A recent EC cartel fining decision reinforces once again that a parent company can still be held responsible for the actions of a subsidiary after the sale of the subsidiary. This is one application of the EU rules on parental liability for competition law infringements.
The decision, announced on 3 September 2014, concerns a cartel in smart card chips. Several companies were found to have colluded through a network of bilateral contacts in order to determine their respective responses to customers’ requests to lower prices. One of the companies was fined €20 million even though it had divested its smart card chips business after the period of the cartel infringement, the EC commenting that it “remains liable for what happened during the period of the infringement”.
The law on parental liability is complex, but the bottom line is that a company should assume that it is and remains liable (on a joint and several basis) for the actions of a wholly-owned subsidiary, even after sale. In addition to these rules, it is notable that, although a parent does not itself gain liability for pre-acquisition infringements, an acquired subsidiary retains that liability and therefore susceptibility to fines.
Parental liability needs to be taken into account in EU competition compliance programmes and in the planning of disposals. A pre-disposal audit of a business may be appropriate in some cases, so as to try to identify any infringements carried out by the business. This is of particular importance if an infringement is suspected or is a possibility, since if the purchaser later discovers an infringement and makes a leniency (whistleblowing) application seeking protection from fines, the seller will not also be protected.