Following the judgement of the European Court of Justice in Akzo Nobel v Commission, parent companies can expect to be held jointly and severally liable for any infringements of EU competition law committed by their subsidiaries.
The Akzo Nobel case established that a 100% shareholding owned directly or indirectly by a parent company in a subsidiary is sufficient to create a presumption that the parent company exercises decisive influence over the commercial policy of that subsidiary, and so can be held liable for any infringement(s) committed by that subsidiary.
The concept that a parent company and its wholly owned subsidiaries (even if they have distinct legal personalities) are considered a form of single economic unit is used by the European Commission in taking a tough stance on hard core infringements of EU competition law – and to direct fines at the highest level of a corporate group. In the Akzo Nobel case (which involved a cartel), even though the infringements were committed by four distinct subsidiaries, the Commission was able to hold the parent company liable for these infringements and take account of the worldwide consolidated turnover of the entire Akzo Nobel group in imposing a fine of over €20m.
This approach takes account of the economic reality of such groups (where large undertakings operate on the market through subsidiaries) and sends a strong signal to the business community. By imposing fines at the highest level of the corporate group, the potential liability increases significantly.
The fact that a parent company and its subsidiaries constitute a single entity under EU competition law allows the Commission to fine the parent company even though the parent company might not have committed any infringement itself. To prevent this from happening, it will be up to the parent company to demonstrate the subsidiary's autonomy. That the subsidiary has the power to take day-to-day pricing / production decisions and so forth will not be sufficient – what matters here is the overall distribution of responsibilities within the group and the financial and legal links between the parent and the subsidiary. The crucial factor will be whether the parent company by reason of the intensity of its influence can direct the conduct of its subsidiary to such an extent that the two must be regarded as an economic unit.
In light of the recent Akzo Nobel judgement, and given the potential to be held liable for the infringements of a subsidiary, it is very important that a parent company put an effective competition compliance / corporate governance structure in place throughout its entire group. Sean Ryan examines how a parent company can be held liable for the anti-competitive sins of its subsidiary.
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