“General Court confirms that investment funds and other financial investors can be held liable for anticompetitive practices implemented by their portfolio companies.”

The General Court of the European Union recently held, in Goldman Sachs v. Commission,1 that purely financial investors such as investment funds may be held jointly and severally liable for competition law violations implemented by their portfolio companies when they can exercise “decisive influence” over the company, irrespective of whether they were aware of the infringement or actually influenced the market behaviour of the subsidiary. This decision has several major practical implications for investment funds and private equity funds.

Key Aspects and Consequences

  • The investor was held liable for antitrust violations implemented by one of the portfolio companies held by its private equity division

  • While the legal presumption of parental liability already existed, the General Court has raised still further the bar to rebutting that presumption

  • The financial investor was held liable on the basis of its ability to exercise 100% of the voting rights, even though it did not hold 100% of the share capital

  • The investor’s liability continued for a period after the portfolio company went public, until the board was renewed, despite the fact that the investment fund retained less than 32% of the company

  • Private equity owners and financial investors with large ownership stakes should include parental liability for portfolio company actions in balancing the risk and rewards associated with board representation and other forms of involvement in their portfolio companies

  • Financial investors that want to remain involved at board level should also consider adopting antitrust best practices at their portfolio companies, such as conducting antitrust due diligence at the time of acquisition and implementing strict compliance programmes

For a detailed explanation of the background to the case, the decision and for its implications for financial investors, click here.