(1)

On 23 January 2002 and 20 August 2002 the Commission received a complaint with regard to State aid given to the Biria group in the form of a public guarantee.

(2)

There followed an exchange of correspondence between the Commission and Germany; by letter dated 24 January 2003, registered as incoming mail at the Commission on 28 January 2003, Germany informed the Commission that the plan to grant the guarantee, which was conditional on the Commission’s approval, had been withdrawn. The complainant was informed accordingly by letter dated 17 February 2003.

(3)

By letters dated 1 July 2003, registered as incoming mail on 9 July 2003, and 8 August 2003, registered as incoming mail on 5 September 2003, the complainant submitted further information concerning another public guarantee to the Biria group and public holdings in companies belonging to the group.

(4)

The Commission requested information by letter of 9 September 2003, to which Germany replied by letter dated 14 October 2003, registered as incoming mail on 16 October 2003. The Commission requested further information on 9 December 2003, which Germany provided by letter dated 19 March 2004, registered as incoming mail the same day.

(5)

The Commission doubted whether the aid granted to the Biria group complied with the schemes on the basis of which it had ostensibly been granted, and on 18 October 2004 it issued an information injunction. In response to the information injunction Germany submitted further information, by letter dated 31 January 2005, registered as incoming mail the same day.

(6)

On 20 October 2005 the Commission initiated a formal investigation in respect of three suspected State aid measures. In the same decision the Commission took the view that several other measures that had been alleged to constitute illegal State aid either did not constitute State aid or had been granted in accordance with approved aid schemes. The Commission’s decision to initiate the investigation was published in the Official Journal of the European Union (3). The Commission invited interested parties to submit comments on the supposed aid measures. Comments were submitted by a third party who wished to remain anonymous, in a letter dated 27 January 2006, registered as incoming mail on 30 January 2006; by Prophete GmbH & Co. KG, Rheda-Wiedenbrück, and Pantherwerke AG, Löhne, by letter dated 6 February 2006, registered as incoming mail the same day; and by Vaterland-Werke GmbH & Co. KG, Neuenrade, in two letters, one dated 6 February 2006, registered as incoming mail the same day, and one dated 27 February 2006, registered as incoming mail the same day.

(7)

The comments were transmitted to Germany by letters of 6 February 2006 and 2 March 2006. Germany replied to the comments by letter dated 5 April 2006, registered as incoming mail on 7 April 2006, and by letter dated 12 May 2006, registered as incoming mail the same day.

(8)

Germany’s response to the initiation of the formal investigation was provided by letter dated 23 January 2006, registered as incoming mail the same day.

(9)

The Commission requested further information on 6 February 2006, and Germany provided this by letter dated 5 April 2006, registered as incoming mail on 7 April 2006. The Commission sent another request for information on 19 July 2006, to which Germany replied by letter dated 25 September 2006, registered as incoming mail on 26 September 2006.

(10)

On 24 January 2007 the Commission adopted a Decision (4) under Article 7(5) and Article 14(1) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (5).

(11)

On 5 April 2007 the Land of Saxony brought an action challenging the Commission Decision with regard to measures 2 and 3 (Case T-102/07). A further application was lodged on 16 April 2007 by MB Immobilien Verwaltungs GmbH und MB System GmbH & Co. KG, legal successors to the recipients of the aid to which the Decision related (Case T-120/07). This second application concerned all three of the measures that were the subject of the Decision. On 24 November 2008 the President of the Court decided to join the two cases.

(12)

By judgment of 3 March 2010, the General Court annulled the Commission’s Decision of 24 January 2007.

(13)

The pleas of the parties overlapped to a large extent: their main submissions were as follows. First, the Commission had been wrong to conclude that measures 2 and 3 were outside the scope of the approved German aid scheme. Second, the Commission was mistaken in its assessment of the facts with regard to the question whether the recipients were to be considered firms in difficulty. Third, the Decision did not provide a proper statement of reasons for the assessment it had made of the amount of aid involved.

(14)

The General Court upheld the finding in the Decision that measures 2 and 3 were outside the scope of the approved scheme. The Court also upheld the Commission’s finding that the recipients constituted ‘firms in difficulty’ under the definition in the Community Guidelines on State aid for rescuing and restructuring firms in difficulty (1999, hereinafter ‘the Rescue and Restructuring Guidelines 1999’) (6). It annulled the Decision only on the ground that it did not provide a proper statement of reasons for the risk premiums it used to determine the aid component. In particular, the General Court held that in order to determine the aid component in a loan to a firm in difficulty, a mere reference to the Commission notice on the method for setting the reference and discount rates (1997, hereinafter ‘the Reference Rates Notice 1997’) (7) was not a sufficient statement of reasons for the application of the different risk premiums.

(15)

As required by the first paragraph of Article 266 TFEU, therefore, the present Decision implements the General Court’s judgment, and explains in greater detail the method followed by the Commission in order to calculate the aid component in the measures at issue. This Decision changes nothing in the assessment under State aid law that the Commission made in the Decision of 24 January 2007, in particular with regard to the aspects already considered by the Court.

