The National Law Review is pleased to bring you information regarding the upcoming ABA Conference on Business Acquisition Negotiations:
When
November 01 – 02, 2012
Where
The National Law Review is pleased to bring you information regarding the upcoming ABA Conference on Business Acquisition Negotiations:
When
November 01 – 02, 2012
Where
The National Law Review is pleased to bring you information regarding the upcoming ABA Conference on Business Acquisition Negotiations:
When
November 01 – 02, 2012
Where
The National Law Review is pleased to bring you information regarding the upcoming ABA Conference on Business Acquisition Negotiations:
When
November 01 – 02, 2012
Where
As the economy continues to recover, an increase in M&A activity is expected. A target company’s historical compliance with unclaimed property laws is an important, but often overlooked, area for due diligence in M&A transactions. A target company’s failure to comply with unclaimed property laws can potentially create multi-million dollar exposure for the buyer. The transaction itself may have the effect of drawing the attention of state unclaimed property regulators and third party contingency fee auditors. There are various ways, as discussed below, for the buyer to control or limit its potential exposure.
While the exact parameters of what constitutes “unclaimed property” vary from state to state, unclaimed property generally consists of a wide range of both tangible and intangible property held by a business. Once the business has held the property for a statutorily mandated holding period without communication with the owner, it becomes unclaimed property subject to escheat. Some examples of unclaimed property include: un-cashed rebate checks and other customer credits; unused gift certificates and gift cards; un-cashed vendor checks; un-cashed dividend checks; insurance proceeds; and the underlying stock or other evidence of an ownership interest in a business.
Businesses are responsible for reporting unclaimed property to the states on an annual basis in accordance with priority rules established by the U.S. Supreme Court. The first-priority rule is that unclaimed property escheats to the state of the apparent owner’s last known address, as shown on the company’s books and records. The second-priority rule provides that the unclaimed property escheats to the state of the company’s incorporation if: (1) the apparent owner’s address is unknown, (2) the last known address is in a foreign country, or (3) the last known address is in a state that does not provide for escheat of the property in question. As the unclaimed property laws vary from state to state, the outcome of this jurisdictional priority analysis can have a meaningful impact on the property required to be escheated. Some states even require negative reports to be filed, stating that no unclaimed property is due and owing to the state.
A transaction’s structure can significantly impact the unclaimed property exposure that a buyer may inherit from the target. In an asset purchase, the buyer acquires only those liabilities specifically identified in the purchase document. While it is still possible for the buyer to acquire certain unclaimed property liabilities in an asset purchase (such as those associated with bank accounts, accounts receivable, or gift cards), the buyer’s potential exposure for the target’s failure to comply with unclaimed property laws will typically be less than in a stock purchase where the buyer generally acquires all of the target’s disclosed and undisclosed liabilities, including its unclaimed property liabilities.
In addition, unclaimed property can arise in the context of a merger involving a share exchange, where the former stockholders (who now cannot be located) fail to receive the shares issuable to them in the merger. At least one SEC reporting company recently entered into a settlement with the State of Delaware as a result of more than four million shares which were reserved for issuance in the merger, but which were not claimed by former stockholders. The settlement resulted in the SEC reporting company making a $20,000,000 cash payment to the State of Delaware.
There are a number of factors that can make a target’s failure to comply with the unclaimed property laws very costly for a buyer. In many states, there is no statute of limitations on unclaimed property. As a result, even voluntary compliance arrangements with the states can result in a look-back period of five to ten years or even longer. Audit look-back periods can be significantly longer. Oftentimes, the buyer will not have complete records from the target. In such situations, state regulators in a post acquisition audit have been known to use various formula to estimate the liability. The target may have made acquisitions itself prior to being acquired, further compounding the potential for non-compliance. Once interest (and potentially even penalties) is added to the equation, a potential multi-million dollar exposure can be created — definitely an unwelcome surprise for the buyer.
