Bencis liable for portfolio company cartel

European private equity firms should step up their due diligence after a court upheld a ruling a Dutch firm was liable for its portfolio company’s antitrust violations, according to law firm Reed Smith.

Bencis lost a court of appeal case against a fine levied by the Dutch market regulator in 2014 for the role played in a flour cartel by Meneba, one of its portfolio companies. The Rotterdam District Court agreed the Authority for Consumers and Markets was right to extend the principles of parental liability to the private equity firm.

The decision highlights the responsibility of investment funds to make sure they fully comply with competition rules and take a careful look at the compliance culture of the companies they invest in, Reed Smith said in a client note.

“Private equity firms can under certain circumstances be considered to form a single economic unit with their subsidiaries,” the firm said. “If a parent company exercised decisive influence over a subsidiary, there is a single economic unit and therefore a single undertaking for the purposes of cartel prohibition.

“In reaching its decision on the ACM ruling, the court of appeal considered whether portfolio companies independently determine their own conduct or whether portfolio companies have decisive influence.

The behavior and responsibilities of a private equity firm are different from those of a pure financial investor; private equity firms may have active management of portfolio companies, whereas pure financial investors tend to have little or no involvement with management.

“Proper due diligence can reduce the risk a private equity firm be held responsible for activities of its portfolio company in which it played no part,” Reed Smith said.