The Enterprise Act 2002 – [1]LEGISLATION “The Enterprise Act 2002” – came into force on 20 June 2003 and is focused largely on competition law, empowering consumers and it also contains some important provisions relating to insolvency.

Enterprise Act 2002

When it was introduced, much attention was paid to the fact that a new criminal offense existed for taking part in cartel activity, however, there were also many other significant changes that were enacted.

A new Offence for Cartel Activity

A key aim of the Enterprise Act was to ensure tighter rules around UK competition law and mergers, in addition to ensuring that those involved in anti-competitive activity were penalised.

In terms of cartel activity, the Act covered areas such as price-fixing, limiting supply or production, market-sharing, or bid-rigging. The new offense -under s.118 of the Act – meant that directors found guilty of anti-competitive behaviour, whether in forming a cartel or agreements, could now be jailed for up to five years. They could also be disqualified from holding a directorship for 15 years under a Competition Disqualification Order. 

A Stronger Role for the Office of Fair Trading

The Act also gave powers to the Office of Fair Trading (OFT)  as part of the changes to competition legislation – it was separated from the government and became independent. 

The OFT also became a corporate body, funded by the government, with a chairman and at least four non-executive directors. The OFT  advises ministers and public bodies about matters relating to competition and consumer law, including possible changes to existing or proposed legislation.

The OFT will investigate mergers if the target company has a UK turnover of £70 million or if the merging parties will together supply at least 25% of goods and services in the UK. The OFT also has a duty to refer to the Competition Commission a merger that may be expected to result in a ‘substantial lessening of competition’.

It also seeks to facilitate whistle-blowing on competition grounds and the OFT can issue a no-action letter – this grants immunity from prosecution to individuals who come forward with information on a cartel. 

Designated consumer organisations, such as Which? or Citizens Advice, were given the authority to make a new procedure, known as ‘super complaints’ to the OFT, where a matter is deemed to be serious and could harm consumers. The OFT is required to respond to these complaints within 90 days. During this time, a decision will be made as to whether to take the matter further, such as to a full market study, or take enforcement action in the public interest.

These full market studies can come to a number of outcomes, including reports with recommendations, enforcement action for breaches under the Competition Act or consumer legislation, consumer information, and education initiatives.  Should it be decided to investigate an entire market sector, as was enabled under the Act, then this would be overseen by the Competition Commission. 

Formation of the Competition Appeals Tribunal

This was established for companies to appeal against Competition Commission decisions made by the OFT or Secretary of State. The tribunal is separate from the Competition Commission. It will also be able to hear claims for damages where an infringement of competition law has been established. 

Insolvency and the Enterprise Act 2002

The corporate insolvency provisions of the Enterprise Act 2002 came into force in September 2003, while those for personal insolvency came into force in April 2004. Its focus was to create more of a rescue culture, avoiding liquidation if possible and an improved administration procedure.

The Enterprise Act amended the process of administration, which was introduced by the Insolvency Act 1986. The purpose of administration is to provide a breathing space while an insolvency practitioner attempts to secure a rescue package for the company.

It restricted the use of administrative receivership for most cases of insolvency and this, apart from a few exceptions, is now virtually abolished. There has been a marked shift towards administration over administrative receivership.

One key change was previously, an administrative receiver would only owe duties to a secured creditor, whereas the new regime meant an administrator would act on behalf of all creditors and so created a more balanced procedure.

The administration is now more collective, quicker, more flexible, easier to access, and fairer and the Act also removed the need for a court hearing in most cases.

An Updated Bankruptcy Regime

The Act also sought to modernise the bankruptcy regime and allow those who had failed more opportunities to restart businesses, while also ensuring that those who had abused creditors and the public were penalised. 

This meant that should a firm have failed on a no-fault basis, and where directors cooperated with the Official Receiver, they are discharged from debts and restrictions after a maximum of 12 months.

However, the new Bankruptcy Restrictions Order regime meant the minority of bankrupts who had acted dishonestly now faced restrictions from between two and 15 years.

References

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  1. LEGISLATION “The Enterprise Act 2002”