Prospective buyers can take proactive steps to manage and minimize potential exposure. Below are a few such steps:
Structure of Transaction. If possible, buyers should consider structuring a transaction as an asset purchase to minimize the unclaimed property liabilities inherited from the target. The purchase document should be carefully drafted and negotiated to leave any unclaimed property liabilities out of those liabilities acquired by the buyer.
Due Diligence. Oftentimes, unclaimed property compliance is overlooked in the due diligence process. As a starting point, buyers should request copies of the target’s unclaimed property policies and procedures, a description of the target’s unclaimed property due diligence process, copies of historical unclaimed property reports filed by the target, correspondence with state unclaimed property regulators, and any unclaimed property audit notifications. Given the current interest, especially in Delaware, in equity property (e.g., stock, dividends, etc.), buyers should make sure the target’s response includes materials that permit the buyer to determine the target’s compliance for this property type, especially because this information may be in possession of the target’s transfer agent or other third party. Depending on the materials provided, additional due diligence may be warranted.
Representations and Warranties. Unclaimed property is not a tax and thus is typically not covered by the tax representations and warranties. The purchase document should include specific representations and warranties of the target, backed by an indemnity and an escrow if possible, regarding the target’s historical unclaimed property compliance. The target’s indemnity obligations should be excluded from any basket and cap exceptions applicable to indemnities. Most representations and warranties only survive for a specified period following the closing of the transaction. However, as discussed above, oftentimes there is no statute of limitations with respect to unclaimed property compliance. If possible, the target’s representations and warranties regarding unclaimed property compliance should survive closing indefinitely. Additionally, even if the target is current in its compliance, provision should be made for property still in its dormancy period, i.e., property that may be abandoned but not yet subject to escheat.
Voluntary Compliance Initiatives. If it is determined that the target is not in compliance with the unclaimed property laws, the buyer should consider whether voluntary compliance is a viable option. Many states offer voluntary compliance programs with limited look-back periods.
©2012 Greenberg Traurig, LLP
The National Law Review recently published an article written by Jonathan I. Lessner, Marc J. Musyl, and Sarah Niemiec Seedig of Greenberg Traurig, LLP regarding M&A Transactions:
As the economy continues to recover, an increase in M&A activity is expected. A target company’s historical compliance with unclaimed property laws is an important, but often overlooked, area for due diligence in M&A transactions. A target company’s failure to comply with unclaimed property laws can potentially create multi-million dollar exposure for the buyer. The transaction itself may have the effect of drawing the attention of state unclaimed property regulators and third party contingency fee auditors. There are various ways, as discussed below, for the buyer to control or limit its potential exposure.
While the exact parameters of what constitutes “unclaimed property” vary from state to state, unclaimed property generally consists of a wide range of both tangible and intangible property held by a business. Once the business has held the property for a statutorily mandated holding period without communication with the owner, it becomes unclaimed property subject to escheat. Some examples of unclaimed property include: un-cashed rebate checks and other customer credits; unused gift certificates and gift cards; un-cashed vendor checks; un-cashed dividend checks; insurance proceeds; and the underlying stock or other evidence of an ownership interest in a business.
Businesses are responsible for reporting unclaimed property to the states on an annual basis in accordance with priority rules established by the U.S. Supreme Court. The first-priority rule is that unclaimed property escheats to the state of the apparent owner’s last known address, as shown on the company’s books and records. The second-priority rule provides that the unclaimed property escheats to the state of the company’s incorporation if: (1) the apparent owner’s address is unknown, (2) the last known address is in a foreign country, or (3) the last known address is in a state that does not provide for escheat of the property in question. As the unclaimed property laws vary from state to state, the outcome of this jurisdictional priority analysis can have a meaningful impact on the property required to be escheated. Some states even require negative reports to be filed, stating that no unclaimed property is due and owing to the state.
