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The Enterprise Act 2002 Explained

The Enterprise Act 2002 ( "the Act") came into force in June 2003 ( although some provisions had effect from the previous first of April ). The Act (a) establishes the OFT as a corporate body and sets out its general functions and provides for arrangements for making super-complaints (b) establishes the Competition Appeal Tribunal ("CAT") and made provisions for proceedings to be brought before it (c) makes provision for a new merger control regime with various responsibilities attributable to the OFT, the Competition Commission ( "the CC") and in exceptional cases the Secretary of State (d) makes provision for market investigation references to be made by the OFT or in exceptional cases by Ministers, to the Competition Commission and describes how the Competition Commission should decide and report on such cases (e) deals with the Competition Commission and outlines its rules of procedure (f) creates a new criminal offence for individuals engaged in cartels and provides the OFT with certain investigatory powers (g) deals with a number of miscellaneous competition provisions, including a new power for the court to disqualify company directors who engage in serious breaches of competition law and some minor amendments to the Competition Act (h) outlines new procedures for enforcing certain consumer legislation and related matters (i) provides new rules to govern the disclosure of certain types of information by public authorities (j) changes insolvency law (k) contains supplementary provisions such as in which territories the Act will apply.

The provisions of the Act largely complement the Competition Act 1998 ( which remains in force with some minor amendments ) and largely replace the Fair Trading Act 1973.

We comment on Cartels, Powers to disqualify Directors and the new Merger Control regime.

Cartels. The Act introduces a criminal offence for an individual if he or she dishonestly agrees with one or more other persons that undertakings will engage in one or more of the prohibited cartel activities. These are price fixing, market sharing, bid rigging and agreements to limit production or supply. This offence carries a maximum penalty of five years imprisonment and/ or an unlimited fine. In certain cases, the OFT may grant immunity from prosecution in the form of a no action letter, to individuals who come forward with details of cartels.

The new offence only applies to agreements between undertakings at the same level in the supply chain, known as horizontal agreements. Vertical agreements will not fall within the scope of the offence.

The new cartel offence operates alongside the existing regime that imposes civil sanctions on undertakings that breach the Competition Act 1998 prohibition on anti-competitive agreements.

In order to investigate the cartel offence, the Act provides the OFT with a number of new powers including, power to compel a person to answer questions, power to enter premises under warrant and powers of surveillance under the Regulation of Investigatory Powers Act 2000.

Disqualifications. The Act amends the Company Directors Disqualification Act 1986 to provide the OFT with power to apply to the court for orders disqualifying directors of companies ("Competition Disqualification Orders" ("CDOs") ) which have committed a breach of competition law. Sectoral regulators in for example, gas electricity and telecommunications may also apply for CDOs in relation to their designated sectors. A CDO which disqualifies directors for up to 15 years may be granted if the court decides that an individual contributed to the breach or failed to take steps to prevent it.

Mergers. The Act amends the existing framework for control of UK mergers and acquisitions by replacing the vast majority of the mergers provisions of the Fair Trading Act 1973. The two most significant changes are: (a) decisions on merger control will in general not be taken by the Secretary of State. Most decisions will be taken by the OFT and the Competition Commission as specialist independent competition authorities and (b) subject to certain exceptions, mergers will be assessed against a pure competition test, rather than the wider public interest test which formerly applied. Generally mergers will be prohibited or remedies required, if they would result in a substantial lessening of competition in a UK market. The OFT may investigate mergers which meet either the turnover test or the share of supply test. The turnover test is met if the target company has a UK turnover exceeding £70 million. The share of supply test is met if the merging parties will together supply at least 25% of goods or services of a particular description either in the UK as a whole or in a substantial part of it.

The OFT must consider whether there is a significant prospect that the merger may be expected to lessen competition substantially. If the OFT believes that this test is or may be met, then it must either refer the merger to the Competition Commission or if appropriate seek undertakings in lieu of a reference from the merging parties to remedy the unexpected effects of the merger.

The OFT can look at outright acquisitions of businesses and at acquisitions which confer a lesser degree of control over the conduct of a business, starting from the level at which the purchaser gains material influence over the target business.