On 27 January 2021, the Court of Justice of the European Union ("the Court") upheld the €37.3 million fine imposed on Goldman Sachs as a result of the involvement of portfolio company Prysmian in the power cables cartel. The ruling has held that in the circumstances of this case, Goldman Sachs, the manager of the investing fund, could incur parental liability for the competition law infringement of Prysmian.
| what you need to know - key takeaways |
- Private equity and other "financial" investor entities can in certain circumstances be held jointly and severally liable for anti-competitive conduct of their controlled portfolio companies.
- Liability can continue long after the investment has been exited.
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In 2014 the Commission fined Prysmian €104.6 million for its involvement in the power-cables cartel. The Goldman Sachs Group Inc. ("Goldman Sachs") was held to be jointly and severally liable for €37.3 million of that fine, covering the period (2005-2009) of the cartel when Prysmian was an investee company of the bank.
By its appeal, Goldman Sachs sought to have set aside the General Court's 2018 judgment, upholding the Commission decision imposing joint and several liability.
Goldman Sachs argued before the Court that its relationship with Prysmian was not that of a parent company, but of a "pure financial investor" and that its stake in Prysmian during the vast majority of the time of the infringement was less than 100%. As a result, it argued that it should not be held liable for the anti-competitive behaviour of its investee company.
Those arguments were rejected by the Court.
In its judgment the Court held that an entity holding 100% of the voting rights associated with a company's shares is able to exercise decisive influence over the conduct of that company. In this respect, it did not matter that Goldman Sachs only held 33% of the financial interests in the relevant fund which held the shares in Prysmian; nor did it matter that the fund's shareholding in Prysmian initially reduced from 100% to 84%. Goldman Sachs' control of 100% of the voting rights for the period through to a 2007 IPO meant that the Commission was entitled to rely on the legal presumption that Goldman Sachs had exercised decisive influence over Prysmian’s conduct on the market in that period.
Nor did the Court find fault with the General Court's separate conclusion that Goldman Sachs had in fact actually exercised decisive influence over Prysmian throughout the infringement period, including following the 2007 IPO, which reduced the Goldman Sachs fund's holding in Prysmian, initially to 46% and subsequently to 26%, and in which period Goldman Sachs no longer exercised 100% of the voting rights. Such actual exercise of decisive influence was based on various factors such as Goldman Sachs' ability to appoint the members of various Prysmian boards, its power to call Prysmian shareholders to meetings and to propose the revocation of directors, and the delegated powers of directors of part of Goldman Sachs' Merchant Banking Division on Prysmian boards and their participation in Prysmian's Strategic Committee.
Although it is well established case-law that a parent company can be found liable for the cartel activity of its subsidiary, this is the first time that the EU's highest court has explicitly confirmed application of very similar rules to an investment held through an investment fund structure.
With thanks to Uliana Kovaleva of Ashurst for her contribution.
