Parental Liability in the E.U.: Mitigating Liability at Various Stages of Portfolio Company Ownership (Part Three of Three)

Certain statutory concepts make it prohibitively difficult for E.U. parent entities to completely avoid liability for violations by their subsidiaries of the E.U. competition law or the General Data Protection Regulation. This liability can not only harm the value of investments, but it can also expose private equity (PE) sponsors and other parent entities to tens of millions of Euros in fines from E.U. regulators and potential civil lawsuits. The prudent move, therefore, is for PE sponsors and other parents to endeavor to mitigate this potential liability throughout the investment process. This final article in a three-part series prescribes measures PE sponsors can take to reduce potential parental liability in the E.U. from antitrust or data protection violations by their portfolio companies during and after the acquisition process. The first article described how the statutory “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 second article analyzed the rebuttable presumption by the E.U. Commission and courts that a parent exercises decisive influence over its subsidiary’s actions, difficulties in refuting it and four common misconceptions about how parents can avoid that risk. For more on issues pertinent to sponsors and investors in the E.U., see “Dechert Attorneys Consider Impact of the GDPR (Part One of Two)” (Feb. 21, 2019); and “How Hard Is Brexit Expected to Impact Alternative Fund Managers?” (Dec. 13, 2018).

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