Buyer Beware! ECJ confirms investment companies are liable for competition violations by portfolio companies

7 min read

The European Court of Justice (the "ECJ") has confirmed1 the EU General Court’s (and the European Commission’s) finding that Goldman Sachs was jointly liable for the conduct of a former subsidiary, Prysmian, which the Commission fined for its involvement in the high voltage power cables cartel during Goldman Sachs' period of control. The ECJ judgment constitutes a stark warning to institutional investors to ensure portfolio companies that they acquire and control comply with competition law.


Key takeaways:

  • Institutional investors (e.g. banks, private equity firms and other investment companies) can face parental liability for EU competition law infringements, just like other corporate parents. To avoid this, investors have to demonstrate that they were ‘pure financial investors’ with no actual decisive influence over the subsidiary’s management – a tough hurdle to overcome. 
  • Even where an investor’s main objective is not to manage the portfolio company, if its influence over the company is strong enough (e.g. through holding all voting rights associated with the subsidiary’s shares), liability can be presumed.
  • Antitrust diligence must now be a top priority. Lack of awareness of the infringing conduct of an investment business is no defence. To avoid unpleasant surprises, thorough competition checks in advance of taking a controlling interest in a target are vital. 
  • On taking control of a target, an investor should insist that the acquired company maintains a serious approach to competition compliance, including regular training of employees. A post-completion competition audit is advisable.



On 2 April 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 power cable sector that constituted a single and continuous infringement of Article 101 TFEU. The Commission concluded that the main producers of underground and submarine power cables shared markets and allocated customers between themselves on an almost global scale. 

Between 29 July 2005 and 28 January 2009, Goldman Sachs was the (indirect) parent company, of Prysmian SpA and of a wholly owned subsidiary of that company, Prysmian Cavi e Sistemi Energia Srl. While Goldman Sachs held 100 per cent of the shares in Prysmian for an initial 41-day period, its holding decreased following two divestments made on 7 September 2005 and 21 July 2006, initially to 91.1 per cent and then to 84.4 per cent until 3 May 2007, the date on which some of the shares in Prysmian were offered to the public in an initial public offering (‘the IPO’) on the Milan Stock Exchange and Goldman Sachs’ shareholding dropped further.

The Commission presumed (i) that Prysmian had exercised decisive influence over the market conduct of Prysmian Cavi e Sistemi Energia during that period and (ii) that Goldman Sachs had exercised, between 29 July 2005 and 3 May 2007, a decisive influence over the conduct of Prysmian and, consequently, of Prysmian Cavi e Sistemi Energia. Furthermore, the Commission concluded, based on an analysis of Goldman Sachs’ economic, organisational and legal links with the Prysmian companies, that Goldman Sachs had actually exercised a decisive influence over them during the infringement period.

As a 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 EU General Court Judgment

On 17 June 2014, Goldman Sachs appealed the Commission’s decision before the EU General Court (the “GC”) seeking an annulment of the decision and/or a reduction in the level of the fine imposed on it. The GC dismissed that action, finding that the Commission was entitled to rely on the presumption that Goldman Sachs had actually exercised decisive market influence over the market conduct of Prysmian and Prysmian Cavi e Sistemi Energia.

The GC considered that holding all the voting rights associated with its subsidiary’s shares, especially when taken in combination with a very high majority stake in the share capital of that subsidiary, Goldman Sachs was in a very similar situation to that of a sole owner. Despite Goldman Sachs decreasing its shareholding, according to the GC, the fact that it held all the voting rights enabled it to determine the economic and commercial strategy of the subsidiary concerned. 

On an analysis of the facts, the GC also found that the Commission was justified in considering that Goldman Sachs had exercised decisive influence over the market conduct of the Prysmian subsidiaries based on an array of factors including, inter alia, Goldman Sachs’ ability to appoint the members of the various Prysmian boards of directors; Goldman Sachs’ power to call Prysmian shareholders to meetings and propose the revocation of board members/entire boards of directors; 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 following the IPO.


The ECJ Judgment

On 21 September 2018, Goldman Sachs appealed to the ECJ, requesting it set aside the GC judgment and annul the Commission decision in-so-far as it related to Goldman Sachs, and/or reduce the fine imposed. Goldman Sachs claimed that (i) the GC misapplied Article 101 TFEU by holding Goldman Sachs liable for an infringement committed by Prysmian from 29 July 2005 to 3 May 2007 (the pre-IPO period); (ii) that Goldman Sachs did not exercise decisive influence in the sense required by the case law between 3 May 2007 to 28 January 2009 (the post-IPO period); and (iii) the ECJ should give Goldman Sachs the benefit of any reduction of the fine granted to Prysmian as result of its own appeal.

The ECJ dismissed Goldman Sachs’ appeal in full. The ECJ noted that the GC had found that the Commission was correct to find that Goldman Sachs had exercised a decisive influence over the conduct of the Prysmian subsidiaries, not due to the level of Goldman Sachs’ indirect holding in Prysmian’s capital, but on the finding that Goldman Sachs controlled all the voting rights associated with Prysmian’s shares. 

The ECJ emphasised that the GC was entitled to treat a parent company holding all the voting rights associated with its subsidiary’s shares as being in a similar situation to that of a company holding (virtually) all of the subsidiary’s capital, and as such was correct in finding that Goldman Sachs could be presumed to exercise decisive influence over the conduct of the subsidiary. 

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


Final Thoughts

The impact of a parental liability finding, including where the parent 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 per cent of worldwide turnover, which acts as a ceiling on the total amount of the fine that can be imposed. Where liability is imputed to a parent company (particularly an investment company with high turnover), the ten per cent worldwide turnover limit will then be significantly higher.

Furthermore, aggrieved customers could claim damages not only from the company involved in the infringement, but also the parent company that was held jointly and severally liable. Prospective claimants in civil litigation may view parent investment companies (especially those that are named addressees of a Commission decision) as particularly attractive targets. First, claimants may take the view that those investment companies have deep pockets to fund and ultimately pay out on any damages awarded by a court and second, the range of countries in which a potential claimant could bring a court action could potentially be wider (and therefore allow for the selection of a more favourable regime - e.g. one with broad disclosure obligations).

In addition, an investor held liable for the anticompetitive conduct of a portfolio company risks having future fines for competition infringements increased on the basis that it is a “recidivist” (a repeat offender). In sum, the risk of heavier penalties if bitten twice places even greater emphasis on compliance. Moreover, in some jurisdictions, an individual who was, say, the financial sponsor’s representative on the portfolio company’s board may also face potential consequences (such as, in the UK, being disqualified to act as a company director).

It is hard not to find some sympathy for an investment company whose principal strategy was to take control of a portfolio company for a limited period in the run up to a public offering, following which it would exit, but then finding itself picking up part of the tab over a decade later.


1 Judgment of the European Court of Justice, 26 January 2021, Case C-595/18 P (the "ECJ Judgment”).

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