A transaction’s structure can significantly impact the unclaimed property exposure that a buyer may inherit from the target. In an asset purchase, the buyer acquires only those liabilities specifically identified in the purchase document. While it is still possible for the buyer to acquire certain unclaimed property liabilities in an asset purchase (such as those associated with bank accounts, accounts receivable, or gift cards), the buyer’s potential exposure for the target’s failure to comply with unclaimed property laws will typically be less than in a stock purchase where the buyer generally acquires all of the target’s disclosed and undisclosed liabilities, including its unclaimed property liabilities.
In addition, unclaimed property can arise in the context of a merger involving a share exchange, where the former stockholders (who now cannot be located) fail to receive the shares issuable to them in the merger. At least one SEC reporting company recently entered into a settlement with the State of Delaware as a result of more than four million shares which were reserved for issuance in the merger, but which were not claimed by former stockholders. The settlement resulted in the SEC reporting company making a $20,000,000 cash payment to the State of Delaware.
There are a number of factors that can make a target’s failure to comply with the unclaimed property laws very costly for a buyer. In many states, there is no statute of limitations on unclaimed property. As a result, even voluntary compliance arrangements with the states can result in a look-back period of five to ten years or even longer. Audit look-back periods can be significantly longer. Oftentimes, the buyer will not have complete records from the target. In such situations, state regulators in a post acquisition audit have been known to use various formula to estimate the liability. The target may have made acquisitions itself prior to being acquired, further compounding the potential for non-compliance. Once interest (and potentially even penalties) is added to the equation, a potential multi-million dollar exposure can be created — definitely an unwelcome surprise for the buyer.
Prospective buyers can take proactive steps to manage and minimize potential exposure. Below are a few such steps:
Structure of Transaction. If possible, buyers should consider structuring a transaction as an asset purchase to minimize the unclaimed property liabilities inherited from the target. The purchase document should be carefully drafted and negotiated to leave any unclaimed property liabilities out of those liabilities acquired by the buyer.
Due Diligence. Oftentimes, unclaimed property compliance is overlooked in the due diligence process. As a starting point, buyers should request copies of the target’s unclaimed property policies and procedures, a description of the target’s unclaimed property due diligence process, copies of historical unclaimed property reports filed by the target, correspondence with state unclaimed property regulators, and any unclaimed property audit notifications. Given the current interest, especially in Delaware, in equity property (e.g., stock, dividends, etc.), buyers should make sure the target’s response includes materials that permit the buyer to determine the target’s compliance for this property type, especially because this information may be in possession of the target’s transfer agent or other third party. Depending on the materials provided, additional due diligence may be warranted.
Representations and Warranties. Unclaimed property is not a tax and thus is typically not covered by the tax representations and warranties. The purchase document should include specific representations and warranties of the target, backed by an indemnity and an escrow if possible, regarding the target’s historical unclaimed property compliance. The target’s indemnity obligations should be excluded from any basket and cap exceptions applicable to indemnities. Most representations and warranties only survive for a specified period following the closing of the transaction. However, as discussed above, oftentimes there is no statute of limitations with respect to unclaimed property compliance. If possible, the target’s representations and warranties regarding unclaimed property compliance should survive closing indefinitely. Additionally, even if the target is current in its compliance, provision should be made for property still in its dormancy period, i.e., property that may be abandoned but not yet subject to escheat.
Voluntary Compliance Initiatives. If it is determined that the target is not in compliance with the unclaimed property laws, the buyer should consider whether voluntary compliance is a viable option. Many states offer voluntary compliance programs with limited look-back periods.
©2012 Greenberg Traurig, LLP
The National Law Review recently published an article by Lisa L. Mueller of Michael Best & Friedrich LLP regarding the 2012 China (Suzhou) Service Outsourcing Innovation Development and Investment Promotion Summit:
Transformation. Repositioning. Adjustment. Service + Innovation = Jobs. These were the keys from today’s 2012 China (Suzhou) Service Outsourcing Innovation Development and Investment Promotion Summit in Suzhou, China.
