Can't pay or won't pay?

Businesses that are found guilty of having infringed the EU's competition rules by engaging in cartel conduct and on whom large fines have been imposed, often argue that they are unable to pay.

The EU Commission is currently the highest fining antitrust authority in the world. In recent years, businesses that are found guilty of having infringed the EU's competition rules by engaging in cartel conduct and on whom large fines have been imposed, often argue that they are unable to pay ("inability to pay" or ITP cases).

The EU's Fining Guidelines of 2006 provide as follows (at point 35):

"in exceptional cases, the Commission may, upon request, take account of the undertaking's inability to pay in a specific social and economic context. A reduction could be granted solely on the basis of objective evidence that imposition of the fine as provided for in these Guidelines would irretrievably jeopardize the economic vitality of the undertaking concerned and cause its assets to lose all their value."

Although the Guidelines refer to "exceptional cases", there has been a surge in the number of successful ITP applications since 2010; for example, Animal Feed Phosphates, Refrigeration Compressors, Window Mountings and Cathode Ray Tubes. The common features of these cases are:

• The Commission took into account the likely effect of the fines by assessing the applicants' financial statements for recent years, projected finances for the current and coming years and ratios measuring factors such as profitability and the ability of shareholders.

• The Commission’s interpretation of the 2006 Guidelines is that it is not required that the assets would lose all their value as a result of the penalty. Rather, it may be sufficient that they would lose significant value.

In Calcium Carbide, claims on the grounds of inability to pay were rejected. However, outside of point 35 of the 2006 Guidelines, one party received a 20% reduction based on an evaluation of its special circumstances, its financial position and the required deterrent effect of the fine. The company in question was a small independent trader that did not belong to a large group of companies and it traded in high value materials with a low margin. The fine would therefore have had a relatively high impact on the financial situation of that company and therefore a reduction was deemed appropriate.

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