Successor companies can be prosecuted. From a criminal (penal) law perspective, the situation in an acquisition context is more or less clear – the acquirer shall face a successor liability in case of past wrongdoings of a target company. This is more or less in line with the practice of the European Court of Human Rights in case Carrefour France v. France, confirming that imposition of fines on the acquiring company for breaches of competition rules committed by the acquired company prior to the acquisition did not infringe the principle of the personal nature of penalties. Similarly, the French Court of Cassation issued a landmark decision in 2020 by which certain companies may now be held criminally liable for the prior criminal conduct of the companies they acquire by acquisition.
However, in case of a merger, the situation is not so clear-cut, but the successor company may assume certain liabilities, though it is unlikely that it could assume a criminal liability. In any case, the parties should perform detailed analysis of the proposed transaction.
In addition, a distinction needs to be made in share vs asset deal. In asset deal, criminal liability generally cannot be transferred to the acquirer.
ESG related successor liability
An action relating to certain environmental, social and governance (ESG) offences could be brought against the acquirer in case of the acquisition of certain assets (ie, old privatised factories, machinery or land), where those assets subsequently (ie, post-transaction) have an impact on the environment or people. In such cases, a special caution should be exercised during the due diligence to encompass the ESG aspects of the proposed transaction.
Even though the implementation of a compliance programme is still not a regulatory requirement in Serbia, companies should develop a compliance programme. The authorities are not required to consider and assess the adequacy of such a programme, however, it can considered when determining the punishment within the limits for the particular offence and could serve as a mitigating factor, as shown below.
Companies should report both financial and non-financial ESG irregularities or potential financial and non-financial ESG violations when the failure to report would constitute a separate criminal offence i.e. if the company knew that a criminal offence was being prepared (only offences punishable of five or more years), but fail to report this during the time of the preparation (when its commission could have still been prevented), and the offence is later committed or attempted.
For the reasons above, companies are advised to check whether the target company previously made all possible actions to avoid or mitigate their own responsibility. Most critically, acquirers should check whether target companies have developed a functional compliance programme. When imposing a fine, the court will take into account any measure taken by the legal entity in order to prevent and detect the criminal offence.
Where an offence is discovered, a compliance programme will be considered by the court when determining the punishment within the limits for the particular offence and will serve as a mitigating factor. A company can mitigate the responsibility by proving that it took all reasonable measures to prevent the wrongdoing act of its officer via the so-called Due Diligence Defence Rule. Because of the Due Diligence Defence Rule, the acquiring company could claim that they made a comprehensive inquiry of the matter at hand, which would include an assessment of functionality of a compliance programme.
In order to attract investors or buyers, there is an additional motive for the target companies to ensure that wrongdoings are not committed via installing a compliance programme, as there is a danger that the acquiring company could be found liable post-acquisition, due to the past wrongdoings of the target company.
Finally, a company can be exempted from punishment if it voluntarily and immediately takes all necessary actions to remedy harmful effects or returns unlawfully obtained property. A company may also be exonerated from punishment if it detects and reports a criminal offence before learning that criminal proceedings have been instituted; or on a voluntary basis or without delay, removes incurred detrimental consequences or returns the proceeds from crime unlawfully gained. One of the measures for detecting a criminal offence is an internal investigation, basis of which is usually found in a compliance programme.
Author: Vladimir Hrle, lawyer and corporate defence counsel
NOTE: The views and opinions of Vladimir Hrle expressed here are personal, and do not necessarily represent the opinions of current or past employers or colleagues, or professional associations, or organizations with which Vladimir has collaborated
Vladimir Hrle is a qualified legal professional with over 15 years of experience, mainly as a litigation lawyer with a strong background in human rights and compliance matters. During his practice, he has worked with various types of companies on establishing efficient governance structures, acted as an external compliance ombudsman for large multinational companies and led a corporate criminal liability project component of a landmark EU-backed effort to tackle corruption. He has cooperated with well-known regional and international law firms and international organisations, such as the WBG and the UNDP, and dealt with cases concerning international judicial bodies, e.g. the UN (ICTY – The Hague, OHCHR – Geneve) and the European Court of Human Rights (Strasbourg), as well as various arbitral bodies. He currently leads country-related activities in a cross-border integrated ESG programme implemented by the WBG's IFC. Vladimir started his career with Dragoslav Cetkovic, an esteemed defence attorney, in 2005.
Vladimir is an advisory board member of the European Criminal Bar Association and co-chair of its anti-corruption working group, and a member of the International Bar Association Human Rights Institute. He has been active in the Balkans Regional Rule of Law Network of the American Bar Association Rule of Law Initiative (founding member), the European Criminal Justice Observatory (deputy chair), Fair Trials International (Legal Experts Advisory Panel) and the ICC Commission on Corporate Responsibility and Anti-Corruption and its business and human rights working group. He is also a regional coordinator of the Roxin Alliance.
Vladimir is a certified trainer of the Council of Europe's Human Rights Education for Legal Professionals Programme, which ensures continuous, high-quality training on the Convention and the jurisprudence of the court in Strasbourg. He is also a partner of the Anti-Bribery Academy International, which aims to promote and train on the implementation of national and international anti-corruption measures, and Ground Truth Intelligence, the first global corporate intelligence and investigative platform.
Who's Who Legal highlights Vladimir as one of its Global Thought Leaders and cites his work for his "detailed knowledge of international corporate governance standards and corporate liability". He is revered for his "strong attention to detail" and "top-notch work on business crime and extradition cases" and noted as "able to present detailed and complex matters in a simple manner". Vladimir is singled out by sources who laud his "outstanding knowledge of integrity issues" and for "being particularly well versed in anti-corruption issues", and is revered for his "excellence in complex corporate crime litigation".
Vladimir has authored numerous legal publications and completed academic research on Corporate and Directors' Criminal Liability in the EU at the University of Amsterdam, where he obtained his LL.M. degree under the supervision of late Professor Albert Swart, PHD, ex judge from Criminal Division of the Amsterdam Court of Appeal, and UN ICTY ad litem judge.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