(16)

Following the judgment, by letter of 7 June 2010, registered as incoming mail the same day, the recipients submitted further comments. The comments were forwarded to Germany on 16 June 2010. Germany sent the Commission a reply to the recipients’ comments by letter of 12 July 2010, registered as incoming mail the same day.

(17)

On 19 August 2010 the Commission sent Germany a request for information, to which Germany replied by letter dated 14 September 2010, registered as incoming mail the same day.

(18)

Until 7 November 2005 the Biria group manufactured and sold bicycles. The parent company of the group was at that time called Biria AG, and was based in Neukirch, Saxony, an area assisted under Article 107(3)(a) TFEU (8).

(19)

In 2003 the group had a turnover of EUR 93,2 million (compared with EUR 83,8 million in 2002) and made profits of EUR 3,7 million (compared with losses of EUR 5,8 million in 2002). The group had 415 employees in 2003 (490 in 2002), and was therefore to be classified as a large undertaking.

(20)

The parent company was created in 2003, by merging the old Biria AG into one of its subsidiaries, Sachsen Zweirad GmbH. The name of the absorbing company was changed from Sachsen Zweirad GmbH to Biria GmbH. In April 2005 Biria GmbH was converted into a new Biria AG. In 2003 Biria GmbH had an annual turnover of EUR 55,7 million and made profits of EUR 3,6 million. The sole owner of Biria AG was Mr Mehdi Biria. The parent company is hereinafter referred to as ‘Biria’.

(21)

Apart from the parent company the main companies in the group were Bike Systems GmbH & Co. Thüringer Zweiradwerk KG (Bike Systems) — which Biria owned via Biria’s subsidiary Bike Systems Betriebs- und Beteiligungsgesellschaft mbH (BSBG) — and Checker Pig GmbH.

(22)

Bike Systems was based in Nordhausen, Thuringia, which is an area assisted under Article 107(3)(a) TFEU. In 2003 it had a turnover of EUR 6,1 million, and losses of EUR 0,6 million. It had 157 employees. Bike Systems produced bicycles exclusively for its parent company BSBG, under a production contract known as a Lohnherstellungsvertrag. BSBG was responsible for the distribution of the bicycles.

(23)

Checker Pig GmbH was based in Dresden, Saxony, which is an area assisted under Article 107(3)(a) TFEU. In 2003, Checker Pig had a turnover of EUR 6,9 million, and made losses of EUR 0,4 million. It had 43 employees.

(24)

On 7 November 2005 Biria sold the bulk of its assets to two companies belonging to the Lone Star group, a private equity fund. The real estate remained with Biria, which let it to the Lone Star group. The sales price of the assets was EUR 11,5 million. An external expert had evaluated the market price of the assets at EUR 10,7 million.

(25)

According to the information submitted by Germany, the sale was conducted by means of an open, transparent and unconditional tender. The tender was published on the Internet and in several print media. For the involvement of a new investor there were several options: an asset deal, a purchase of the entire assets en bloc, or a share deal. The assets were ultimately taken over by the Lone Star group by means of an asset deal.

(26)

According to Germany the efforts to sell the company started before the Commission’s decision to initiate the formal investigation, which was taken on 20 October 2005. First offers were to be submitted by 4 October 2005.

(27)

At the present time the legal successor to the new Biria AG is MB Immobilien Verwaltungs GmbH (hereinafter ‘MB Immobilien’); the legal successor to Bike Systems is MB System GmbH & Co. KG (hereinafter ‘MB System’). MB Immobilien has been in liquidation since July 2008.

(28)

In this Decision the companies, with the exception of the parent company Biria, are referred to by the names they had at the time of the measures at issue.

(29)

Measure 1: In March 2001, gbb Beteiligungs AG (hereinafter ‘gbb’) provided Bike Systems with a silent participation (stille Einlage) amounting to EUR 2 070 732, to run until the end of 2010. gbb was a wholly owned subsidiary of DtA-Beteiligungs-Holding AG, which was itself a wholly owned subsidiary of Deutsche Ausgleichsbank, a Federal Government development bank that had been set up by legislation in the form of a corporation governed by public law.

(30)

gbb was already in existence in the time of the former German Democratic Republic, when it was a State bank for agriculture. In 1990, under the Unification Treaty, it became Berliner Genossenschaftsbank, a public-law corporation under the supervision of the Federal Ministry of Finance. In 1991 its name was changed to gbb Beteiligungsholding, and in 1997 it was converted into the form of a public limited company (AG). It was now no longer the property of the Federal Government, but became a subsidiary of Deutsche Ausgleichsbank. Ever since gbb was set up the public administration has exercised far-reaching influence over it. When it was a corporation governed by public law, it was under the direct supervision of the responsible ministry, and the authorities were represented on its supervisory board. When it was converted into a limited company, and became a subsidiary of Deutsche Ausgleichsbank, it came under the supervision that the public authorities exercised over Deutsche Ausgleichsbank (see recitals following).