The summit was attended by the Delegation, a number of local government officials, business leaders from Suzhou and other business leaders from around the world. The stage used for the formal presentations contained a large multimedia screen and was surrounded with red flowers, and the podium top had a dozen red roses on it. I was told by an attendee that decorating the stage with flowers is very common in China. Also, the introduction of each speaker was very unique. When introduced and while approaching the podium, a “theme” song was played, the morning session featured the “Star Wars” theme song. Although most of the speakers presented in Chinese, simultaneous translation into English was provided.
As emphasized several times by the various speakers during today’s presentations, service outsourcing has contributed greatly to China’s economic growth. As part of China’s 12th Five Year Plan, and in view of the recent global economic downturn, it is a top priority of the Chinese government to restructure and transform China’s economy. The fundamental purpose of this restructuring and transformation is to ensure the quality of economic growth and enhance the overall competitive strength of China. Therefore, the recurring theme throughout the day was the refocusing of China’s service industry from manufacturing outsourcing, considered to be low-end or low-tech outsourcing, to high-end/high-tech service and international service outsourcing. Innovation is considered to be the key in making the change away from low-end industrial and increasing the overall competitiveness of China’s service outsourcing enterprises. Clearly, China wants to be the worldwide leader in service outsourcing enterprises and is willing to invest the time and resources to achieve this goal.
In 2009, China’s state council approved setting up 21 cities as models of service outsourcing. These cities receive preferential treatment in terms of tax benefits and receipt of certain subsidies. The selected cities themselves have invested heavily in public infrastructure, industrial parks and education and training. One such selected city is Suzhou, the location of today’s summit.
Service outsourcing originated in Suzhou in the 1990′s and has developed rapidly. As of 2011, Suzhou had more than 1,600 service outsourcing enterprises employing approximately 160,000 people. In fact, in 2011, 488 new service outsourcing enterprises were established in Suzhou. Additionally, the signed contract value of Suzhou’s offshore outsourcing services in 2011 was 3.57 billion US dollars, an increase of 57.4% over 2010 with an executed contract value of 2.01 billion US dollars, an increase of 58.6%.
Suzhou hopes to lead the way in the transformation from low-end services to high-end service outsourcing and it appears to be well positioned to do so. Specifically, the city is the source of a lot of talent: (1) it’s home to 20 colleges and universities; (2) it has over 30 Chinese-foreign cooperatively run institutions; and (3) it has a variety of projects with universities such as University of Liverpool, National University of Singapore and the University of Dayton. In addition, Suzhou established the first service outsourcing institute having a capacity to train over 20,000 professionals per year.
Today, government officials described in detail Suzhou’s aggressive economic plan to create a unique service outsourcing industry in the following ten areas:
The government officials of Suzhou are very proud of all that they have achieved with respect to their service outsourcing enterprises and are confident that they can achieve a service outsourcing industry in the above areas. Time will tell.
Recently an article by Lisa L. Mueller of Michael Best & Friedrich LLP regarding the 13th Great-Idea China Delegation appeared in The National Law Review:
We woke up to a bright, beautiful and warm morning in Shanghai. The nice weather was greatly appreciated as the Delegation was up and out early, traveling to the Shanghai Pudong Software Park (Park). The Park is only 12 years old and is currently home to 1,086 companies. Two of these companies are in Forbes’ Top 20. Additionally, companies such as Citi, Texas Instruments, Olympus, Sony, Kyocera, Tell Labs and Qualcomm, each have offices within the Park.
During our visit we were taken to the first location and given a short presentation describing the size of the Park, the various campuses that comprise the Park and the development cost of each campus. After the presentation, we traveled to a second location which was quite stunning, as it contained a central lake surrounded by several buildings and beautiful landscaping. The lake contained docks that were staffed with paddle and small motor boats. Interestingly, the campus was very quiet; there was very little activity, at least on the outside, and strangely, we saw very few people during our visit.
