ACM fines investment companies for cartel activities of portfolio company

​Three investment companies fined between €450,000 and €1.5m by the Dutch Authority for Consumers and Markets for their portfolio company’s involvement in the Dutch flour cartel.

In brief

Fines of between €450,000 and €1.5m have been imposed by the Dutch Authority for Consumers and Markets (ACM) on investment companies CVC and Bencis. The fine hit the general partners managing the funds holding the portfolio company’s shares, as well as the investment companies’ ultimate parents. They were held accountable for the involvement in the Dutch flour cartel of their portfolio company Meneba, over which they successively held decisive influence. This is the first cartel case in which ACM has fined investment companies for the cartel activities of one of their portfolio companies. In this, ACM joins the decision-making practice of the Commission, which only recently fined Goldman Sachs for the involvement of its portfolio company Prysmian in the power cable cartel.

In detail

During the cartel period CIGL (CVC) and Bencis Capital Partners successively held the majority of Meneba’s shares. From 12 December 2001 until 25 November 2004, CVC European Equity Partners, an investment fund of CIGL (CVC), held 41% of Meneba’s shares. As from 26 November 2004 92% of Meneba’s shares were held by Bencis Buyout Fund II, an investment fund of Bencis Capital Partners.

In a decision of 16 December 2010, ACM fined several flour producers for their direct involvement in mutual arrangements intended to keep prices stable on the Dutch market. Meneba was fined €9m. Meneba’s parent companies, successively CVC and Bencis, initially escaped a fine. Upon receipt of several complaints from the flour producers fined, the ACM investigated further whether Meneba’s parents could be held accountable for the cartel infringement of their portfolio company. On 20 November 2014, the ACM fined CVC and Bencis, holding them accountable as they successively had decisive influence over Meneba during the cartel period.

The objective of investment companies to make a quick profit does not preclude them from constituting an “undertaking” and therefore an “economic unit” with their portfolio companies. The difference between private equity structures and other group structures which are centrally managed and pursue with their subsidiaries a common and long-term economic goal, does not justify a difference in treatment. Their objective of realizing an increase in value over the short or medium term does not prevent investment companies from having decisive influence over their portfolio companies.

The ACM based its decision as to whether the investors exercised decisive influence over Meneba on the organizational, economic and legal ties that existed during the cartel period:

  • Powers in the shareholders meeting of Meneba

CVC and Bencis were able to take or block strategic decisions of the shareholders’ meeting because of the required quorum. They could decide on the adoption of the annual accounts, the composition/appointment/dismissal of the supervisory board (Raad van Commissarissen), the appointment/suspension/dismissal of the management, significant investments and loans contracted by the portfolio company.

  • Personal ties between Meneba and the investment companies

Persons linked to CVC and Bencis held several influential positions within Meneba, such as being a member of the supervisory board and a director under the articles of association. These personal ties were considered a strong indication of the parent companies’ intention to follow the day-to-day business of the portfolio company closely and of their exercising in fact decisive influence over the portfolio company’s conduct.

  • Role of the investment companies in Meneba’s supervisory board

During the cartel period, the supervisory board exercised significant influence over Meneba’s business and financial policy. The supervisory board took decisions which determined Meneba’s marketing and business strategy, such as decisions regarding the budget, investments, strategic and business plans, pricing policy and product strategy.

CVC and Bencis could exercise influence on the decisions of the supervisory board by blocking them. As half of the members of the supervisory board had been appointed on their recommendation (including, in the case of Bencis, the president, who held a casting vote), the supervisory board could not adopt any strategic decisions without the investment companies’ consent.

  • Consolidation of the annual accounts

The consolidation of Meneba’s and the investments companies’ annual accounts was considered additional proof of the existence of an economic unit.

The ACM fine hit the general partners managing the funds holding the shares of the portfolio company and the ultimate parents of the investment companies as they had decisive influence over the portfolio company during the cartel period.

Lessons to be learned

The decisions of the ACM indicate that, within a private equity structure, an investment company having decisive influence over a portfolio company has almost no chance of escaping liability for cartel infringements committed by its portfolio company.

Only if its participation were purely financial could an investment company successfully argue that it had no decisive influence. In order for an investment to be purely financial, the investment company should refrain from any active involvement or participation in the policy and strategy of the portfolio company. The portfolio company must be allowed to pursue its own independent course.

However, as investment companies aim to improve the portfolio company’s results in the short term, they will in principle intervene in its business. Investment companies wishing to have decisive influence over a portfolio company had therefore better be safe than sorry. Both before and after acquiring a portfolio company they should ensure that competition law is complied with.

  • Due diligence is crucial in order to map potential issues under competition law. When selecting potential targets, thorough due diligence is essential. If the due diligence finds evidence of a possible competition law infringement, the investment company must ensure that the infringement has been terminated before closing the transaction. In addition, if there are serious concerns regarding a possible infringement, the investment company should consider applying for leniency.
  • Investment companies should claim representations and warranties in order to cover any possible liabilities under competition law. The wording of the representations and warranties should be sufficiently broad as to cover all possible competition law infringements. Indemnities should not only cover possible fines but also potential damages claims.
  • Continual compliance training is paramount at the level of both the investment company and the portfolio companies.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.