(31)

Deutsche Ausgleichsbank was a corporation governed by public law and was under the supervision of the Federal Ministry of the Interior. A majority of the members of its supervisory board were representatives of federal or Land ministries or members of the Bundestag.

(32)

Section 4(1) of the Deutsche Ausgleichsbank Act states that the activities of the bank are limited to the financing of measures supporting small and medium-sized firms and the professions, protecting the environment, promoting social policies, and integrating persons displaced as a consequence of the Second World War.

(33)

Section 4(4) of the Act provides that Deutsche Ausgleichsbank may acquire interests in other undertakings if its supervisory board and the ministry supervising it agree.

(34)

The silent participation in Bike Systems is listed in Deutsche Ausgleichsbank’s annual reports for the years 2001 and 2002: the holding represented by the participation amounted to 20 %, which brought it over the threshold that triggered the reporting obligation. In 2001, gbb had interests of 20 % or more in a total of 18 companies.

(35)

In 2003, under a Federal Act, Deutsche Ausgleichsbank merged with Kreditanstalt für Wiederaufbau.

(36)

Both Deutsche Ausgleichsbank and Kreditanstalt für Wiederaufbau are what are known as development institutions (Förderinstitute), i.e. banks whose activities are limited to supporting regional, economic and social policy measures. In State aid Case E 10/2000 Germany accepted appropriate measures that confined the activities of the development institutions to specific non-commercial activities, including the administration of support programmes for SMEs (9).

(37)

According to Germany, gbb’s participation in Bike Systems was provided on market terms, and consequently did not constitute State aid.

(38)

Measure 2: On 20 March 2003 the Land of Saxony granted an 80 % guarantee on a working capital loan of EUR 5,6 million to Sachsen Zweirad GmbH, which was originally to run until the end of 2008. The guarantee was returned in January 2004, and replaced by a guarantee for Biria GmbH (see measure 3). The guarantee was granted on the basis of the loan guarantee scheme in Saxony, an aid scheme approved by the Commission (10).

(39)

Measure 3: On 9 December 2003 the Land of Saxony granted an 80 % guarantee on working capital loans amounting to EUR 24 875 000 to Biria GmbH (later Biria AG) to finance the planned increase in turnover and the restructuring of the group’s financing plan. The loans were to mature on 31 December 2011, and consisted of EUR 8 million to repay working capital loans (Betriebsmitteltilgungsdarlehen), a EUR 7,45 million overdraft facility (Kontokorrentlinie), and EUR 9,425 million for seasonal financing needs (Saisonfinanzierungslinie). The guarantee was granted on the basis of the loan guarantee scheme in Saxony, an aid scheme approved by the Commission. It was provided subject to the condition that the earlier guarantee for Sachsen Zweirad GmbH (measure 2) would be returned. It entered into force only on 5 January 2004, once the guarantee to Sachsen Zweirad had indeed been returned.

(40)

The Commission initiated the formal investigation because it doubted whether the silent participation had been contributed on market terms, as Germany claimed. The Commission considered that Bike Systems had just emerged from insolvency, through the adoption of an insolvency plan, so that its future prospects were uncertain. At that time, therefore, it ought to have been considered a firm in difficulty. The Commission doubted whether the remuneration took proper account of the risk, and consequently whether the silent participation had been provided on market terms. With regard to possible exemption under Article 107(2) and (3) TFEU, the Commission had no information to show that the tests of the Rescue and Restructuring Guidelines 1999 were satisfied.

(41)

A further ground for initiating the formal investigation was that the Commission provisionally took the view that the conditions of the approved aid scheme on the basis of which the guarantees for Sachsen Zweirad GmbH and Biria GmbH had ostensibly been given were not in fact fulfilled, so that the guarantees granted fell outside the scope of the scheme. The Commission considered that at the time the guarantees were given Sachsen Zweirad GmbH and Biria GmbH were firms in difficulty. In addition, as Sachsen Zweirad GmbH and Biria GmbH were large undertakings, the guarantees ought to have been notified to the Commission individually even under the approved aid scheme. With regard to possible exemption under Article 107(2) and (3) TFEU, the Commission doubted whether the tests of the Rescue and Restructuring Guidelines 1999 were satisfied.

(42)

The Commission received comments from a third party that wished to remain anonymous; from Prophete GmbH & Co. KG and Pantherwerke AG; and from Vaterland-Werke GmbH & Co. KG.

(43)

In its comments on the initiation of the formal investigation, the competitor that wished to remain anonymous argued that because of the public guarantee on a EUR 24,5 million loan Biria AG was able to sell bicycles to the competitor’s customers below production cost, even though the competitor had the most cost-efficient production site in Germany.

(44)

In 2003 Biria AG was able to show a profit only because banks had waived claims amounting to EUR 8,567 million. In the succeeding years 2004 and 2005, Biria AG had again recorded losses.

(45)

In addition, Biria had been sold to Lone Star by way of an asset deal. In connection with this deal Landesbank Sachsen and Mittelständische Beteiligungsgesellschaft Sachsen had probably waived large amounts of debt. The new Biria GmbH, which was owned by the Lone Star group, had taken over all the assets of the old Biria AG.

