In his contribution to our knowledge pages, my colleague Sjaak van de Heul previously informed us that the ACM (Netherlands Authority for Consumers and Markets) had fined [ii] investment funds (investment firms or private equity) for breaches of the cartel prohibition by companies (flour producers) that were (indirectly) held by these investment firms.
The ACM based its fine on the so-called imputability doctrine. This means that the ACM can impose a fine not only on the infringing companies (hereafter: the ‘infringer’) themselves but also on all (legal) persons belonging to the same economic unit as the infringer, provided they exercised decisive influence on the infringer. In the event of a parent company and a subsidiary, there is a refutable legal presumption that there is such decisive influence. In the event of investment funds there are often several investors, including the management, so that there is no such legal presumption and the ACM must demonstrate on the basis of the ‘circumstances of the case’ that there is decisive influence by the investment funds on the infringer.
The situation was as follows: the ACM had imposed a fine on the infringer. Two other flour producers, also fined, lodged a complaint with the ACM on the basis of unequal treatment, to the effect that ACM had wrongly not also fined the investment funds participating in the infringer on the basis of the imputability doctrine. The investment funds lodged an appeal against this ruling with the District Court in Rotterdam.
First of all, the investment funds asserted that the decision of the ACM was contrary to a number of legal principles including the ne-bis-in idem principle, meaning that no administrative fine can be imposed on an infringer who has already been fined an administrative fine for the same infringement. According to the District Court, that was not the case here as the ACM first imposed the fine on the infringer and subsequently (on the basis of the imputability doctrine) on the investment funds belonging to the same economic entity as the infringer. The infringer and the investment funds are different legal persons, so that the ne-bis-in idem principle does not apply here.
The funds also asserted that the imputability doctrine is contrary to the legal principles of ‘no punishment without guilt’ and ‘personal fines’. The District Court is, however, of the opinion that, in the imputability doctrine, the various legal persons forming part of one economic entity are viewed as one undertaking, so that it does not have to be demonstrated that the legal persons in this economic entity were themselves involved in the infringement. However, they are – if they had decisive influence on the infringer – personally liable for the acts of the infringer.
In respect of the ne-bis-in idem principle, the District Court proceeds on the basis of independent legal persons on whom a fine is imposed, but in respect of the imputability doctrine it views the various legal persons as one undertaking, which justifies personal liability of the investment funds for the infringer.
In the current case there was no parent-subsidiary relationship between the investment funds and the infringer, and therefore an irrefutable legal presumption, on the basis of which the imputability doctrine could be applied. In the opinion of the investment funds, the imputability doctrine can in any event not apply to private equity firms and the ACM has, where the investment funds could have exercised decisive influence, not proven that such decisive influence had actually been exercised. The District Court stated that the imputability doctrine can also apply to investment companies that together belong to the same chain. Important here is whether the portfolio companies in which they invest determine their behaviour independently or whether there is such an influence of the investment firms on the portfolio companies that there are no longer any independent acts of the latter and that they can be viewed as an economic entity together with the investors. ‘The conduct and the powers of a private equity firm do after all not have to be the same as that of merely a financial investor,’ according to the District Court in Rotterdam.
The District Court subsequently addressed the specific circumstances of the case and on that basis came to the view that there had been decisive influence of the investment funds on the infringer.
The following structure was important here. Over 83% of the share capital of the major shareholder [MS] of the infringer [I], was jointly held by two investment funds [IF]. These investment funds are independent limited partnerships with the same managing partner [MP].
The circumstances include the following:
A. as regards the influence of the major shareholder [MS] on the infringer [I]:
- [MS] had founded [I] itself and had determined the content and powers of [MS] as major shareholder of [I].
- It is noticeable that the District Court subsequently listed a number of powers that are generally allocated to the general meeting (and therefore to a major shareholder), such as the adoption of the financial statements and the right of appointment and dismissal of the supervisory directors at [I]. In particular this last interest is emphasised by the District Court as the successive investment fund, immediately after it had taken over the shares in [I] from [IF], completely changed the supervisory board of [I];
- the influence of [MS] on strategic decisions of [I], (including approval of board resolutions);
- possession of the priority share by [MS] in the capital of [I], with which important decisions could be blocked;
- consolidation requirement between [MS] and [I] in the financial statements of [MS].
B. as regards the decisive influence of [IF] on [MS]:
- both investment funds [IF], being limited partnerships with as managing partner [MP], had a majority of the votes in the general meeting of [MS], which meant that they had the right to appoint and remove its directors and to subject the resolutions of that board to their approval;
- [MP], the managing partner of [IF], was also a director under the articles of association of [MS].
On the basis of these facts and circumstances, the District Court stated that the ACM had rightly assessed that there were such economic, organisational and legal ties between the major shareholder [MS] and the infringer [I], or (managing partner [MP] of) the investment funds [IF] on the major shareholder [MS] that there was a decisive influence of the major shareholder [MS] on the infringer [I] and (the managing partner [MP] of) the investment funds [IF] on the major shareholder [MS].
For the decisive influence of the major shareholder on the infringer, the District Court considered it particularly important that the co-founder and director of the parent company of the managing partner of the investment funds was appointed as chairman of the supervisory board of the infringer and, in the event of a tie in the vote, had a decisive influence. In addition, on the basis of the shareholders agreement, he could independently place items on the agenda of the general meeting of the infringer. The investment funds asserted that in addition to the chairman, the supervisory board consisted of three independent members and that although the right to place items on the agenda did exist, the ACM had not demonstrated that this had been exercised. The District Court was, however, of the view that the chairman of the supervisory board, by the combination of these powers, could exercise such pressure on the infringer that this must necessarily have had an influence on the infringer, even if the right to place items on the agenda had not been exercised.
Appeal is still possible against this judgement. For the time being, the investment funds must take into account that the imputability doctrine also applies to them. The facts and circumstances as referred to above – and which lead to the conclusion that there had been a decisive influence – are not unusual in investment fund structures.