After completing our visit to the Park, the Delegation traveled to a restaurant in downtown Shanghai specializing in Peking duck. The duck arrived after course number two, each course being anywhere from 2-3 different dishes, and was followed thereafter, by four additional courses. Favorites among the Delegation included the duck skin and meat, which were presented on separate plates, deep-fried fish in red sauce, and wheat rolls stuffed with duck. I particularly enjoyed the spicy jellyfish, which was a new experience for me.
After lunch, we boarded a bus to travel to the town of Suzhou. Suzhou was founded in 514 B.C. and its history dates back more than 2,500 years. Suzhou is frequently referred to as the “Venice of the East” or the “Venice of China” for its beautiful canals and stone bridges. Suzhou also has a number of magnificent gardens. In fact, several of Suzhou’s classical gardens were named UNESCO World Heritage Sites in 1997 and 2000.
Upon our arrival in Suzhou we were taken to Dushu Lake Hotel. The hotel blends traditional Suzhou architecture with cutting-edge contemporary design. There is a beautiful story the locals tell regarding Dushu Lake:
“Ancient stores tell the tale
of a small branch that fell
from the moon into the lake
and grew into a large single-branch there.Locals believe that those who live
around the lake will be
Blessed with happiness.”
The hotel is located in the Suzhou Industrial Park (SIP). The SIP is the largest cooperative project between the Chinese and Singapore governments. SIP covers an area of 288 square kilometers, of which, the China-Singapore cooperation area covers 80 square kilometers.
After a wonderful buffet dinner, the Delegation was treated to a nighttime cruise on Jinji Lake.
Tomorrow the Delegation will participate in the 2012 China Service Outsourcing Innovation Development and Investment Promotion Summit and China-Europe CIO Summit.
In addition to reporting on the day’s activities, I thought it might be interesting to profile some of the people comprising the Delegation. Therefore, I will try in each blog to introduce you to one or two people in the Delegation.
Delegate Spotlight: Thomas Gephart from Irvine, California, US.
Tom is the founder and managing partner of “Ventana,” which is Spanish for “window”. Ventana was founded in 1974 and is a leading multi-stage equity firm. Specifically, Ventana invests in the best of breed innovative companies with technology products and services that meet the challenging global demands of commercial industrial, technological, federal, and international customers. Most impressively, Ventana has provided more than 30 years of syndicated financing for 100 plus portfolio companies totaling 3.2 billion US dollars from Southern California to Latin America, and Europe to Asia.
Tom has an engineering degree and worked for several years for Hughes Aircraft and then TRW, Inc. After TRW, Tom was hired to find and develop new products for AMP, Inc. After AMP, Tom started his own electronic components business that ultimately had two divisions. Three years after Tom started his business he sold it and founded Ventana.
Tom is currently working on forming a China-US strategic alliance and innovation region cross-border fund and hopes to launch the fund later this year. In working on forming this fund, Tom has observed that the Chinese government seems particularly interested in moving technology to China, and once here has no problem paying for its commercial development. Specifically, in Tom’s opinion, the Chinese government is interested in things that are “explosive” and beneficial to Chinese society and is willing to pay for them. Once this China-US fund has been completed, Tom hopes to form a similar fund between India and the US.
Delegate Spotlight: Martin Venzky-Stalling from Hamburg, Germany.
Martin works as a senior advisor for the Technology Development Center for Industry (TDCI) at Chiang Mai University in Chiang Mai, Northern Thailand. Martin’s role with TDCI is to assist with the development of a Science and Software Park and creating links between government, universities and private sectors. In addition to the Science and Software Park project, Martin also supports the local government with a creative economy initiative called, “Chiang Mai Creative City.” This initiative aims to establish Chiang Mai as the international center for creative industries, including software, crafts, and graphic design.
