Belgium: Risk of Antitrust Liability for Private Equity Companies

Private equity firms could face significant fines for violations of EU-Antitrust laws committed by their portfolio-companies. At the end of January, the European Court of Justice upheld a fine of more than €37 million against The Goldman Sachs Group Inc (“Goldman Sachs”) for the involvement of its indirect investment company, Prysmian SpA (“Prysmian“), in a global undersea-cable cartel  (C-595/18 P, The Goldman Sachs Group Inc. v European Commission).

According to EU competition law private equity firms that own - directly or indirectly - all or substantially all the share capital or voting rights of an investment company may be jointly and severally liable for antitrust violations committed by a portfolio-company. Accordingly, in cases in which the parent company owns less than 100% of the share capital or voting rights, it may still be liable for the conduct of the subsidiary if it controlled the subsidiary at the time of the breach, regardless of whether it knew of or participated in the illegal activity. Fines are severe and may amount up to 10% of the global group turnover.

In the specific case, Goldman Sachs invested indirectly through one of its funds in 100% of the shares of Prysmian in 2005. Through a series of divestments in 2006, Goldman Sachs reduced its stake to 84.4%. From 2007 onwards, the shares of Prysmian were gradually sold through an IPO on the Milan Stock Exchange.

In 2014, the European Commission (“Commission”) issued an infringement decision against Prysmian for its involvement in a global undersea-cable cartel between 2005 and 2009. The Commission found that Goldman Sachs did indeed exert a decisive influence over Prysmian during this period (even after the IPO) and was therefore jointly and severally liable for the infringement committed by Prysmian. The decisive factor for such a dominant influence was Goldman Sachs’ voting rights. In addition, the powers to appoint board members, to call shareholders' meetings as well as to dismiss directors were also considered as decisive influence. Apart from this, Goldman Sachs received regular reports from Prysmian. The Commission considered, that it is not the mere holding of all or almost all of the capital of the subsidiary per se that gives rise to the presumption of the actual exercise of decisive influence, but the degree of control of the parent company over its subsidiary that this holding implies.

In the case of corporate divestitures, it means that the acquirer is usually only jointly and severally subject to fines in relation to violations that continued after the acquisition of control. At the same time, the seller remains responsible for violations of such target company that occurred in the period before closing. After this period, however, the seller remains responsible on grounds of guarantees and indemnities.

This case illustrates the risk that private equity firms face when acquiring control of companies that are involved in antitrust violations without the knowledge of neither the seller nor the buyer. This is particularly the case with cartels, which are fundamentally secret and hardly discoverable during a standard due diligence.

Autor: Christina Hummer