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Competition Law

Analysis - debate - current awareness

26 JUL 2013

Let's talk 'successors'

By John Cassels and Jessica Burns

No, we're not talking successors in line for the throne. Rather, we're talking the slightly less enchanting 'successor liability' under EU competition law.

The time period from when an infringement ends to when the Commission fines the culprits can be huge - the infringing entity may have changed hands via a share or asset sale, be left intact or be absorbed by its purchaser (who may have no idea it's about to unearth an old cartel skeleton).

These issues can raise practical difficulties, not only in an M&A due diligence context, but also when determining liability for anti-trust infringements. Under the principle of:

  • "Personal responsibility", liability is attributed to the entity which is responsible for the infringing company at the time it commits the infringement. When the latter is sold to a third party, the seller continues to assume liability even if it can no longer be punished e.g. because the limitation period has expired;
  • "Economic continuity", it is only (generally speaking) when the company which is liable ceases to legally or economically exist that the infringement can be imputed to an independent third party which has since become responsible for the infringing company.

Although these principles are fairly well-established, some e.g. Advocate General Kokott believe they need refining and clarifying. This is, perhaps, why the Commission is becoming more inclined to dispute Court rulings which disagree with how it attributes liability when cartelists change hands. The latest dispute arises in the context of marine hoses.

In January 2009, the Commission fined five manufacturers for participating in the marine hoses cartel. Relying on the 'economic continuity' concept, it imputed the liability of one cartelist (ITR) to Parker-Hannifin, which acquired ITR in January 2002. In May 2013, the General Court reduced Parker-Hannifin's fine by almost 75% (from €25.61m to €6.4m), because there were insufficient economic or organisational structural links between Parker and ITR to warrant imputing liability to Parker for ITR's activities pre-dating January 2002.

The Commission announced a couple of days ago its intention to challenge the ruling, but we could be waiting a while. In the uncertain meantime, M&A parties should ensure their approach to due diligence is robust enough to scrutinise the risks of successor liability under EU competition law.

If you would like to discuss these issues, please do not hesitate to contact John Cassels at john.cassels@ffw.com or Jessica Burns at jessica.burns@ffw.com.

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