(46)

In their comments on the initiation of the formal investigation, Prophete GmbH & Co. KG and Pantherwerke AG (hereinafter ‘Prophete’ and ‘Pantherwerke’) alleged that the State aid enabled Biria to sell at prices that would be untenable under normal market conditions. The two companies were in competition with Biria, and were thus directly affected by the aid.

(47)

Biria group, they argued, was the largest manufacturer of bicycles in Germany, with an annual output of around 700 000 bicycles. The companies of the Biria group operated in two segments of the bicycle market, namely the non-specialised trade and the specialised wholesale trade.

(48)

The non-specialised trade included all retailing by the larger retail chains and mail order business. Bicycles in this segment usually sold at a price between EUR 100 and EUR 199. Prophete and Pantherwerke estimated that there were around 1,5 million bicycles sold on this market, and that Biria sold 650 000, giving it a share of around 50 % of the segment.

(49)

According to Prophete and Pantherwerke, the Biria group also had a dominant position in the specialised wholesale trade segment. This market segment had a volume of 150 000 to 200 000 bicycles. In the specialised wholesale trade prices ranged up to EUR 400. In this segment Pantherwerke was a direct competitor with Biria.

(50)

Prophete and Pantherwerke had observed that that the prices offered by the Biria group had for years been consistently below those offered by other manufacturers. The difference could not be explained by economic factors, because although the Biria group’s dominant position meant that it had a larger purchase volume this did not translate into more advantageous terms. Prophete and Pantherwerke surmised that the Biria group had suffered significant losses in recent years as a result of its low selling prices.

(51)

As regards the silent participation, Prophete and Pantherwerke doubted whether given the economic situation of Bike Systems in March 2001 such a participation would have been provided by a private investor.

(52)

Prophete and Pantherwerke took the view that the guarantees given for Sachsen Zweirad GmbH and Biria in 2003 and 2004 were not compatible with the EU State aid rules. Prophete and Pantherwerke considered that the companies were in difficulty at the time the guarantees were granted. The new Biria was the legal successor to the two former companies from which it had emerged. The opening balance sheet of the newly created company had no informative value.

(53)

The granting of the two guarantees violated the ‘one time, last time’ principle, as the companies of the Biria group had repeatedly been able to stay in business only with State assistance.

(54)

No compensatory measures had been taken to offset adverse effects on competitors. No attempt had been made to limit the presence of the Biria group in the market. Quite the reverse, the Biria group’s plan was to expand its business further by pursuing an aggressive pricing policy. On its homepage Biria had announced that it planned to increase sales further from their 2004 level by selling 850 000 bicycles in 2005. Prophete and Pantherwerke also drew attention to a press release according to which the owner of Biria AG had sold the business to the private equity fund Lone Star.

(55)

In its comments on the initiation of the formal investigation, Vaterland-Werke GmbH & Co. KG (Vaterland-Werke) stated that with a total output of between 700 000 and 800 000 bicycles the Biria group was the biggest manufacturer of bicycles in Germany. The only comparable company was MIFA Mitteldeutsche Fahrradwerke, which had an annual output of around 700 000 bicycles; other manufacturers produced only 250 000 to 400 000.

(56)

Vaterland-Werke and Biria both operated in the non-specialised trade segment, which included the larger retail chains and large mail order firms. Competition in this segment was fierce, and Biria was known as an aggressive competitor that offered prices below production cost. Conduct of this kind was possible only with external financing, which in Biria’s case was provided by State aid. This threatened the existence of all small competitors that were not supported by State aid. Vaterland-Werke was particularly affected, and free capacity could not be filled by alternative work orders. The market was suffering from overcapacity, so that any expansion of a manufacturer’s capacity with the help of State aid placed a burden on other competitors.

(57)

As regards the silent participation, Vaterland-Werke doubted whether given the economic situation of Bike Systems in March 2001 such a participation would have been provided by a private investor.

(58)

Vaterland-Werke took the view that the guarantees given for Sachsen Zweirad GmbH and Biria in 2003 and 2004 were not compatible with the EU State aid rules. Vaterland-Werke considered that the companies were in difficulty at the time the guarantees were granted. The new Biria was the legal successor to the two former companies from which it had emerged. The opening balance sheet of the newly created company had no informative value.

(59)

The granting of the two guarantees violated the ‘one time, last time’ principle, as the companies of the Biria group had repeatedly been able to stay in business only with State assistance.

(60)

No compensatory measures had been taken to offset adverse effects on competitors. No attempt had been made to limit the presence of the Biria group in the market. Quite the reverse, the Biria group’s plan was to expand its business further by pursuing an aggressive pricing policy. On its homepage Biria had announced that it planned to increase sales further from their 2004 level by selling 850 000 bicycles in 2005. Vaterland-Werke also drew attention to a press release according to which the owner of Biria AG had sold the business to the private equity fund Lone Star.

(61)

In their comments of 7 June 2010, following the annulment of the original decision by the General Court, the recipients of the aid submitted further information.

