Deals involving the purchase of a business or business units take place every day. An increasingly important issue in such transactions is to ensure that both the scope of the due diligence and the warranties included in the purchase agreement reflect the legal problems which can arise in connection with the allocation of responsibility for past violations of competition law when an undertaking or business unit has changed hands after such a violation has taken place.
In so far as an acquisition takes the legal form of a share purchase, the legal entity that committed the original infringement has remained the same. Consequently no succession issues arises and so a purchaser can find themselves liable for past competition law violations committed by the company which they have acquired.
A recent example of this can be seen earlier this month when the European Commission imposed large fines on a number of companies involved in a chemical cartel. One company, Solvay of Belgium, will not only have to pay a €167m fine in respect of its own breaches of competition law but also €58m in respect of a fine imposed on Edison-Ausimont, an Italian company acquired by Solvay.
Succession of responsibility for past competition law infringements is even more complicated when the transfer of a business or business entity takes the form not of a share purchase, but of an asset purchase.
The main question is whether the purchaser in this situation takes over the responsibility from the seller due to the transfer of the business entity to which the infringement relates, or whether the purchaser may refer the competition authorities back to the seller. Recent case law suggests it may be necessary to attribute liability according to two different theories.
One theory is that responsibility rests with and is confined to the legal entity which actually committed the violation. The responsible legal entity is identified by its continuous legal identity and form and not by its ownership nor by its activities.
Another theory is that a change in the legal form, including a sale of the assets that economically constitute the undertaking, does not have any consequences with respect to the allocation of responsibility for past competition law infringements as long as the "economic unit" remains the same. The consequence of this rationale is that the responsibility is inputted to the economic unit as opposed to the legal unit and follows the economic unit, no matter under which corporate shell it is integrated.
In view of the confused state of the law on this issue the most prudent course for a purshaser would be to assume that the "economic unit" theory applies.
A final point to mention is that under certain circumstances, a parent company may also be held liable for the activities of affiliated companies. The responsibility of a parent company is based on the individual behaviour of the parent company, such as its knowledge and implied approval of the anti-competitive behaviour of a subsidiary and/or its active involvement in the anti-competitive activities of the subsidiary. The European Commission recently fined a number of firms a total of €290.1m for operating an illegal cartel in the plastic industrial bags market. Of the firms fined, a number of parent companies were held to be jointly and severally liable along with their subsidiaries highlighting the importance of the succession issues which can arise in this area