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M&A/Antitrust: Acquirer can be liable for the acquired company´s cartel infringements

In a landmark judgement (Case C-724/17 – “Skanska”), the European Court of Justice (ECJ) held on March 14, 2019 that a company cannot escape its liability for cartel infringements by changing its identity through corporate restructuring, transfers or other changes of legal or organisational nature. The acquirer shall in any event be liable for antitrust violations committed by a company taken over and subsequently liquidated if it essentially continues its economic activities.

The Decision of the European Court of Justice

The ECJ reasoned that if a company which committed a cartel infringement is subject to legal or organisational change, this change does not create a new undertaking free of liability if from an economic point of view the new undertaking and its predecessor are identical. Thus, by acquiring, dissolving and assuming the commercial activities of an entity found liable for a cartel breach, the acquirer also assumes such entity’s liability for damages.

A legal succession of liability was already established in the context of imposition of antitrust fines for EU competition law infringements. But according to the ECJ, the EU prohibition of cartels will only be effective if public and private enforcement go hand in hand. By extending the concept of economic continuity, the ECJ held that the same entities that have violated the rules of EU competition law are subject to sanctions by antitrust authorities and legally liable for private damages in a civil action.

Practical Advice: Antitrust due diligence in M&A transactions

The ECJ strengthens the rights of claimants in antitrust damages actions, who can now claim against the legal successor or the parent companies of companies involved in the cartel even if the latter no longer exist. However, the Skanska ruling will also have implications on M&A transactions. The other side of the coin is the increased risk that the purchaser of an undertaking will later be held financially accountable for previous antitrust infringements committed by the acquired company. Claims for damages are unlimited in amount and depend solely on the actual damage suffered by the cartel victim, so that excessive purchase prices or lost profits due to the cartel must also be compensated.

Purchasers of an undertaking should counter this liability potential in a corporate transaction with a full due diligence exercise under antitrust law to ensure that they are not acquiring the risk of liability for cartel fines and any resulting damage claims. According to the ruling, legal succession liability explicitly applies to share deals, but in application of the rule of economic continuity even asset deals can result in further antitrust risks if the original company no longer exists.

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