(62)

In particular, they argued that when assessing the silent participation in Bike Systems contributed by gbb in 2001 (measure 1), the Commission had to take into account the existence of a ‘comfort letter’(Patronatserklärung) provided by Biria GmbH. This Biria GmbH is not the legal entity created through the merger of the old Biria AG into its subsidiary Sachsen Zweirad GmbH referred to in recital 20. The Biria GmbH that issued this comfort letter for Bike Systems was the legal predecessor of the old Biria AG.

(63)

In its comments on the initiation of the formal investigation, Germany argued that the terms of the silent participation provided by gbb were in line with market conditions. Germany agreed with the Commission that the risk associated with a silent participation was greater than the risk associated with a conventional bank loan. But the terms of the silent participation were such that the Reference Rates Notice 1997 was complied with. That notice stated that the reference interest rate was a floor rate which could be increased in situations involving a particular risk. In such cases, the premium could amount to 400 basis points or more.

(64)

The remuneration on the silent participation amounted to 12,25 % (8,75 % fixed and 3,5 % depending on profits). This was 600 basis points above the Commission’s reference rate of 6,33 %. gbb had taken account of the fact that the company was going through a restructuring process, and that the risk carried by the silent participation was higher owing to the reorientation of the company and the lack of collateral. The increased risk was reflected in the additional premium of 200 basis points.

(65)

In addition, the decision to provide the silent participation was taken on the basis of a forecast of the company’s development according to which its turnover would increase from EUR 0,89 million in 2001 to EUR 3,38 million in 2003. Germany concluded that the 12,25 % remuneration agreed for the silent participation properly reflected the associated risk. The fact that part of the remuneration was variable was of no relevance, as this was normal practice in the case of silent participations and was in line with the behaviour of a market economy investor.

(66)

As regards the guarantee provided for Sachsen Zweirad GmbH, Germany argued that the company was not in difficulty at the time of the guarantee, and did not display any of the usual signs of a firm in difficulty set out in the Rescue and Restructuring Guidelines 1999. Among other things, in the year 2003 (up to the merger with Biria in October) the company’s capital and reserves were positive, at EUR 404 million, and it generated a profit of EUR 2,1 million. The economic situation of the company had improved in 2003 by comparison with 2001/2002, as a result of consolidation efforts started at the end of 2002 and an improved market.

(67)

The company’s liquidity situation was difficult, but not ‘serious’. There had not been any danger that the private banks would not extend their credit lines. Moreover, high interest payments had not led to liquidity problems, as the Commission had claimed.

(68)

The basis of the guarantee given for Biria GmbH (later Biria AG) was the new plan for the Biria group, which called for streamlined organisation of the group and a concentration of procurement, production responsibilities and distribution at Biria GmbH. Alongside the financial requirements of the expansion of turnover, the plan provided for a reorganisation of the overall financing of the group.

(69)

Biria GmbH (later Biria AG) was not in difficulty at the time the guarantee was granted. A distinction had to be made between the old and the new Biria AG. The new company could be regarded as a firm in difficulty only if it inherited the difficulties of the old company (always assuming that the old company was in fact in difficulty). But the new Biria AG had not inherited any such difficulties. The new Biria AG was the outcome of a merger of Sachsen Zweirad GmbH and the old Biria AG. Sachsen Zweirad GmbH, which was certainly not in difficulty, was economically dominant in the merger. Thus it could not be automatically assumed that the new Biria AG was a firm in difficulty. Even if the old Biria AG had indeed been in difficulty, the merger with Sachsen Zweirad GmbH meant that the new Biria AG was not necessarily so.

(70)

Germany argued that the withdrawal of one of the private banks from the financing of the company was due to a reorientation of the bank’s strategy following a merger. The two other banks ended their involvement at the same time as this private bank. However, this could not be seen as a sign of distrust, as one of the banks had still provided financing for two individual projects.

(71)

Nor was the merger of Sachsen Zweirad GmbH and Biria AG aimed at circumventing the State aid rules and the classification of the company as a firm in difficulty: it was the consequence of a new plan for the group.

(72)

In its observations on the comments of the competitor that wished to remain anonymous, Germany argued that the figures for the competitor’s cost structure and for Biria’s cost structure were not comparable. The competitor’s turnover had increased while the Biria group’s sales had decreased. At the same time the competitor’s EBITDA (earnings before interest, taxes, depreciation and amortisation) had fallen, while the Biria group’s EBITDA had remained constant. This showed that Biria was not selling at dumping prices, and that the competitor was pricing more aggressively than the Biria group was.

(73)

Germany argued that the competitor’s claim to have suffered damage as a result of the Biria group’s behaviour was not supported by evidence and was not presented in a coherent manner. In a competitive market it was normal that one company should find itself undercut by another.

(74)

With regard to the sale of the assets of the Biria group to the Lone Star group mentioned by the competitor, Germany provided details of the sale itself and of the repayment of the claims of private and public creditors.

