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  • Kris Somers

Sins of the daughter - parent corporate liability

A key legal question is to what extent a parent company can be held liable for the behaviour of its affiliates.


Specifically in EU antitrust law, this questions bears particular significance as the European Commission caps its fines for antitrust infringement at a maximum of 10% of a company's worldwide turnover. But does that "worldwide turnover" include the turnover of the parent company or corporate group, or only of the offending offspring? The answer has a huge impact, because if the sanction for an antitrust infringement is calculated on the economic footprint of the parent, a company may face a fine many times the size of its own turnover.


Unfortunately for companies, the European watchdog assumes that parent and affiliate are "chips of the same block" or, put differently, the same "economic entity". Leveraging the classic theory of the piercing of the corporate veil, the (in theory rebuttable) assumption is that children listen to their parents and that parent companies influence the strategic course of action of their affiliate companies.


Particularly in the case of 100% shareholdings, the burden of proof to rebut this assumption seems near impossible in practice. The so-called belt and braces approach according to which the antitrust authority would have to submit other indices of control beyond the 100% shareholding has been firmly rejected. Conversely, recent case law expands the same reasoning of economic identity between parent and affiliate also to less clearcut ownership cases of indirect control and "near total" shareholding power.


Bottom line: if your company is part of a corporate group and unless you can bring strong and convincing evidence that your enterprise charts a business course independently of its group, be prepared to factor into your legal risk analysis that sins of the daughter may very well implicate the mother.


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