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25 July 2018 / news

Private equity investors can be held liable for cartel infringements

EU General Court confirms that private equity investors can be held liable for cartel infringements by their portfolio companies.

JCPOA WorldTradeControls

In an appeal proceeding against a cartel decision from the European Commission (the ‘Commission’) in the Power Cables case, the EU General Court (the ‘Court’) confirmed that the Commission is entitled to hold a large international private equity investor (the ‘Investor’) partially liable for a cartel fine imposed on its former portfolio company (the ‘Company’). This case does not stand by itself. Also in the Netherlands, for example, do private equity investors face an increasing risk of being held liable for illegal conduct of their portfolio companies. In particular, in a judgment dated 26 January 2017, the Rotterdam District Court confirmed an earlier decision of the Dutch Authority for Consumers & Markets (ACM) by which the ACM imposed a fine of almost € 1.3 million on a private equity investment firm. The fine related to a cartel infringement on the market for flour, committed by one of the investor’s former portfolio companies between 2001 and 2007.  

Commission decision

Between 29 July 2005 and 16 January 2007, the Investor’s private equity division held between 84 and 91% of the shares in the Company and 100% of the voting rights. On 16 January 2007, a part of the stock in the Company became publicly listed through an initial public offering (‘IPO’), which reduced the Investor’s shareholding to 46%. The Investor did nonetheless remain by far the largest shareholder in the Company.

On 2 April 2014, the Commission issued a decision in which it established that the Company and various other producers of power cables had participated in a market and customer allocation cartel between February 1999 and January 2009, for which it imposed a total of fines in excess of € 300 million. The Company received the highest fine (nearly € 105 million). The Investor was held jointly and severally liable for this fine for an amount of € 37.3 million (equivalent to the period of its shareholding in the Company). The Investor appealed against the decision, stating that the Commission was wrong to hold it liable for the Company’s conduct during the period that it was the largest shareholder in the Company.

The judgment

In its judgment dated 12 July 2018, the Court dismisses the Investor’s appeal in its entirety. The Investor may lodge a further appeal (on points of law only) with the European Court of Justice.

Period before the IPO (84-91% shareholding)

With regard to the period preceding the IPO, the Investor argues that the Commission could not rely on a mere assumption that the Investor exercised decisive influence over the Company before the IPO. According to the Investor, it was up to the Commission to actually demonstrate that it influenced the Company’s market conduct. In this respect, the Investor recalls that it follows from established case law that a rebuttable presumption that a shareholder has a decisive influence over its subsidiary only exists in case its shareholding is (nearly) 100%. The Court however concludes that since the Investor did have 100% of the voting rights in the Company, its position was equivalent to that of a 100% shareholder.

Period after the IPO (46% shareholding)

The Court also finds that the Commission was correct to conclude that the Investor exercised decisive influence over the Company between the IPO on 16 January 2007 and the end of the cartel on 28 January 2009. The Court bases this finding on the following circumstances:

  1. The Investor had the right to (indirectly) appoint and dismiss all members of the various boards of the Company.

  2. Representatives of the Investor held at least 50% of the positions in these boards.

  3. The Investor’s representatives on the Company’s board of directors were vested with the broadest possible management powers.

  4. The Investor also played an important role in several of the Company’s committees.

  5. The Investor received regular updates and monthly reports on the Company’s business activities.

  6. The Investor had taken several measures to ensure the continuation of its control over the Company after the IPO. Prior to the IPO, the Investor appointed the members of the board of directors until 9 April 2009 and changed the Company’s by-laws, so that it would remain able to nominate at least five of its six directors even with a smaller shareholding. In addition - after the IPO – the Investor successfully convinced other shareholders not to increase their interests above 10%. Finally, minutes of the Company’s board of directors explicitly referred to the Investor’s controlling interest.

  7. The Court also confirms the Commission’s finding that the Investor behaved like an ‘industrial owner’, also after the IPO. In particular, the Investor attempted to broker business relationships between the Company and other of its portfolio companies

In view of the above, the Court also rejects the Investor’s plea that it acted as a purely financial investor in the Company.

Implications of the judgment: compliance is crucial!

The Court’s judgment is another wake-up call that underlines the importance for an investor to ensure that its portfolio companies are fully compliant with the applicable competition rules. A compliance programme that is specifically tailored to each individual portfolio company can be of great value in this respect. Such a programme may include a code of conduct, compliance training, a compliance officer, a monitoring protocol and a whistle-blowers’ programme. In certain cases, it may also be appropriate to carry out a legal audit and look for possible on-going cartel infringements.


Should you have any questions with regard to the above, please contact one of Loyens & Loeff’s competition specialists Gert-Wim van de Meent, Marc Wiggers, Marc Custers, Robin Struijlaart, or your regular Loyens & Loeff adviser. We are also more than happy to discuss the issue of parent-subsidiary liability and the possibilities of compliance audits and/or trainings.