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Inability to Pay Fines: Tough Criteria for Get-Out-of-Jail Card

December 2010
Mayer Brown Article

Speaking on the issue of competition and the economic and financial crisis, Joaquín Almunia, European Commissioner for Competition, made the following statement:

The Commission will continue to enforce the competition rules, and will continue to protect law abiding companies and citizens from those who conspire against them. We will continue to set fines at a level that acts as a real deterrent.1

Sticking to this policy, the European Commission (the “Commission”) has continued its strict antitrust enforcement and, as of October 18, 2010, has set fines totalling €1,668,904,832.00, which is already more than the total amount of fines imposed in 2009.

Meanwhile, there has been an increase in the number of Inability to Pay (ITP) fine applications from struggling undertakings, and in the last two years some of the applications have been allowed. No detailed guidance is available on the criteria for the assessment and grant of ITP claims, but the Commission has been trying to rectify this with details on procedure in its recent decisions and press releases.

Some stakeholders have responded to the recent consultation on Best Practices in Antitrust Proceedings by demanding more clarity regarding the imposition of fines. This includes demands for a separate Statement of Objections regarding fines, in an attempt to reduce the Commission’s discretionary freedom. If the Commission responds by modifying the procedure for calculating fines and issuing a revised guideline, it could be expected that the criteria for assessment and grant of ITP applications would be explained in more detail than has been done in the current 2006 fining guidelines.


Antitrust enforcement in the United States, and some of the national jurisdictions in Europe, includes prison sentences for individuals as one of the punishments. However, the Commission does not have this enforcement tool at its disposal, so fines remain the biggest deterrent to anticompetitive behaviour. In the results of a qualitative stakeholder survey of lawyers, economists, business and consumer associations, national competition authorities and companies on the performance of the Commission published on October 18, 2010, fines were recognised by the majority of respondents as being an effective deterrent, particularly as they have become so high. Hence, the Commission is wary of any excuses to avoid payment of fines. 

The recent unprecedented financial crisis has, however, led to an increase in the number of ITP applications in the last two years. Paragraph 5(b) of the 1998 fining guidelines (the “old guidelines”) briefly dealt with adjustments of fines when it provided that, “depending on the circumstances, account should be taken of the specific characteristics of the undertaking in question and their real ability to pay in a specific social context.”

The inability to pay fines receives much more attention in paragraph 35 of the 2006 fining guidelines (the “current guidelines”), which states that a reduction would be based on objective evidence and not on a finding of an adverse or loss-making situation. Paragraph 35  also provides that the Commission will take into account the undertaking’s inability to pay in a specific social and economic context. The current guidelines do not, however, provide more insight into the objective evidence required to substantiate a claim of ITP. The Commission has allowed the claims of ITP under the current guidelines in the following decisions, but the non-confidential versions of these decisions are not yet available.

Although it may not be related to the topic of ITP applications, in the previous decade the Commission also granted reductions for “crisis cartels,” for example in the Seamless Steel Tubes6 and Alloy Surcharge7 cartel cases, considering them as attenuating circumstances. No reference was made in these decisions to any particular paragraph in the old guidelines when granting the reductions in fine. Although the Commission has in the past accepted crisis cartels, more recently it has rejected such claims (e.g., in the Graphite Electrodes8 cartel).

Financial difficulties can also be taken into account by the Commission under paragraph 37 of the current guidelines, which provides that the particularities of a given case would justify departing from the general methodology for setting fines. It needs to be noted that this is different to the concept of ITP applications. While rejecting the claims of ITP under paragraph 35 of the current guidelines, the Commission has granted 70 percent and 20 percent fine reductions, respectively, in the International Removal Services cartel9 and the Calcium Carbide cartel.10 The grant of reductions by the Commission based on paragraph 37 is questionable, since it appears from the language of this paragraph that it is meant to apply to fine increases and not reductions. That question, however, is beyond the scope of this article.

In the case of International Removal Services, the Commission referred to paragraph 37 of the current guidelines. One of the factors taken into account was that the parent company of the infringing undertaking had been bought by another company that would have had to face the financial burden. In the Calcium Carbide cartel, the beneficiary of the reduction in fine was a small, independent trader that did not belong to a large group of companies, that was trading in high value materials with a rather low margin and that had a relatively focused product portfolio. No specific reference is made to paragraph 37 in the decision, but the Commission considered that the reduced amount would be a sufficient deterrent.


