Buyer, beware! ECJ Confirms Investment Firms Responsible For Competition Breaches By Holding Companies | White & Case LLP


The European Court of Justice (the “ECJ”) has confirmed1 the conclusion of the General Court (and the European Commission) that Goldman Sachs was jointly and severally liable for the behavior of a former subsidiary, Prysmian, fined by the Commission for its involvement in the cable cartel high voltage electrics during the Goldman Sachs control period. The ECJ ruling is a stern warning to institutional investors to ensure that the holding companies they acquire and control comply with competition law.

Key points to remember:

  • Institutional investors (eg banks, private equity firms and other investment firms) may face parental responsibility for breaches of EU competition law, just like other parent companies. To avoid this, investors must demonstrate that they were “pure financial investors” with no real decisive influence on the management of the subsidiary – a difficult obstacle to overcome.
  • Even when the primary objective of an investor is not to manage the portfolio company, if his influence on the company is strong enough (eg.. by holding all the voting rights attached to the shares of the subsidiary), liability can be presumed.
  • Antitrust due diligence must now be a top priority. Ignoring the illegal behavior of an investment firm is not a defense. To avoid unpleasant surprises, in-depth competition checks before taking a majority stake in a target are essential.
  • When gaining control of a target, an investor should insist that the acquiree maintain a serious approach to competitive compliance, including regular employee training. A post-completion competition audit is advised.


On April 2, 2014, following a five-year investigation, the European Commission (the “Commission”) adopted a decision finding that 26 legal entities had participated in a cartel in the high-voltage electric cables sector which constituted a single and continuous infringement of Article 101 TFEU. The Commission concluded that the main producers of underground and submarine electric cables share the markets and distribute the customers on an almost global scale.

Between July 29, 2005 and January 28, 2009, Goldman Sachs was the (indirect) parent company of Prysmian SpA and a wholly-owned subsidiary of that company, Prysmian Cavi e Sistemi Energia Srl. While Goldman Sachs held 100 percent of Prysmian’s shares for an initial period of 41 days, its holding declined following two divestments on September 7, 2005 and July 21, 2006, initially to 91.1 percent, then at 84.4 percent through May 3. 2007, when some of Prysmian’s shares were offered to the public as part of an initial public offering (“IPO”) on the Milan Stock Exchange and Goldman Sachs’ stake was further reduced.

The Commission presumed (i) that Prysmian had exercised a decisive influence on the behavior of Prysmian Cavi e Sistemi Energia in the market during this period and (ii) that Goldman Sachs had exercised, between July 29, 2005 and May 3 2007, a decisive influence on the behavior of Prysmian and, consequently, of Prysmian Cavi e Sistemi Energia. In addition, the Commission concluded, on the basis of an analysis of Goldman Sachs’ economic, organizational and legal links with the Prysmian companies, that Goldman Sachs had indeed exercised decisive influence over them during the infringement period.

As parent company, the Commission held Goldman Sachs jointly and severally liable for the part of Prysmian’s fine corresponding to the duration of Goldman Sachs’ investment in Prysmian: EUR 37,303,000.

The judgment of the General Court of the EU

On June 17, 2014, Goldman Sachs appealed the Commission’s decision to the General Court of the EU (the “CG”) seeking the annulment of the decision and / or a reduction in the level of fine imposed on him. The GC rejected this appeal, finding that the Commission was entitled to rely on the presumption that Goldman Sachs had indeed exercised decisive influence on the market for Prysmian and Prysmian Cavi e Sistemi Energia.

The GC considered that holding all the voting rights attached to the shares of its subsidiary, in particular when they were combined with a very high majority stake in the share capital of this subsidiary, Goldman Sachs was in a situation very similar to that of ‘a sole owner. Although Goldman Sachs reduced its stake, according to the GC, the fact that it held all the voting rights enabled it to determine the economic and commercial strategy of the relevant subsidiary.

After analyzing the facts, the GoC also found that the Commission was justified in considering that Goldman Sachs had exercised a decisive influence on the market behavior of the Prysmian subsidiaries on the basis of a set of factors, including, among others , the ability of Goldman Sachs to appoint the members of the various boards of directors of Prysmian; The power of Goldman Sachs to summon Prysmian shareholders to meetings and to propose removal of full board / board members; the fact that Goldman Sachs had received regular updates and monthly reports from Prysmian; and the measures put in place to ensure decisive control would continue after the IPO.

The judgment of the CJEC

On September 21, 2018, Goldman Sachs appealed to the ECJ, asking it to overturn the GC judgment and overturn the Commission’s decision as it concerned Goldman Sachs, and / or reduce the fine inflicted. Goldman Sachs alleged that (i) the GC misapplied Article 101 TFEU in holding Goldman Sachs responsible for an offense committed by Prysmian from July 29, 2005 to May 3, 2007 (the period before the IPO); (ii) Goldman Sachs did not exercise decisive influence in the sense required by case law between May 3, 2007 and January 28, 2009 (post-IPO period); and (iii) the ECJ should grant Goldman Sachs the benefit of any reduction in the fine granted to Prysmian as a result of its own appeal.

The ECJ dismissed Goldman Sachs’ appeal in its entirety. The ECJ noted that the GoC concluded that the Commission was correct in concluding that Goldman Sachs exercised decisive influence over the behavior of Prysmian subsidiaries, not because of the level of Goldman Sachs’ indirect stake in the capital of Prysmian, but on the conclusion that Goldman Sachs controlled all of the voting rights associated with the shares of Prysmian.

The ECJ underlined that the GC was entitled to treat a parent company holding all the voting rights associated with the shares of its subsidiary as being in a situation similar to that of a company holding (almost) all of the capital of the subsidiary. , and as such was correct in considering that Goldman Sachs could be presumed to exert a decisive influence on the behavior of the subsidiary.

Goldman Sachs remains jointly and severally liable with Prysmian for the fine of EUR 37,303,000 imposed by the Commission in 2014.

Final thoughts

The impact of a parental responsibility decision, including when the parent company is an investment company, rather than part of a typical corporate structure, can have significant financial consequences. When calculating fines for competition infringements, for example, the European Commission applies an upper limit of ten percent of worldwide turnover, which serves as a cap on the total amount of the fine that can be imposed. When liability is assigned to a parent company (especially an investment company with high turnover), then the limit of ten percent of worldwide turnover will be significantly higher.

In addition, aggrieved customers could claim damages not only from the company involved in the infringement, but also from the parent company, which was held jointly and severally liable. Potential claimants in civil litigation may find parent investment firms (especially those designated as addressees of a Commission decision) as particularly attractive targets. First, claimants may believe that these investment firms can afford and ultimately pay for damages awarded by a court and, second, the range of countries in which a potential claimant could sue in court could be broader (and therefore allow the selection of a more favorable regime – for example a regime with broad disclosure obligations).

In addition, an investor held responsible for the anticompetitive behavior of a portfolio company risks seeing future fines for competition infringements increased on the grounds that they are a “repeat offender”. In short, the risk of heavier penalties for a double bite puts even more emphasis on compliance. Additionally, in some jurisdictions a person who was, for example, the representative of the financial sponsor on the board of directors of the holding company may also face potential consequences (such as, in the UK, being disqualified from acting as a company administrator).

It’s hard not to find sympathy for an investment company whose main strategy was to take control of a holding company for a limited period before a public offer, following which it would withdraw, but would then find himself recovering part of the tab over a decade later.

1 Judgment of the European Court of Justice, January 26, 2021, case C-595/18 P (the “judgment of the CJEC”).

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