Prior to moving to Chiang Mai, Martin was Senior Vice President for International Operations at PCCW (Hong Kong Telecoms), Director of Consulting at Ovum in London and Associate Director with the Global IT, Communications, and Entertainment (ICE) Strategy Group of PricewaterhouseCoopers. Martin specializes in strategy development, market entry, technology enabled business transformation, and launching new entities.
The National Law Review recently published an article by Lisa L. Mueller of Michael Best & Friedrich LLP regarding The New Industrial Delegation to China:
Today was the first day of the 13th Great-Idea China Sourcing & New Industrial Delegation (Delegation). The first stop: Shanghai.
Because this was my first time to China, I really did not know what to expect when my plane landed in Shanghai. All I really knew about China before leaving home is that from a geographical standpoint, it is an extremely large-sized country with an equally large population, and that many of the products that I rely on day in and day out in my life (my running shoes, many of my clothes, etc.) are made in China. Well, I was certainly not prepared for what I found when my plane landed in Shanghai. What struck me immediately was that Shanghai is absolutely enormous in a multitude of different ways. First, the sheer number of people who live and work in Shanghai is colossal. Since my arrival, I have heard that the number of residents in Shanghai to be anywhere from 20 to 23 million. Regardless of the actual number, I can tell you that there are simply people everywhere and they seem to be going in every direction. In fact, there are so many people in Shanghai that there is not enough room for people to walk on the sidewalks, so they frequently travel in the streets along with the buses, cars, mopeds, motorcycles and bicycles that make up traffic.
Second, the sheer number and size of free-standing skyscrapers in Shanghai is astonishing. Some of the more prominent skyscrapers include the Jin Mao Tower, the Shanghai World Financial Center, which is the tallest skyscraper in mainland China at the moment, the Oriental Pearl Tower and the Development Tower.
Third, the amount of new skyscrapers that are under construction is tremendous. There seems to be skyscrapers under construction no matter which direction you look in Shanghai. Based on the work done thus far, it appears that many of these skyscrapers are going to be just astronomical in size.
Fourth, the traffic in Shanghai is monstrous. Growing up on Long Island, NY, I thought I was used to the immense day-to-day traffic that has long been a staple in the New York Metropolitan area. NOTHING could prepare me for the mammoth traffic in Shanghai. Getting around by car, cab or bus is absolutely painful during what most people would consider “reasonable” waking hours during the day. I took a bike tour on Saturday and I can personally attest that this traffic makes biking a challenge when you have to traverse cars, buses, cabs, mopeds, motorcycles, bicycles and people crossing the streets. In fact, at times, the weaving in and out was better than any amusement park ride I’ve been on in years (and far less expensive).
Fifth, not surprisingly given the number of cars, buses and motorcycles that comprise the traffic in Shanghai, the pollution is gargantuan. It has taken my eyes and lungs a bit of time to adjust to the increased levels of pollution.
In addition to the enormity of China, I was also not prepared for what I have found in terms of the people of China. For the most part, the Chinese people are very friendly and warm. I have found them to be very hard-working and capitalistic. Unfortunately, given the large number people in China, there are far more people than jobs. In view of this, as part of China’s 12th Five-Year Plan for National Economic and Social Development, the Chinese government is trying to spread the benefits of economic growth to a higher number of Chinese citizens. The plan’s key themes involve rebalancing the economy, ameliorating social inequality and protecting the environment. Part of this plan involves changing the export-oriented economy of China from low-end manufacturing outsourcing to advanced manufacturing outsourcing and international service outsourcing. The three main sectors to be targeted by this plan are healthcare, energy and technology.
The Delegation is part of an international summit and forum that has come to China to learn more about the plan, to meet with local business leaders and politicians who will be instrumental in implementation and to foster cooperation and investment opportunities between China and other nations based on the plan of the International delegates. Some are venture capitalists or other types of investors, some are lawyers and others are technology specialists.
