04 June 2015

Federal Supreme Court: Companies can escape cartel fines by corporate restructuring

According to a decision of the German Federal Supreme Court (FSC) of 16 December 2014, which became publicly available this week, companies can escape fines imposed on them by the FCO under the German Act against Restraints of Competition (ARC) by corporate restructuring.

In 2009, the FCO imposed fines on nine producers of dry mortar.  Among them was maxit Deutschland GmbH (maxit) on which a fine of €12 million was imposed. A few months after the FCO had fined the cartel participants, maxit merged with another cartel participant, St. Gobert Weber GmbH (St. Gobain), which had taken over maxit. Due to the FSC’s decision, the German Federal Cartel Office (FCO) is now unable to enforce the €12 million fine it had imposed on maxit.

In its recently published decision, the FSC found that the requirements for legal succession, which would allow the FCO to enforce the fine imposed on maxit against St. Gobain, are not met. According to the FSC in the case of the merger of maxit and St. Gobain, the new legal entity is neither identical nor almost identical to maxit from an economic perspective. When reviewing the case, the FSC applied an economic approach and questioned whether the corporate identity existed post-merger.  In line with former judgments, the court assessed whether the acquired assets (including production facilities, work force, and management) were still financially separate, were used in the same or a very similar way as before, and were a substantial part of the new legal entity’s assets. If this is the case, the new legal entity is regarded as if it were a shell company that is the legal successor to the entity which was fined.

The FSC also considered whether an interpretation of the relevant provisions of the ARC in conformity with European Union law could have led to a different result. However, the court found that even this interpretation would not alter the outcome of the relevant case. The new legal entity is neither identical nor almost identical to maxit whatever legal interpretation is applied.

However, the FSC's recently published decision has not increased legal certainty for companies as it is contrary to a more recent decision by the same court. On 27 January 2015 in the case of the German coffee roaster, Melitta, the FSC upheld a judgment of the Higher Regional Court Düsseldorf which was of the opinion that Melitta could not escape its cartel fine by means of corporate restructuring.  Melitta had merged the entity which was the addressee of a fining decision (Melitta Kaffee GmbH) with an associated company (Melitta Europa GmbH & Co. KG). As a result of the merger, Melitta Europa GmbH & Co. KG was the legal successor of Melitta Kaffee GmbH. In this case the FSC found that the corporate identity of the merging parties did exist post-merger. The court found that the former business of Melitta Kaffee GmbH contributed to a substantial proportion of the turnover of the new legal entity and was still separated with respect to organisation, work force, and production facilities. Therefore, the court was of the opinion that this was a continuation of the business activities of the legal entity that was fined.

As a reaction to the FSC's St. Gobain decision, the president of the FCO, Andreas Mundt, has asked the lawmaker for measures to close the “loophole in German competition law” and thereby to achieve conformity between German Competition Law and European Union Law. Against the background of diverging decisions, it is to be expected that the FCO will continue to lobby for further amendments to the ARC by the German legislator to create a higher standard of legal certainty.

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