(75)

In its observations on the comments submitted by Prophete, Pantherwerke and Vaterland-Werke, Germany argued that the market for bicycles was divided into three segments, and not two, as those companies had alleged. The three segments were the specialised trade, mail order selling, and self-service. Biria had a strong position in mail order, which was due less to aggressive pricing than to its just-in-time delivery system. In the self-service trade the leading supplier was MIFA AG, and Biria’s market share was less than 10 %.

(76)

Referred back to information that had already been submitted in the course of the proceedings, Germany rejected Vaterland-Werke’s statement that the Biria group planned to expand its business further by means of an aggressive pricing strategy. Biria AG had produced 670 000 bicycles in 2003, and since then output had been falling.

(77)

Article 107(1) TFEU states that ‘any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market’. The Court of Justice has consistently held that trade is affected if the recipient firm carries on an economic activity involving trade between Member States.

(78)

In order to consider whether or not there is State aid, the Commission will first identify the relevant undertaking. It will then consider each measure individually and assess whether the conditions of Article 107(1) TFEU are met. It will then calculate the aid component, and assess whether the measure is compatible with the internal market.

(79)

The aid was granted to Sachsen Zweirad GmbH, to Biria, and to Bike Systems, a subsidiary of Biria. On 7 November 2005 Biria sold the bulk of its assets to two companies belonging to the Lone Star group, a private equity fund. According to the information provided, the assets were sold following an open, transparent and unconditional tender. Germany states that an expert opinion put the sales value of the assets at EUR 10,7 million. The price paid by the Lone Star group amounted to EUR 11,5 million, which was above that valuation.

(80)

On the basis of the information at its disposal, the Commission concludes that there is no evidence to suggest that any benefit of the aid measures was transferred to the Lone Star group so as to make the Lone Star group the direct or indirect recipient of aid granted to Biria and Bike Systems.

(81)

The silent participation (measure 1) was contributed by gbb. Germany claims that the participation was provided under gbb’s own programme, so that State resources were not used. However, as the Commission pointed out in the decision initiating the formal investigation, at the time the participation was provided gbb was a wholly owned subsidiary of Deutsche Ausgleichsbank, which in turn was wholly owned by the Federal Republic of Germany. gbb is therefore an undertaking governed by public law. According to the settled case-law of the Court of Justice, all resources of public undertakings constitute State resources (11).

(82)

In the Commission’s view, therefore, the measure is necessarily imputable to the State. In Case C-482/99 Stardust Marine, paragraphs 53 to 56, the Court of Justice held as follows:

(83)

In the present case, the Commission has found indicators of this kind that allow it to conclude that the decision taken by gbb is imputable to the State.

(84)

gbb was entrusted by the Federal Government with responsibilities for development: for example, it was responsible for the Eastern Germany Consolidation and Growth Fund (Konsolidierungs- und Wachstumsfonds Ostdeutschland), whose purpose was to provide equity capital to small and medium-sized enterprises in eastern Germany in order to strengthen their capital base.

(85)

Second, gbb’s history indicates that the State has been closely involved in its decision-making. First, as a corporation governed by public law, it was under the supervision of the responsible ministry, and the authorities were represented on its supervisory board. Since it became a limited company, its parent, Deutsche Ausgleichsbank, has been supervised by the responsible ministry, and its supervisory board has been dominated by representatives of public authorities.

(86)

Third, at the time of the decision to provide the participation, gbb’s parent company, Deutsche Ausgleichsbank, was a corporation governed by public law, under the supervision of the Ministry of the Interior, with a supervisory board dominated by representatives of federal and Land ministries and members of the Bundestag. Deutsche Ausgleichsbank is not permitted to take interests in other undertakings without the prior consent of both the supervising ministry and its own supervisory board. Even after gbb was converted from a corporation governed by public law into a limited company, therefore, the State kept control over its business decisions via its parent company.

(87)

Fourth, in 2002 Germany accepted appropriate measures with respect to the German development banks (12). These appropriate measures also apply to Deutsche Ausgleichsbank. The appropriate measures limit Deutsche Ausgleichsbank’s activities to supporting the structural, economic and social policies and the public functions of its public-law owners in accordance with its public mandate. The Commission considers that this makes Deutsche Ausgleichsbank part of the public administration, so that all its actions are imputable to the State.

(88)

Fifth, the provision of the silent participation appears to fall within Deutsche Ausgleichsbank’s development objective of financing SMEs (13).

(89)

The Commission concludes that the measure is imputable to the State.

(90)

According to Germany, the silent participation that gbb contributed to Bike Systems (measure 1) was provided on market terms. The risk carried by such a silent participation is comparable to that carried by a subordinated loan, so that a silent participation should be treated as a loan carrying a high risk. In case of insolvency or liquidation, a silent participation will be repaid only after all other liabilities have been honoured. The risk associated with the participation thus exceeds the risk carried by a conventional bank loan towards an investment, which will normally be secured on terms requested by the bank. At the time of the acquisition the average level of the interest rates being charged in the market on medium- and long-term loans backed by the customary security was 6,33 %. The remuneration to be paid for a participation of this kind should significantly exceed that rate.

