Are M&A and Insolvency Proceedings at Risk Due to Competition Law Penalties and Damage Claims?
On 6 February Advocate General Wahl published his in a preliminary ruling request concerning the Finnish asphalt cartel damages case C-724/17. The question that AG Wahl considered was whether the determination of the persons liable to pay compensation is a matter of EU law instead of national law and whether the principle of economic continuity is to be applied in determining the persons liable to pay compensation for cartel damages. The opinion of Advocate General is non-binding and the European Court of Justice can deviate from the opinion.
According to AG Wahl, in a private damages claims for cartel infringements before a national court, the persons held liable to pay compensation should be determined on the basis of EU law in order to ensure the effectiveness of the enforcement of EU competition law. If the persons liable to pay compensation differed from one Member State to another, economic operators could be treated differently, depending on the domestic jurisdiction dealing with the private law claim. From the perspective of the effective enforcement of EU competition law, leaving the determination of the persons liable for damages to the discretion of the Member States could considerably limit the injured party’s right to claim compensation. Furthermore, the application of different rules would run counter to one of the fundamental objectives of EU competition law – creating a level playing field on the internal market. This could also be an invitation to forum shopping.
When the authority or the court is imposing fines for competition infringements, the concept of an undertaking covers any entity engaged in economic activity, irrespective of its legal status and the way in which it is financed. AG Wahl states that the determination of the persons liable to pay compensation within the context of private liability should not be determined on a different basis. Therefore, AG Wahl wishes to extend the concepts of undertaking and economic continuity in private damages proceedings.
AG Wahl stated that the principle of economic continuity is to be applied so that an individual may seek compensation from a company that has continued the economic activity of a cartel participant. If the principle of economic continuity was not applied, undertakings could escape penalties by changing their identity through restructurings, sales or other legal or organisational changes. AG Wahl claims this would jeopardise the objective of preventing competition law infringements by means of deterrent penalties. Instead, the liability should be attached to assets, rather than to a particular legal personality.
However, the Advocate General does not take the big picture into account: if the Court’s judgement follows the opinion of AG Wahl, applying economic continuity in private damage claims may have significant and unforeseeable effect for instance on mergers and acquisitions and insolvency proceedings. For example, an acquirer of assets acting in good faith could be held liable for potential private actions for damages which may not be foreseeable the time of the business purchase.
In addition, applying economic continuity in insolvency proceedings could endanger the equality of creditors. Liabilities for cartel damages could be treated as debts of the bankruptcy estate, not of the debtor. Those debts would be compensated first directly from the bankruptcy estate instead of assets subject to distribution in bankruptcy. In addition, the uncertainty of such claims could lead to lower purchase price received by bankruptcy estates seeking to sell the business operations.