Let's talk 'successors' | Fieldfisher
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Let's talk 'successors'


United Kingdom

No, we’re not talking successors in line for the throne.

No, we’re not talking successors in line for the throne. Rather, we're talking the slightly less enchanting 'successor liability' rules under EU competition law and how they may apply in the context of mergers and acquisitions (M&A) being done in the Energy or other sectors. 

The time period from when an antitrust infringement ends to when the European Commission fines the culprits can be very significant: often up to two years or even more.  In the intervening period, the infringing entity may have changed hands via a share or asset sale, be left intact as a legal entity or be absorbed or broken up by its purchaser (which may have no idea that it has acquired an antitrust infringer).

These issues can raise practical difficulties, not only in an M&A due diligence context, but also when determining liability for antitrust infringements. 

Under the principles of:

  • "Personal responsibility", liability is attributed to the entity which is responsible for the infringing company at the time it commits the infringement.  When the latter is sold to a third party, the seller continues to bear liability even if it can no longer be punished, for example, because the limitation period has expired;
  • "Economic continuity", it is only (generally speaking) when the company which is liable ceases to exist legally or economically that the infringement can be imputed to a third party (purchaser) which has since become responsible for the infringing company.

Although these principles are well-established, some (including the EU's Advocate-General Kokott) believe they need refining and clarifying.  This is, perhaps, why the Commission is becoming more inclined to dispute Court rulings which disagree with how it attributes liability when cartelists change hands.  The latest dispute arises in the context of the marine hoses cartel.

In January 2009, the Commission fined five suppliers of marine hoses for participating in a cartel.  Relying on the "economic continuity" concept, it imputed the liability of one cartelist (ITR) to Parker-Hannifin, which acquired ITR in January 2002.  In May 2013, the General Court reduced Parker-Hannifin's fine by almost 75% (from €25.61m to €6.4m), because it concluded that there were insufficient economic or organisational structural links between Parker and ITR to warrant imputing liability to Parker for ITR's activities prior to January 2002.

The Commission announced last week its intention to challenge the Court's ruling, but we could be waiting a long time for a decision.  In the meantime, parties involved in M&A deals should ensure their approach to due diligence is robust enough to scrutinise the risks of successor liability under EU competition law and that requisite warranty and indemnity protection is provided for in the agreements.