Private equity firms should be well aware that they can quite easily be held liable for antitrust infringements by their portfolio companies. This was confirmed in a judgment dated 26 January 2017 of the Administrative Law Sector of the Rotterdam District Court.
The Court confirmed two earlier decisions by the Dutch Authority for Consumers & Markets (ACM) dated 20 November 2014 (the original decision) and 11 December 2015 (the review decision). In these decisions, the ACM had imposed a fine of almost € 1.3 million on private equity investor Bencis for cartel infringements on the market for flour committed by Bencis’ former portfolio company Meneba between 2001 and 2007. On the same date, Meneba’s earlier indirect minority shareholder CVC received a fine of in total € 900,000 (imposed on two entities) for the same infringement. As far as publicly known, CVC has not brought any legal actions against this fine. In the original cartel decision (which dated from December 2010), Bencis and CVC had not been held liable for Meneba’s infringement. The ACM issued its supplementary decisions against Bencis and CVC pursuant to complaints from other (strategic) shareholders in other cartel members (who had been held liable for the latter’s fines) in the administrative review phase. These parties contended that they had been discriminated since the original decision was not directed at Bencis and CVC, whilst they exercised allegedly similar strategic influence over Meneba as the complainants did over their subsidiaries.
Liability Does Not Require Knowledge of the Infringement
The ACM’s decisions do not suggest that Bencis was or should have been aware of Meneba’s illegal conduct. Instead, the ACM merely established that Bencis was in a legal position to influence Meneba’s strategic conduct. In its judgment, the court confirms that it is indeed sufficient that Bencis was merely capable of exercising influence on Meneba’s conduct for Bencis to be liable for the infringement. Consequently, the ACM does not need to demonstrate that a direct or indirect shareholder did actually use its powers to coerce its subsidiary to engage in illegal conduct.
In this respect, both the ACM and the court put great emphasis on the fact that Bencis was entitled to nominate two members (out of four) in Meneba’s supervisory board. This included the chairman who had a casting vote in case of a tie. In addition, this person was also a director in the General Partner of the Bencis investment fund that held the shareholding in Meneba. It follows from the ACM’s initial and review decisions that strategic issues such as commercial and pricing policy, general strategy and (contemplated) acquisitions were regularly discussed in the supervisory board. The latter was considered relevant, since one of the infringements committed by the cartel involved the joint purchasing of a redundant production facility with the objective of permanently removing its capacity from the market. It does not, however, follow from the ACM’s decisions or the court’s judgment that that that particular acquisition had been discussed in Meneba’s supervisory board.
No ‘Double Jeopardy’
Another interesting feature of the case was that Bencis had been fined individually and separately, rather than being held liable for a portion of Meneba’s fine. This implies that if Meneba were to pay its entire fine, the obligation for Bencis to pay its own fine in its entirety would still remain to exist and vice versa. Bencis contended that this constituted ‘double jeopardy’, since two separate fines were imposed for one and the same infringement. The court however observed that Bencis was a controlling shareholder and a separate legal entity which had not been fined in the original cartel decision. In that capacity, Bencis had an own responsibility and liability for the fine and therefore the ACM was entitled to impose a separate fine on Bencis. We find it remarkable that the court is so short and decisive on this issue. The imposition of a separate fine on a parent rather than ‘merely’ holding it liable for its subsidiary’s infringement marks a clear departure from the ACM’s consistent policy since the inception of its predecessor, the Netherlands Competition Authority.
Private Equity Investors Can Be Treated as Regular Shareholders
Finally, the court rejects Bencis’ plea that private equity investors should not be equated to strategic shareholders. Bencis emphasised in this respect that private equity investors in general acquire companies with objective of reselling them within a limited number of years. The court simply concludes that where a private equity investor exercises decisive influence over a portfolio company, it can be held liable for that company’s infringement just like any ‘normal’ investor. If its rights and involvement go beyond those of a purely financial investor, a private equity investor can be regarded to form a single economic unit with its portfolio companies.
Although Bencis may still appeal the judgment, it makes clear that private equity investors can quite easily be held liable for cartel infringements committed by their portfolio companies. It is therefore important for an investor to ensure that its portfolio companies are fully compliant with the applicable competition legislation, such to prevent infringements from occurring.
In this respect we point out that recently, the maximum fines for cartel infringements in the Netherlands were raised considerably. As from 1 July 2016, the maximum fine that the ACM may impose on a company is € 900,000 (previously € 450,000), or – in case this is more – 10% of its worldwide group turnover. The 10% threshold is multiplied with the number of years that the infringements continued up to a maximum of four, and additionally doubled in cases of recidivism within five years. This means that the maximum fine can now be as high as 80% of worldwide group turnover.
For a link to text of the judgment, click here (available only in Dutch).