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Together we are always one step ahead

The one who has the decisive vote bears the responsibility

22 February 2021

On January 27, 2021, the European Court of Justice (ECJ) issued its judgement in the Goldman Sachs case in which it expanded rebuttable presumption on the decisive influence of the parent companies over their subsidiaries in cases where the parent company does not hold (almost) 100% of the capital in a subsidiary, but it holds all of the voting rights associated with the subsidiary. Such parent company can be subsequently held liable for the breach of rules by its subsidiary.

In practice, the conclusion on the attributability of breach of competition rules to the parent company leads to the following: (i) the 10% cap of the total amount of the fine that can be imposed calculated from the turnover of the parent company will be much higher (mainly in case of investment companies) than it would be in case of the subsidiary, (ii) private claimants can claim damages from the parent company responsible for the actions of its subsidiary, and (iii) a recidivism as an aggravating circumstance will be applied to the parent company in case of future anticompetitive conduct.

With reference to its settled case-law the ECJ confirmed in the mentioned judgement that the conduct of a subsidiary may be imputed to the parent company when the subsidiary does not decide independently on the market, but the parent company exercises decisive influence over it. When assessing decisive influence, the economic reality of all relevant circumstances related to the economic, organizational and legal links between those two entities must be taken into account. Decisive influence shall be assessed as the complete catalogue of the entitlements of the parent company, while the decisive influence can be given even if individual entitlements of the parent company, taken in isolation, do not establish a decisive influence. Moreover, not all of the entitlements of the parent company constitute rights conferring the decisive influence over the subsidiary. Those are, for example, rights accorded to parent company in order to protect its financial interests, which do not confer the right to exercise decisive influence.

For the purposes of simplifying the assessment of the decisive influence the settled case-law, also cited by the ECJ in the judgement mentioned, introduced a rebuttable presumption that the parent company exercises decisive influence over the subsidiary if the parent company holds, directly or indirectly, 100% or almost 100% of the capital in such subsidiary. Due to application of this presumption, the competition authority will be able to regard the parent company as jointly and severally liable for the payment of the fine imposed on its subsidiary.

The parent company has the burden of proof and is obliged to show the opposite of the rebuttable presumption that the subsidiary acted independently on the market. If the presumption is not rebutted, the competition authority is entitled to hold the parent company liable without having to produce any additional evidence.

Application of the rebuttable presumption shall simplify evidentiary position of the authorities applying competition rules. The fact that the criteria for application of the presumption are not met does not automatically lead to the conclusion that the parent company does not exercise decisive influence over the subsidiary. However, the decisive influence will have to be proved by competition authorities with other evidence.

The contribution of the Goldman Sachs judgement is the clarification that the rebuttable presumption can be applied not only in relation to ownership of (almost) all capital in a subsidiary but also in cases when a parent company holds all voting rights in the subsidiary. Stated progress is given by the fact that the rebuttable presumption of the influence is not based on the formal ownership of the vast majority of the capital in a subsidiary, but on the extent of the control exercised by the parent company over the subsidiary through this ownership. It is the reason why the ECJ ruled that the rebuttable presumption can be also applied in a situation when a parent company does not own 100% or almost 100% of the capital in the subsidiary, but when it holds all of the voting rights associated with its subsidiary’s shares based on which it is able to determine the subsidiary’s commercial and economic strategy and thus to exercise decisive influence over the conduct of the subsidiary. The parent company is here in a situation similar to the situation where the company holds the entire or almost the entire capital of the subsidiary.

The ECJ in its judgement relates the application of the rebuttable presumption to the ownership of all voting rights. Since the ECJ itself stressed an analogical application of the presumption of influence, in cases where the parent company owned the entire or almost the entire capital in the subsidiary, also to the situation with the voting rights, it can be presumed that the stated doctrine on the attributability of the subsidiary’s conduct to the parent company can be applied also in the case of ownership of almost all (not all) voting rights.

Currently, a draft of a new act on protection of competition is in the legislative process in the Slovak Republic. Part of the proposed new legislation involves unification of the Slovak term “podnikateľ” with the concept of “undertaking”, a term already interpreted by case-law of the European law, to which the doctrine of the decisive influence applies. At the same time, joint and several liability of participants of the administrative proceeding being part of the same undertaking, i.e. one economic group, is directly introduced in the new draft act. The Goldman Sachs judgement thus acquires relevance also for cases decided by the Antimonopoly Office of the Slovak Republic not only under European law.

The ECJ’s Goldman Sachs judgement highlights once again the importance of the internal structure and policy of the economic groups. Thorough setup of the internal relations within the economic group, complex corporate governance and also the matter of voting rights representing greater autonomy in the decision-making of the subsidiary are inevitable for the management of the risk of attributability of breach of competition rules to the parent companies and related negative impacts. Quality compliance program and employee training is a must.