It has been a long-standing tenet of EU competition policy that individual financial circumstances should have no bearing on fine levels imposed for anti-competitive conduct. Ability to pay was, essentially, seen as a non-factor or at least one considered to be eclipsed by the imperative to punish the guilty and discourage future infringements. This approach was confirmed as recently as late 2009 by the European Court of Justice, the EU's most senior court, when it dismissed an appeal brought by Le Carbonne Lorraine on grounds of financial distress with regard to a fine imposed on it for its participation in the Carbon and Graphite Products cartel.  

One of the longest and deepest recessions in recorded European history, however, is now heralding a change to the EU's hard line. Its "softer" approach was, initially, hinted at in draft Commission guidelines issued in 2006 but recently took on a more concrete form with the announcement of a recent cartel decision involving the supply of Bathroom Fittings. This is a significant change of tack and one that provides companies and their advisers alike with a new line of defence. Both the Commission's guidance and the Bathroom Fittings decision are explored in more detail below.  

Commission's Guidance

The Commission's 2006 guidance on fines contained just a single paragraph which makes mention of "ability to pay" as being a factor when assessing fines for competition law infringements. Since then the Commission has been discussing internally exactly how this concept should be applied in practice. Uppermost in the Commission's mind has been ensuring that the approach taken is fair to all participants in a cartel, particularly where only some are able to show that they are impoverished, and trying to anticipate any gaming that might take place as companies look to corporate structuring as a way of artificially diminishing penalties. The fairness issue has already featured in a recent Commission 2008 decision relating to cover-pricing in the Belgian Removals market where the Commission gave one company, Interdean, relief on grounds that is had insufficient funds but rejected similar applications lodged by four other removal companies. That decision is currently on appeal. Those that were denied a reduction are arguing unequal treatment.  

Against this, however, is a recognition on the part of the Commission that it needs to be more flexible, particularly in these straightened times. Whilst it is still unofficial, the Commission is prepared to look at: provisional current-year statements and future projections; several financial ratios that measure a company's solidity, profitability, solvency and liquidity; and relations with banks and shareholders. It will also assess the social and economic context of each company and look at whether the company's assets would be likely to lose significant value if the company was to be forced into liquidation as a result of the fine. Avowedly, the Commission is not looking to push companies into bankruptcy but it wants to be sure that it is the fine that is going to be "the" cause and not some other more general factor.  

At the heart of the analysis will be an assessment of whether the levying of the fine will result in the company ceasing to be a "going concern" with all of the attendant consequences for jobs, competition in the sector, the fire-sale of valuable assets, etc. Conversely, where there is evidence that the fine would not prevent the business from being sold as a going concern then the Commission will not permit a reduction.  

If companies do demonstrate a real "inability to pay" then the Commission provides two options: (i) reducing, or in certain circumstances, eliminating the fine; or (ii) granting deferred payment by instalment, unsecured by bank guarantee, for the amount that the company is currently unable to pay. The same rules, more or less, will apply when a company gets into payment difficulty some time after the imposition of a fine. In such circumstances, the Commission will be particularly keen to assure itself that the company's difficulties arise specifically as a result of the fine.  

At present the Commission is planning to articulate its "new" policy in up-coming decisions and not by way of an amendment to the current guidance. It hopes that by applying its approach in the context of "real" cases its policy will be better understood and not open to misinterpretation and manipulation. The most recent of such a "real" case is Bathroom Fittings.  

The Bathroom Fittings decision

In June 2010, the Commission fined 17 bathroom equipment manufacturers a total of over €620 million for a price fixing cartel covering six EU countries, namely Germany, Austria, Italy, Belgium, France and the Netherlands. The 12 year old cartel covered ceramics, such as sinks, baths, etc., and taps and other fittings. The coordination took place during meetings of 13 national trade associations (e.g. in Germany inappropriate discussions took place at over 100 meetings) as well as via bilateral contact. The arrangements included fixing price increases, minimum prices and rebates, and exchanging sensitive business information.  

The Commission summed it up as follows: "These 17 companies fixed prices for baths, sinks, taps and other bathroom fittings in six countries covering 240 million people. The cartel will have harmed businesses such as builders and plumbers and, ultimately, a large number of families…Companies should be in no doubt that the Commission will continue its fight on cartels and the level of fines will continue to be such that it should dissuade them from engaging in illegal behaviour in the first place." That being said, the Commission still reduced the fines of three companies by 50% and by 25% for another two.  

A total of 10 companies applied for a reduction. Five failed, however, to pass the "new" test (see above) being applied by the Commission. Doubtless, this element of the decision will feature in any ensuing appeals.  


It would be wrong to interpret the Commission's recent stance as being a sign of a relaxation in enforcement. New Commissioner, Joaquin Almunia, has presided over decisions that have brought over €1.4 billion in fines into the EU's coffers during the first half of this year, compared to €1.6 billion for the whole of 2009 under Commissioner Neelie Kroes.  

Some question whether the Commission is making a rod for its own back by giving some companies a break, whilst others not, using a complex matrix of factors. Naturally enough it is going to be fertile ground for appeal. Arguably, however, impecuniosity was already a factor in many appeals, albeit one that rarely reaped rewards. Perhaps, also, all the Commission is doing is giving tacit recognition to the fact that there is little or no point in looking to get blood out of the proverbial stone, so to speak.  

By making the adjustment, the Commission has created the impression that it is capable of being flexible. Not to have done anything in the current climate would have made the Commission look insensitive and out of touch. In the public relations game, which is an unavoidable part of daily life for the EU's institutions, the Commission has scored points.  

Now, however, that it is out of the bag it is here to stay. After all companies are just of capable of going bust in up- as well as down-cycles. As such it is a valuable enhancement to EU competition policy.