Parental Liability in the E.U.: Rebuttable Presumption of Decisive Influence and Four Misconceptions About Avoiding Liability (Part Two of Three)

A critical element of the parental-liability risk faced by private equity (PE) sponsors is the “undertaking” concept in Articles 101 and 102 of the Treaty on the Functioning of the European Union that applies to subsidiary violations of the E.U. competition law and the General Data Protection Regulation (GDPR). The risk is crystallized, however, when coupled with the rebuttable presumption applied by the E.U. Commission and the E.U. courts that, absent limited circumstances, full ownership of a subsidiary is de facto proof that a parent company exercises “decisive influence” over its actions. The parent can thus be held jointly and severally liable for fines resulting from subsidiary violations of E.U. competition law or the GDPR. This second article in a three-part series analyzes this rebuttable presumption and explores the prohibitive difficulty PE sponsors face in refuting it, including common misconceptions shared by PE sponsors and other parents about ways to avoid liability. The first article described how the undertaking concept extends liability to parent entities, as well as the potential reputational risks, fines and civil damages PE sponsors can face for violations. The third article will prescribe measures PE sponsors can take during and after the portfolio company acquisition process to mitigate parental liability risk in the E.U. See “ECJ Confirms Direct Parental Liability for Civil Damages for Subsidiary Antitrust or GDPR Violations” (Apr. 30, 2019).

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