Number of Applications

Applications Allowed

Percentage of Reduction

Heat Stabilisers2(November 2009)



Not known

Bathroom Fittings3(June 2010)



Fines of three companies were reduced by 50%; those of another two were reduced by 25%

Pre-stressing Steel4(June 2010)



25%, 50% and 75%, respectively

Animal Feed Phosphates5 (July 2010)




Assessment of ITP Claims

The assessment of ITP claims has gained more importance during the present economic crisis. The Commission had to achieve a fine balance by ensuring recovery of fines without putting the undertakings involved out of business. The Competition Commissioner has made it clear that the intention of fines is not to endanger “the viability of companies.” Jeopardising the economic viability of an undertaking may affect the competitiveness of the market. The Commission claims it is willing to indulge in tempering of fines in cases of genuine need. The Commission, when assessing an ITP application, would typically consider:

  • Risk of bankruptcy
  • Causality between the fine and bankruptcy
  • Asset loss
  • Specific economic and social context 

The assessment of the financial situation is usually made at the same time as the fine is being calculated on the basis of the financial data submitted pursuant to a request for information. The financial situation is ascertained from the evidence relating to the evolution of equity, profitability, solvency, liquidity in the recent past, the present and in future projections. The applicant will have to provide information relating to all responsible undertakings, as well as to shareholders and their financial ability to contribute depending on the circumstances of the case.

Information sought by the Commission may also relate to financial statements, cash flow, projections, details on relations with banks (such as loan contracts) and undrawn bank facilities and provisions. The applicant needs to be aware that projections that do not support healthy past financial reports, movements of cash, etc. will be treated with suspicion by the Commission and that refusal to submit information will limit the chances of success of the application. The financial data must demonstrate that there is a serious risk of bankruptcy.

The undertaking must also demonstrate that there is a causal link between the fine and the financial distress. It is hard to establish a causal link if there is pre-existing or long-standing distress or disproportion between a large company and a small fine. The data provided by the undertaking has to convince the Commission that the economic viability of the undertaking will be jeopardised if the original fine is enforced.

The condition of “loss of all asset value” provided in the current guidelines will be met if the assets were not to be acquired by new owners, thus paving the way for exit of the undertaking from the market. It may not constitute significant asset loss if the business were to be continued as a going concern, even if there is a declaration of bankruptcy.

In addition, the undertaking will also have to show a specific economic and/or social context. The decision of the Court of First Instance in Tokai Carbon Co. Ltd v. Commission11 (Case T-236/01) may be interpreted to mean that a “specific social context” would include effects such as increase in unemployment or deterioration in the economic sectors upstream and downstream.

The Commission has also previously allowed for the reduction of a fine after considering the “specific economic context” detailed under Section 5(b) of the old guidelines. The decision of the Court of First Instance in Fédération nationale de la coopération bétail et viande (FNCBV) v. Commission12 observed that the Commission had taken into account characteristics such as the drop in the consumption of beef as a result of the “mad cow” crisis in a sector that was already struggling; loss of consumer confidence linked to the fear of the disease; and the situation of farmers when granting a reduction of fines based on the economic context. A further reduction of 10 percent was given by the court in addition to the 60 percent reduction that was already allowed by the Commission.


The Commission is of the opinion that there is no obligation to take into account the poor financial situation of an undertaking because doing so would be tantamount to giving unjustified competitive advantage. The Commission apparently believes that granting a reduction to one undertaking might lead to distortion by favouring it over others, resulting in a risk that poorly managed companies will benefit. In addition, there may be temptations to engineer corporate structures to avoid payments of fines by making an undertaking insolvent.

The analysis is company-specific and aims to be objective and quantifiable to ensure equal treatment and preserve the deterrence aspect of EU competition rules. There is a significant burden on the companies to prove their applications of ITP, but a successful claim will lead to a reduction of fines. The Commission could also provide the option of granting payment of fines by instalments not covered by a bank guarantee. These claims may be more successful and important at the time of an economic crisis.

The Commission is already facing severe criticism on the method of calculation of fines. Published guidelines that reduce the element of discretion by prescribing criteria for assessment of ITP applications will help the Commission, as well as undertakings and practitioners. Until then, it can be hoped that the Commission will only bend, but not break, guilty companies with the fines.


1. Press conference, Brussels, June 23, 2010.
2. Case COMP/38589—Heat Stabilisers, Press Release dated November 11, 2009.
3. Case COMP/39092—Bathroom Fittings & Fixtures, Press Release dated June 23, 2010.
4. Case COMP/38344—Pre-stressing Steel Press Release dated June 30, 2010.
5. Case COMP/38886—Animal Feed Phosphates, Press release dated July 20, 2010.
6. Case IV/E-1/35.860-B—Seamless Steel Tubes, OJ L 140, June 6, 2003, pp. 0001 – 0029.
7. Case COMP/F/39.234—Alloy Surcharge, OJ L 182, July 12, 2007, pp. 31–32.
8. Case COMP.D.2 37.444—Graphite Electrodes case, OJ L 265, October 5, 2001, pp. 15–41.
9. Case COMP/38.543—International Removal Services, OJ C 188, 11.8.2009, pp. 16-18.
10. COMP/39.396—Calcium Carbide and magnesium based reagents for the steel and gas industries, OJ C 301, 11.12.2009, pp. 18–20.
11. Tokai Carbon Co. Ltd  v. Commission—Case T-236/01
12. Fédération nationale de la coopération bétail et viande (FNCBV) v. Commission—Case T-217/03

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