Reed Smith Client Alerts

A recent case found that a private equity firm was liable for its portfolio company’s antitrust violations. This client alert explains that private equity firms, when selecting potential investments, need to carry out thorough due diligence of the competition risks that the investments could expose them to. Ensuring that the investment has a competition compliance programme in place is one way to minimise the risk.

Recent cases

In January 2017, private equity firm Bencis lost its court of appeal case in the Netherlands against a flour-cartel fine. The Rotterdam District Court agreed with the Dutch antitrust regulator that it had been correct in extending principles of parental liability to the private equity firm. In 2014 the Authority for Consumers and Markets (ACM) fined Bencis for its role in a cartel by one of its portfolio companies, Meneba, which was one of 14 cartelists in the Netherlands, Belgium and Germany producing flour. The ACM ruled that the private equity firm was liable for the producer's antitrust violations for the period the company was held in its portfolio.

In 2014, the European Commission imposed fines on 11 producers of underground and submarine high-voltage power cables, including the Italian cable maker Prysmian, a company then held in the portfolio of Goldman Sachs Capital Partners. Goldman Sachs Capital Partners was held jointly and severally liable for a portion of the fine imposed on Prysmian. The Commission’s decision is currently under appeal at the General Court.

Extension of parental liability

Both decisions highlight the responsibility of investment funds to make sure that they fully comply with competition rules and take a careful look at the compliance culture of the companies they invest in. These decisions show that not only group holding companies but also private equity investment firms can under certain circumstances be considered to form a single economic unit with their subsidiaries.

If a parent company exercises decisive influence over a subsidiary, there is a single economic unit and therefore a single undertaking for the purposes of the cartel prohibition. In reaching its decision on the ACM ruling, the court of appeal considered whether portfolio companies independently determine their own conduct or whether private equity firms have decisive influence. The behaviour and responsibilities of a private equity firm are different from those of a pure financial investor; for example, private equity firms may have active management of portfolio companies, whereas pure financial investors tend to have little or no involvement with management.

In contrast, Goldman Sachs grounds for appeal include claims that the Commission did not properly apply article 101 of the TFEU and article 23(2) of Regulation 1/2003 by holding it jointly and severally liable for the infringement allegedly committed by Prysmian and failing to demonstrate to the requisite legal standard that Goldman Sachs actually exercised decisive influence over Prysmian over the relevant period. It also claims that the Commission violated the principle of personal liability and the presumption of innocence.

General attribution of parental liability

A stream of European Commission cases, particularly the landmark 2009 ECJ judgment in Akzo Nobel, BASF and UCB for participation in an animal-feed vitamin cartel, provide clear confirmation that, where a parent company owns 100 per cent (or near to 100 per cent) of the share capital of a subsidiary, there is a rebuttable presumption that it actually exerts decisive influence over that subsidiary. This is because, in such a situation, the parent company and its subsidiary are seen to form a single economic unit for the purposes of article 101 of the TFEU. The legal burden is then on the parent company to present sufficient evidence to reverse that presumption by showing that its subsidiary acts (or acted) independently of it.

In practice, the bar to rebutting the presumption of decisive influence in the case of a parent company that holds all (or nearly all) the shares in an infringing subsidiary is set extremely high. However, the factors that may be relevant in rebutting the presumption vary from case to case. In essence, the question is whether, overall, the facts indicate that the parent company does (or did) not direct the conduct of the subsidiary to such an extent that the two must be regarded as one economic unit.


These recent cases highlight the possibility of private equity firms inadvertently taking on responsibility for the illicit behaviour of a purchased portfolio company, but the risk can be mitigated. Proper due diligence can reduce the risk that a private equity firm be held responsible for activities of its portfolio company in which it played no part.

Client Alert 2017-047