(91)

The participation bore a fixed remuneration of 8,75 % plus a variable remuneration of 3,5 % depending on the profits made (14). The agreed remuneration is consequently above the reference rate.

(92)

It should be pointed out, however, that this reasoning supposes that Bike Systems would succeed in returning to profitability: but Bike Systems had just emerged from insolvency, and then only as a result of the adoption of an insolvency plan. Its future prospects were uncertain, as there had been only limited restructuring of its operations. According to the company’s annual report for 2001, it continued to make a loss that year. Its equity figure continued to be negative, although because of hidden reserves this did not trigger insolvency. At that time, therefore, Bike Systems had to be considered a firm in difficulty.

(93)

At the time of the first Decision the Commission had no information regarding the comfort letter (see recital 62 above). The wording of the comfort letter was submitted only in the course of the court proceedings.

(94)

In the comfort letter, dated 6 March 2001, Biria GmbH takes note of the silent participation, and undertakes to ensure that for the duration of the participation Bike Systems is managed and financed in such a way that it is able to meet its obligations in respect of the participation.

(95)

The Commission makes the following observations.

(96)

With regard to the financial strength of the parent company that issued the comfort letter, Germany has stated that in 2001 Biria GmbH’s turnover was negligible: it was merely acting as a distributor for other divisions of the group (15). As regards financial performance, the company showed a modest after-tax profit of DEM 205 000 in 1999, and net losses of DEM 473 000 in 2000 (16).

(97)

Owing to the company’s past losses, its equity was negative in 1999. It became positive in 2000, but this was due not to its own performance but to a transfer of profits from its subsidiary Sachsen Zweirad (17). The Commission notes that the comfort letter was issued not by a company within the group enjoying a solid financial position but by a parent company that was performing less well.

(98)

Irrespective of whether Biria GmbH was to be formally regarded as a firm in difficulty within the meaning of the Rescue and Restructuring Guidelines 1999, therefore, the Commission concludes that Biria GmbH had the capacity to satisfy potential claims arising from the comfort letter covering the silent participation, which amounted to over EUR 2 million. As already mentioned, its book profit in 2000 (before the comfort letter was issued) was in fact due only to a transfer of profits from a subsidiary, and not to its own economic performance, and without this transfer of profits it would have had negative equity (including the subscribed capital and other forms such as reserves or cash in the balance sheet). It is thus questionable how Biria GmbH could have prevented a possible insolvency of Bike Systems. Consequently, the Commission considers that the comfort letter has no real economic value that might offset the difficulties of Bike Systems, and thus does not constitute valuable collateral that would reduce the remuneration that a market investor would have sought for the silent participation.

(99)

The Commission concludes that the remuneration was not commensurate with the risk, and consequently that the participation was not provided on market terms. The participation thus conferred an advantage on Bike Systems that it could not have obtained on the market.

(100)

Bike Systems, Sachsen Zweirad GmbH and Biria GmbH were manufacturers of bicycles. As this product is traded across borders, the measures threaten to distort competition and affect trade between Member States.

(101)

The guarantee given on a working capital loan to Sachsen Zweirad GmbH amounting to EUR 5,6 million (measure 2) and the guarantee given on a working capital loan to Biria amounting to EUR 24,875 million (measure 3) were granted on the basis of the loan guarantee scheme of the Land of Saxony (18). This is an approved aid scheme that allows guarantees to be given on loans of more than DEM 5 million (EUR 2,6 million) to healthy companies for the financing of new investment, and in special cases for supplementary financing of investment and working capital. In exceptional cases the scheme also allows the financing of reorganisation and restructuring. But any guarantees given to a large undertaking for purposes of restructuring must be notified to the Commission individually.

(102)

According to Germany, the conditions of the scheme were fulfilled, so that the guarantees were granted in accordance with the scheme. Germany considers that at the time the guarantees were granted Sachsen Zweirad GmbH and Biria were not in difficulty. The guarantees were provided to secure working capital loans, and this was permissible under the scheme.

(103)

The Commission does not agree that the guarantees were in accordance with the aid scheme on the basis of which they were ostensibly granted. As will be explained in more detail below, the Commission, contrary to the German view, considers that when Sachsen Zweirad GmbH was given a guarantee in March 2003 it was a firm in difficulty, and that when Biria GmbH was given a guarantee in December 2003 it too was a firm in difficulty. A guarantee given to a firm in difficulty for purposes of restructuring is notifiable individually.

(104)

Germany argues that Sachsen Zweirad GmbH did not display any of the usual signs of a firm in difficulty listed in the Rescue and Restructuring Guidelines 1999. The Commission points out that the usual signs of a firm being in difficulty set out in point 6 of the Rescue and Restructuring Guidelines 1999 are intended only to give an indication of when a company can be considered to be in difficulty, and need not all be present at the same time. Sachsen Zweirad GmbH made a loss of EUR 1 274 000 on its ordinary operations in 2001, and a loss of EUR 733 000 in 2002. The losses were taken over by the parent company, Biria, under an existing contract for the transfer of annual profits and losses (Ergebnisabführungsvertrag). Turnover decreased in 2002 from what it had been in 2001, as did cash flow.

