Enterprise Bill

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Clause 195


Mr. Djanogly: I beg to move amendment No. 115, in page 139, line 13, leave out from 'infringes' to end of line 23 and insert

    'an offence under section 179 of the Enterprise Act 2002'.

The law currently provides for unfit persons to be disqualified from being directors or otherwise involved in the management of limited companies for a certain period without the leave of the court. The clause would extend those provisions to directors of companies who commit a breach of competition law. We debated at some length whether cartel offences should be classed as criminal offences. It was the clear view of Conservative Members that they should not be. However, following the withdrawal of certain amendments it would now be the case that, as with any other criminal offence, the court would have the opportunity to attach a disqualification order at the time of sentencing. That power is not being questioned, although we believe that it would make sense for it to be spelled out in the Bill. That would be part of the effect of amendment No. 115, which would insert the new section 179 cartel offence as a breach of competition law.

However, the Bill goes further by extending the definition of breaches of competition law to include chapter 1 and 2 prohibitions and breaches of articles 81 and 82 of the EC treaty. That represents a radical change. None of the prohibitions involves criminal sanctions against directors. They are civil issues, and a company could be fined if it were found to be in breach of them. That might look straightforward, but I do not think that it is—mainly because the concept behind directors disqualification orders is that they are issued on the back of criminal or insolvency sanctions. In other words, if the director were considered unfit, that would be apparent from the underlying case. That is not the situation here; in most cases the underlying action would relate to the conduct of the company as a

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whole, not to the rights and wrongs of a particular director's actions or lack of them.

The way in which disqualification orders work is not through an independent trial of the rights and wrongs of the particular disqualification, but by the orders being attached to other sanctions. As a result, there is a significant chance either that a director could be disqualified for reasons that the law would not otherwise attribute to him or her, or that the period of disqualification arising out of the process could be grossly disproportionate to the individual's offence.

Furthermore, the new clause gives no sense of proportionality concerning the extent to which a company might have breached, for example, article 1. These are not black and white issues, and we are not talking about criminal offences. Breaches could be on a large or a small scale. How would that be reflected in the period of disqualification? The amendment reflects those problems, and states that disqualification should relate only to criminal circumstances.

Mr. Field: It strikes me that the current wording that would disqualify directors reflects a ham-fisted approach. I can appreciate that if there is a cartel and the Government, understandably, want to ensure not only that full sanctions are put in place to expose that cartel but that there are strong disincentives for future directors to act in that way. However, it seems that most other disqualification orders, particularly those relating to insolvency, do at least attach some personal blame to a particular director. The proposed wording would impose a directors disqualification across the board on all directors of a company that is found guilty of participating in a cartel. That does not seem to be the right way to proceed.

It is understandable that the full brunt of cartel legislation should be brought to bear on a company, and therefore on individuals in the company who are guilty of the offence. However, to ensure that directors, who may personally have been innocent of any criminality, are disqualified as a result of their being attached to a company that is guilty seems unjust. Such relatively innocent directors would find their careers blighted by their association with such a company in any event. A fully fledged disqualification, even for a relatively short time, from being a director of other companies seems a wholly additional and unjust penalty. I hope that the Minister will give some thought to drawing a distinction between directors of guilty companies who are relatively innocent and those who are guilty.

Dr. Pugh: I would like some clarification from the Minister. I have read the clauses carefully, and the comments made by the hon. Member for Cities of London and Westminster are not quite right. Presumably, two conditions must be met before somebody can be disqualified. First, they must be a director of a company that has committed a breach of competition law, and secondly, the court has to judge them to be unfit.

There may be some directors of companies that have committed breaches of competition law who will be left alone and not disqualified, because the court regards them as fit to run a company. That is fine,

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except that it creates the anomaly that a director of a company that has breached competition law can be disqualified whether or not they are personally responsible for that breach, so long as the second condition is met and they are judged unfit. In other words, the director's personal liability is not the issue. The conditions that must be satisfied are that his company has committed a breach and that he is unfit—perhaps on grounds that have nothing to do with his involvement in the breach of competition law.

Miss Johnson: On a point of order, Mr. Beard. I should draw hon. Members' attention to the letter that I have sent to members of the Committee about the OFT's disqualification guidance, which I am sure they will find useful and helpful in further debate on the matter on Report. I hope that that will give the Committee an opportunity to consider that guidance in more detail.

First, the amendment would prevent the court from considering whether the director of a company that has committed a breach of competition law falling outside the ambit of the cartel offence was unfit to be involved in the management of a company. The Bill allows the court to disqualify a director who has been convicted of a cartel offence under clause 179.

It is right that the court should have the opportunity to consider such cases and disqualify directors where that is appropriate to protect the public. Some 7,607 directors have been disqualified under existing provisions, the vast majority of them for being unfit directors of insolvent companies under the existing arrangements. There was some debate this morning about whether the existing provision was being much used, but that is the figure for the five years from 1996 to 2001.

It is important to look at the matter in perspective. The vast majority of companies in business operate responsibly. The disqualification provisions will apply only to the very small minority of directors whose companies have been found to have breached competition law. It will be for the court to decide, on the facts of each particular case, whether the person is fit to be involved in the management of a company. If the court is not satisfied that is the case, it may not make a disqualification order. I believe that we have got the balance right in giving the courts the opportunity to consider the matter, giving the opportunity for disqualification but leaving it up to them to decide. That will make a difference in each case, which is the point of the court's considering the evidence and circumstances in each individual case.

I expect that the vast majority of cases will relate to active involvement in a breach of competition law rather than anything else. However, it is right that the court should decide whether there are other circumstances, such as a lack of knowledge, that might be equivalent to an unfitness for a director to continue. I hope that I have reassured Opposition Members about the nature of the clause, and that the amendment will be withdrawn.

Mr. Djanogly: I thank the Under-Secretary for her explanation. Clearly, it is for the courts to decide whether an order should be attached, but I remain

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unconvinced that it would be appropriate to attach criminal orders to civil judgments. That is mixing and matching in a way that may not work in practice. Having said that, as the matter may be reconsidered in due course I beg to ask leave to withdraw the amendment.

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Amendment, by leave, withdrawn.

7.1 pm

Sitting suspended.

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