This evening, the delegation visited Hand Enterprise Solutions Company (Hand) for a presentation by Mr. Dean Chen, President. Hand was established in Shanghai in 2002 and was one of the first local enterprise resource planning (ERP) consulting firms in China. They currently have over 700 employees and an average growth rate of 30% in recent years. In 2002, IDC named Hand one of the “Top Consulting Companies” in the China IT Industry. Hand currently provides a variety of IT services ranging from traditional IT strategic consulting, business process optimization, ERP implementation service, as well as, mobile solutions and business intelligence. They have provided consulting services in a variety of industries such as machinery, electronics, automotive, pharmaceutical, chemicals, food and beverage, financial services, telecommunications and the Chinese aviation industry. Hand has about 400 customers in China, Japan, Europe and the US and has offices in Beijing and Guangzhou in China and in Tokyo, Japan.
Tomorrow morning the Delegation will tour the Zhangjiang Science and Technology Park in Shanghai before heading to Suzhou.
Recently The National Law Review published an article by Martina Maier and Philipp Werner of McDermott Will & Emery regarding the European Commissions Investigation of a German Law Loophole:
Under German law, companies may escape cartel fines by undertaking an internal restructuring. The German competition authority has indicated a willingness to reallocate such cases to the European Commission, which can impose a fine on the corporate group regardless of any internal restructuring. Commission officials speaking at a conference have suggested recently that the Commission would be willing to take over cartel cases from EU Member States, even at a late stage in the proceedings, in order to fine undertakings for their anti-competitive behaviour.
The German competition authority can impose fines on undertakings that have violated European competition law by forming a cartel. Under German law, if the undertaking ceases to exist, for example by merging with another undertaking, only in exceptional circumstances can the legal successors be held liable for the violation of Article 101 TFEU. For the legal successor to bear any liability for the anti-trust infringement, the restructured company must be identical, or nearly identical, to the company that committed the infringement, such as in the case of a mere change of the company’s name or its legal structure.
This has created a loophole that can be exploited by internally restructuring the legal entity that has committed the infringement so it ceases to exist and no other legal entity within the group is (nearly) identical. Companies may thus escape cartel fines by, for example, redistributing their assets to affiliated companies within the corporate group, or by merging with a sister company, even if the original company’s assets remain within the same group and under the control of the same ultimate parent company. This loophole has been confirmed explicitly by the German Supreme Court. Although Germany is currently amending its competition legislation, it is not yet clear whether the proposed changes will be sufficient to solve the problem.
In the European Union, due to the broad interpretation of the concept of an “undertaking”, as well as the possibility of holding parent companies jointly and severally liable, the European Commission has broad discretion when it comes to imposing fines on parent companies, so an internal restructuring does not present a solution for infringing companies.
According to the Commission Notice on cooperation within the Network of Competition Authorities, reallocation of cases should normally take place within a period of two months, starting from the date of the first information sent by the relevant national competition authority to the European Competition Network. In general, the competition authority that is dealing with a case at the end of the two month period should continue to handle the case until completion of the proceedings. Reallocation of a case after the two month period should only occur where the facts known about the case change materially during the course of the proceedings. After the two month period, the Commission should in principle initiate proceedings only in exceptional cases.
If the Commission initiates proceedings, the relevant authorities of the Member States are relived from their competence to apply Article 101 TFEU and Article 102 TFEU. This means, once the Commission has opened proceedings, national competition authorities cannot act under the same legal basis against the same agreement or practices by the same undertaking on the same relevant geographic and product market.
Despite these procedural concerns, the Commission seems to be willing to accept a late reallocation of cases in cooperation with the German competition authority. It is not clear how this principle could or will be extended to other Member States and whether it could be applied under different circumstances where a Member State is prevented from fining a cartelist due to the application of a national law.
© 2012 McDermott Will & Emery
