undertaking.  This right was exercised successfully by another executive connected to the Construction Services investigation.

In February 2023, Mr. Paul Cluskey, a Director of Cantillon, gave a competition disqualification undertaking after admitting his involvement in bid rigging. As a result, he undertook not to act as a director of any UK company for four years and six months, starting from 1 May 2023.

Subsequently, Mr. Cluskey applied to the High Court for permission to continue acting as a director of Cantillon Limited, as well as participate in the management of two other companies.

On 25 May 2023, the High Court issued its judgment, granting Mr. Cluskey’s application subject to specific conditions. These conditions include prohibiting him from acting as a director of any other company or performing the position or role of managing director of Cantillon Limited. Cantillon must also not act as a director of any company.

The High Court further approved the appointment of a new non-executive director, two new directors, and a competition compliance officer for Cantillon Limited. The non-executive director will supervise compliance with competition law by Cantillon and Mr. Cluskey, meeting at least quarterly and reporting to the CMA on such compliance. Additionally, annual competition compliance training must be conducted for all directors of Cantillon and staff identified as being at higher risk of non-compliance.

Debarment from Public Contracts

In addition to facing fines and director disqualification, companies that break competition law may risk debarment from tenders for public contracts if they, their directors, subsidiaries or parent companies have been involved in a breach of competition rules.

Under existing public procurement law, being found to have infringed competition law is a discretionary ground for debarment meaning that a public body may choose to exclude the relevant company if (i) it has become aware of the infringement and (ii) it deems this sufficiently serious to warrant debarment from the opportunity.  A decision to exclude will not necessarily create a precedent for other competitions.

The Procurement Bill (expected to enter into force this summer) is expected to classify cartel related infringements (under the Competition Act 1998 or the Enterprise Act 2002) as mandatory grounds of debarment.  That will apply where the unlawful conduct has been determined by either the CMA, another UK regulator (such as the Office of Road and Rail) or overseas competition authorities (e.g. the EU Commission or US Department of Justice) applying their own domestic competition laws.  The Bill will also introduce a “debarment list”, setting out companies which are the subject of debarment grounds which require or permit their exclusion from participation.  The list will be accessible by all public bodies running tender processes.

Cartel activity by a current director – possibly even where related to service for a separate company – will be enough to trigger mandatory debarment.

Conclusion: key take-aways for businesses, business executives and their insurers

These developments yield important lessons for both companies, their directors and the insurers who cover those companies and their directors.

The CMA’s investigation into anti-competitive practices in the construction services sector has not only resulted in significant fines but also showcased the potential liability and reputational damage that companies and individuals can face.  It has once again put the construction industry in the spotlight for failure to comply with antitrust law, highlighting certain behaviour which was unacceptable from a compliance perspective.

For directors who find themselves under the spotlight, seeking legal guidance at an early stage can help navigate the complex legal landscape and protect directors’ interests while ensuring compliance with competition law.  They should encourage their companies to provide them with effective training if they feel inadequately briefed on legal requirements in this area.   Directors and companies also have a shared interest to share this knowledge across the organisation and ensure that other effective compliance safeguards are in place, such as whistleblowing procedures.  It goes without saying though that where an investigation has been opened, directors will need separate legal counsel from the law firm representing the corporate defendant.

The Cluskey judgment illustrates that where directors or senior managers find themselves facing director disqualification proceedings, compliance, or the implications of illegal cartel activity, our experienced director disqualification solicitors can provide valuable assistance.   Pursuant to Section 17 of the Company Director Disqualification Act 1986, it may be possible to apply to Court to continue to act as a director of one or more companies.

From the perspective of insurers, whilst fines and penalties are typically not covered by a D&O policy, investigation and defence costs are in certain circumstances. The actions brought by the CMA and other regulators in this area are part of a wider trend sweeping across the UK and other jurisdictions. Regulators are increasingly focussed on the personal liability and accountability of directors and officers rather than the corporate entities they serve. This applies not only to the types of scenario we highlight above but in all areas of corporate governance. This is likely to lead to more calls on D&O policies from directors who are investigated and prosecuted or are faced with disqualification proceedings.

Some D&O policies also cover costs only once a formal investigation has begun, this can mean that, for example, interviews under caution conducted before a regulator such as the CMA has officially commenced an investigation do not fall for cover. The drawback to this is that directors might make comments which later prejudice their defence, which might have been avoided had legal representation been made available. Insurers should consider whether adopting a pragmatic approach to the wording might ultimately benefit insurers and their director insureds in circumstances where the regulators come knocking.

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