1. State aid – Meaning – Private investor test
(Art. 87(1) EC)
2. State aid – Meaning – Assessment in accordance with the private investor test
(Art. 87(1) EC)
3. State aid – Meaning – Application of the private investor test – Discretion of the Commission
(Art. 87(1) EC)
4. State aid – Meaning – Assessment in accordance with the private investor test
(Art. 87(1) EC)
5. State aid – Meaning – Assessment in accordance with the private investor test
(Art. 87(1) EC)
1. In order to determine whether a State measure constitutes aid, it is necessary to establish whether the recipient undertaking receives an economic advantage which it would not have obtained under normal market conditions. In that regard, it cannot be held that the exercise of ascertaining whether the transaction took place under normal conditions of a market economy must necessarily be made by reference to the single investor or to the single undertaking benefiting from the investment, when it is the interaction between the various economic operators which is precisely the feature of a market economy. Nor, furthermore, does that exercise require the constraints connected with the nature of the asset transferred to be disregarded altogether, since it is necessary to take into account, as a reference, the conduct of a private investor finding himself, as far as possible, in the same situation as a public investor.
In those circumstances, the Commission is obliged, in assessing whether the undertaking enjoys an advantage which it would not have been able to obtain under market conditions, to make a complete analysis of all factors that are relevant to the transaction at issue and its context, including the situation of the beneficiary undertaking and of the relevant market. The Commission can, in particular, examine whether the undertaking would have been able to procure funds entailing the same advantages from other investors and, if necessary, under what conditions, since a measure cannot constitute State aid if it does not place an undertaking in a more advantageous position than it would have been in if the public authority had not intervened.
(see paras 35-37, 175)
2. A public authority which makes a capital contribution to a bank, providing for remuneration based on a phased model under which, in the early years following the transfer of that contribution, the remuneration fixed for the expansion of the business is paid not on the whole contribution but on tranches agreed in advance, does not necessarily confer on the bank an advantage which it could not have obtained in any other way.
In the absence of any arguments from which it might be established that the Commission made a manifest error of assessment, the Commission is entitled to find that, in a situation characterised, on the one hand, by the fact that a public authority wanted to invest in a non-liquid asset and did not want to divide it and, on the other, by the fact that that bank did not, either in the short or medium term, need capital on the scale of that of the special fund, a private investor would not have been able to obtain from the bank immediate remuneration for the whole of the contribution at issue at the rate of remuneration for the expansion of the bank’s competitive business. In any event, there does not appear to be a manifest error in taking the view that a bank will not agree to pay the rate corresponding to remuneration for the expansion of its competitive business in respect of capital which it knows in advance it will not be able to use for that purpose. While such capital may enable the bank to strengthen its solvency or avoid its deterioration and, therefore, to reduce or maintain its financing costs, it does not enable the bank to obtain additional income from new transactions.
Accordingly, a private investor in that public authority’s situation should have taken into account the fact that, since, for supervisory purposes, it was impossible for the bank to use the whole of the contribution available immediately for the expansion of its competitive business, that part of the contribution which was not available for the bank to use did not have the same economic function for the bank as the part which was available.
(see paras 51, 58, 66-68)
3. The assessment by the Commission of the question whether an investment secures an advantage which the undertaking would not have been able to obtain on the market involves a complex economic appraisal. When the Commission adopts a measure involving such an appraisal it enjoys a wide discretion, and judicial review of that measure, even though it is in principle a comprehensive review of whether a measure falls within the scope of Article 87(1) EC, is limited to verifying whether the Commission complied with the relevant rules governing procedure and the statement of reasons, whether the facts on which the contested finding was based have been accurately stated and whether there has been any manifest error of assessment of those facts or a misuse of powers. In particular, the Court is not entitled to substitute its own economic assessment for that of the author of the decision.
Thus, the comparison of the capital contribution at issue with other hybrid instruments is a matter of some economic complexity, over which the Commission enjoys a wide margin of assessment. In addition, the classification of the contribution at issue as a time-limited silent partnership contribution or as share capital is merely an analytical tool used by the Commission in applying Article 87(1) EC.
The Commission’s assessment in that regard does not therefore permit it to make an automatic determination as to the existence and scale of State aid, but merely allows it to use for its assessment a starting point which takes into account the conditions in which private investors have carried out transactions that are as similar as possible. The Commission’s conclusion on that point does not relieve it of its obligation to make a complete analysis of all factors that are relevant to the transaction at issue and its context, including the situation of the beneficiary undertaking and of the relevant market, in order to verify whether that undertaking is receiving an economic advantage which it would not have obtained under normal market conditions.
(see paras 38, 96-98)
4. Although subscription to the whole of a capital contribution representing 40% of the issuing bank’s own funds represents a risk for the investor, a remuneration premium is justified only if that factor constitutes an advantage for the issuing bank for which it is prepared to pay, or if that bank needs the funds proposed by the investor and is not in a position to obtain them from others. By contrast, while the increase in risk for the investor stems from a decision which he has taken for his own reasons, without being influenced by the bank’s wishes or requirements, the bank will refuse to pay a remuneration premium and will obtain funds from other investors.
(see paras 229, 234)
5. With regard to the classification of an investment in an undertaking as State aid, it is the existence of an advantage for the undertaking that is decisive. It follows from this that, in a case where a public authority seeks to invest a particular type of asset, a transaction cannot be deemed to give rise to State aid where, following negotiations between that public authority wishing to invest and the undertaking, the terms which the latter is prepared to accept on account of the disadvantages facing that undertaking because of the nature of the capital transferred result in a remuneration that is lower than that agreed on the market for cash investments. In so far as those terms are not more advantageous for the undertaking than those which it could have obtained if the transaction related, as would normally be the case, to liquid capital, it does not gain an advantage which it would not have been able to obtain on the market. By contrast, it cannot be held that, for a transaction of that kind not to be regarded as giving rise to State aid, the public authority must always receive the same remuneration for its investment as an investor who is prepared to transfer liquid capital.
(see para. 277)