(105)

According to the annual report for 2002, Sachsen Zweirad GmbH also faced liquidity problems. It is explicitly stated in the annual report that Sachsen Zweirad GmbH’s liquidity position was tight, owing to heavy expenditure for the advance financing of the inventory and the growth of the group. According to the annual report, the survival of the company could be ensured only if the banks agreed to maintain the existing lines of credit or to restructure them.

(106)

Germany argues that there was never any danger that the banks would not prolong their credit lines. The Commission points out that this does not invalidate the statement that the company’s liquidity situation was tight. According to the annual report the bulk of the credit had a remaining duration of less than 5 years, which is a suboptimal form of financing for a business, and increases the company’s risk. The short-term nature of the credit also led to high interest payments (although the payments fell slightly in 2002 compared to 2001), and this put a further burden on the company’s liquidity position.

(107)

The Commission concludes that at the time the guarantee was granted Sachsen Zweirad GmbH was a firm in difficulty, and that the guarantee consequently has to be considered a guarantee for restructuring. The granting of such a guarantee for a large undertaking has to be notified to the Commission individually, so that the conditions of the approved aid scheme on the basis of which the guarantee was ostensibly granted were not fulfilled, and the guarantee was outside the scope of the scheme.

(108)

Biria was created with effect from 1 October 2003 by the merger of the old Biria AG into its subsidiary Sachsen Zweirad GmbH.

(109)

According to Germany Biria must be clearly distinguished from the old Biria AG and from Sachsen Zweirad GmbH, as the merger created a new company. The question whether this company was in difficulty at the time the guarantee was granted, on 9 December 2004, should therefore be assessed by reference to the balance sheet of the new merged company. According to Germany, this balance sheet demonstrates that Biria GmbH could not be regarded as a firm in difficulty.

(110)

The Commission does not accept this reasoning. It considers that the new merged Biria GmbH cannot be seen in isolation from the old Biria AG and Sachsen Zweirad GmbH, because it is was created by merging the two companies. Otherwise it would be easy to circumvent the definition of a firm in difficulty by merging entities or setting up new ones. The old Biria AG suffered losses and liquidity problems in 2002, as did Sachsen Zweirad GmbH. Biria GmbH inherited all the debts and liabilities of the old Biria AG and of Sachsen Zweirad GmbH. Biria GmbH owned the same assets and carried on the same business as the old Biria AG and Sachsen Zweirad GmbH. The Commission therefore considers that Biria GmbH inherited the difficulties of the old Biria AG and Sachsen Zweirad GmbH.

(111)

Germany claims that Sachsen Zweirad GmbH dominated in the merger. According to Germany, Sachsen Zweirad GmbH was not in difficulty, so that it cannot automatically be assumed that the new Biria GmbH was in difficulty. Contrary to the German view, however, the Commission considers that Sachsen Zweirad GmbH was indeed a firm in difficulty. Consequently, the new Biria GmbH also inherited the difficulties of Sachsen Zweirad GmbH.

(112)

According to its annual report for 2003, the Biria group continued its restructuring and reorganisation process that year. This process had started in 2002, and included a reorganisation of the group’s financing. On the basis of the guarantee given by the Land of Saxony on the EUR 24,875 million loan, the Biria group drew up a new plan for the financing of its business in the medium term. The new financing plan provided for a significant adjustment of the interest rates it was paying, and thus a reduction of its heavy interest burden.

(113)

At the same time the pool of banks was reorganised: three banks agreed to waive claims amounting to EUR 8 567 000, which seems to have represented significantly more than 50 % of their total claims, in return for immediate redemption of their remaining claims. Consequently, the loan covered by the 80 % guarantee that constitutes measure 3 consists of EUR 8 million to repay working capital loans, a EUR 7,45 million overdraft facility, and EUR 9,425 million for seasonal financing needs.

(114)

At the time the guarantee was given, therefore, Biria faced liquidity problems, and was thus a firm in difficulty. This assessment is supported by the fact that three banks withdrew from financing Biria’s activities and indeed agreed to waive a large part of their claims in return for the immediate redemption of the remaining claims. This shows that the banks seriously doubted whether Biria would be able to service its debts, and thus whether it was a viable company.

(115)

Germany argues that the banks withdrew only because of a reorientation of their business strategy. The Commission points out that the banks agreed to waive probably around 50 % of their claims. Even if the banks withdrew as a result of a reorientation of their strategy, this waiver is a sign that they felt that it was very unlikely that they would be able to recover the full amount of the loans.

(116)

The Commission concludes that at the time the guarantee was given Biria was a firm in difficulty, and that the guarantee consequently has to be considered a guarantee for restructuring. The granting of such guarantees for large undertakings has to be notified to the Commission individually, and at the time the guarantee was given Biria was a large undertaking, so that the conditions of the approved aid scheme on the basis of which the guarantee was ostensibly granted were not fulfilled, and the guarantee was outside the scope of the scheme.