A director who has been disqualified can apply to the court for permission to act as a director under section 17 of the CDDA. A successful application for permission under section 17 of the CDDA can be a lifeline for disqualified directors who have been heavily involved in all operations of a business and possess irreplaceable knowledge and experience which is key to a company’s sustenance.

When determining the application, the court starts from the position that the applicant is unfit to be a director. The burden is on the applicant to persuade the court that it would be appropriate to allow them to act as a director. The applicant needs to address the relevant factors set out in the case of Rwamba v Secretary of State for Business, Energy and Industrial Strategy [2020] EWHC 2778 (Ch). The court will balance these factors when considering whether to grant permission.

Factors when granting permission

Need for the applicant to be a director or to be involved in the management of the company

There are various reasons as to why the applicant may need to be a director, or may need to be involved in the management of the company. For example, in Rwamba, the court held that if the applicant was a director, then the companies would have “a better chance of raising funding” and that it would assist the growth of the business “to have Mr Rwamba as part of their public face as a director”.

Nature and seriousness of the conduct that led to the disqualification and the length of the disqualification

The court will consider and balance the nature and seriousness of the conduct of the former director that led to their disqualification. For example, if the former director had been disqualified based on their dishonest conduct, this would reduce their chances of the court granting permission to act under section 17 of the CDDA.

Purpose of the disqualification order

The court will consider the purpose of the disqualification order, specifically, the aim of protecting the public by prohibiting the former director from acting and to act as a deterrence to those who may commit that particular kind of conduct in the future.

Notably, in Rwamba, the court held that “leave should not be too freely given as this would undermine the protective and deterrent purposes”, although in an appropriate case, “it may serve the public interest to allow a disqualified person to be the director of a specific company”.

Conditions

The court will consider whether by imposing conditions and/or safeguards, it may be appropriate to grant permission to act under section 17 of the CDDA. These conditions typically tend to be of a practical nature.

Practical considerations

The imposition of conditions and/or safeguards on the granting of the application is seen as an essential part of the balancing exercise that the court must undertake. It is therefore something that the applicant also needs to consider carefully before embarking on an application under section 17 of the CDDA. Before proposing conditions, the applicant needs to consider if these target and address the risk that the applicant poses of commercial impropriety.

Typical examples of conditions include:

• Ensuring the filing of tax returns on time.
• Instructing independent auditors.
• Appointing a chartered management accountant as a director.
• Ensuring that the company held minuted monthly board meetings.
• Instructing solicitors to attend the monthly board meetings and report any matters of concern to the board.
• Providing a board report confirming compliance with the conditions.
• Implementation of a compliance programme.
• The appointment of a competition compliance officer as director.
• The appointment of a solicitor as an independent non-executive director.
• Adopting a formal written whistleblowing policy.

Plainly, the above examples will affect the bottom line of the company’s business through increased expenditure to ensure compliance with the terms of order.

Deterrence factors

Brown demonstrates the weight the court attaches to the deterrence factor when determining applications under section 7 of the CDDA.

This case concerned Nicholas Brown, a former managing director who was disqualified by the Competition Markets Authority (CMA) for his involvement in an illegal demolition cartel that led to a £60 million fine in March 2023.

The CMA found that Mr Brown had played a central role in two breaches of competition law. As part of the illegal agreements, Mr Brown had received £700,000 in ‘compensation payments’ from two competitors.

If the former director had been disqualified based on their dishonest conduct, this would reduce their chances of the court granting permission

Mr Brown offered a disqualification undertaking for a period of seven years and applied for permission to act as a director under section 17 of the CDDA for that same period. The CMA opposed the application, with its overarching submission being that that permission to act in this case would “seriously undermine the general deterrent of the director disqualification regime in competition cases”. It regarded Mr Brown’s conduct as “a paradigm example of cartel activity that is hard to detect, time consuming and costly to enforce, ostensibly very profitable for the undertakings involved and deleterious for the consumer and the wider economy”.

The CMA pointed to the serious nature of the conduct that led to the disqualification and noted that a “significant resource allocation” was made to the investigation of Mr Brown and if “the general deterrent impact of the disqualification regime is hollowed out through the effect of successful applications for leave to act, there is a risk that it will be concluded that pursuing such cases in the future no longer justifies the resource allocation, as a matter of administrative prioritisation”.

In the judgment, the court balanced the deterrence factor against the likelihood that Mr Brown’s exclusion from the business would cause it “significant if not catastrophic economic harm”.

Although the judge noted that the conditions proposed by Mr Brown made the risk of undetected re-occurrence very small, he ultimately found in favour of CMA, agreeing with the CMA’s submissions granting the application would be an “overly great intrusion into the public benefits of this disqualification”.