Conclusions
OPINION OF ADVOCATE GENERAL
TIZZANO
delivered on 19 June 2003(1)
Case C-277/00
Federal Republic of Germany
v
Commission of the European Communities
(State Aid – Compatibility with the common market – Recovery)
Table of contents
| The administrative procedure and the contested decision |
|
|
| Proceedings before the Court |
|
|
| Characterisation of the grants made by the THA to SMI as State aid incompatible with the common market |
|
|
| Characterisation of the loan of DEM 70.3 million made to SMI by Land Brandenburg as State aid incompatible with the common
market |
|
|
|
|
Non-application of the exemption provided for in Article 87(2)(c) EC and the inadequate statement of grounds on that point
in the decision
|
|
|
Infringement of Article 87(1) EC and Article 88 EC |
| Characterisation of the grant of DEM 1.8 million made to SMI for removal operations as State aid incompatible with the common
market |
|
|
| Characterisation of the loan made to SiMI by Land Brandenburg as State aid incompatible with the common market |
|
|
| Characterisation of the grant made by BvS to SiMI as State aid incompatible with the common market |
|
|
| The order to recover aid from firms other than SMI |
|
|
1.
On 11 July 2000, the Federal Republic of Germany brought an action under Article 230 EC for the annulment of Commission Decision
2000/567/EC of 11 April 2000 on the State aid implemented by the Federal Republic of Germany for System Microelectronic Innovation
GmbH, Frankfurt an der Oder (Brandenburg) (hereinafter ‘the contested decision’).
(2)
Facts and procedure Facts
2.
Before the unification of Germany, the publicly owned company VEB/Kombinat Halbleiterwerk, of Frankfurt an der Oder (Brandenburg),
was chiefly engaged in the production of customised circuits and was the market leader in its field in the Comecon area. That
undertaking was succeeded by the company Mikroelektronik and Technologie GmbH (hereinafter ‘MTG’), ownership of which was
vested in the Treuhandanstalt, a German body governed by public law charged with restructuring the undertakings of the former
German Democratic Republic (hereinafter the ‘THA’) .
3.
In January 1993 (with effect from March of that year), the THA sold to the United States company Synergy Semiconductor Corporation
(hereinafter ‘Synergy’) 49% of the capital of MTG which, at the same time, took the name Halbleiter Electronic Frankfurt (O)
GmbH (hereinafter ‘HEG’); that name was changed again, in December 1993, to System Mikroelektronik GmbH (hereinafter ‘SMI’).
On 28 June 1994 the THA transferred its (51%) holding in SMI to Land Brandenburg.
4.
During the period 1993 to 1997, SMI received financing from the THA and from Land Brandenburg totalling DEM 135.1 million,
as follows:
- –
- grants from the THA of DEM 64.8 million, of which 45 million was for investments, 18 million to meet the undertaking’s liquidity
requirements and 1.8 million for removal operations;
(3)
- –
- a loan of DEM 70.3 million made by Land Brandenburg, in two tranches of DEM 35 million and DEM 35.3 million.
5.
On 25 April 1997, because of the difficulties encountered in pursuing its activity, SMI had to file for bankruptcy and became
SMI in Gesamtvollstreckung (SMI in liquidation; hereinafter ‘SMI i.G.’). SMI i.G. ceased trading on 30 June 1997 and, the
following day, the Amtsgericht, Frankfurt an der Oder, ordered insolvency proceedings to be opened and appointed a liquidator.
On the same day, in order to enable SMI (which at that time had 370 employees) to continue trading, the administrator founded
two rescue companies: Silicium Microelektronik Integration GmbH (hereinafter ‘SiMI’), wholly owned by SIM i.G.; and Microelectronic
Design & Development GmbH (hereinafter ‘MD & D’), wholly owned by SiMI. SiMI, with a capital of DEM 50 000 and 105 employees,
would continue SMI’s business and would pay to use the latter’s assets, while MD & D, with a similar capital, would work in
the field of consultancy, marketing, design and development of microelectronic products and services.
6.
With that same aim of allowing SMI’s activity to continue, on 29 July 1997 Land Brandenburg made SiMI a loan of DEM 4 million,
at an interest rate three percentage points above the normal market rate. The Bundesanstalt für vereinigungsbedingte Sonderaufgaben
(the successor to the THA; hereinafter ‘BvS’) also made SiMI a further loan of DEM 1 million to offset the losses expected
for the first twelve months of trading.
7.
Land Brandenburg then tried, together with the liquidator, to find a private investor to take over SiMI. Following unsuccessful
negotiations, 80% of the shares of MD & D were sold on 28 June 1999 to the United States company Megaxess Inc. (hereinafter
‘Megaxess’), while the remaining 20% were sold to three employees of MD & D. Then, on 14 July 1999, MD & D bought the shares
in SiMI, at their nominal value of DEM 50 000, and the assets of SMI i.G., for DEM 1.7 million.
The administrative procedure and the contested decision
8.
Having learned from the press of a scheme for aid to SMI, on 2 September 1996 and 23 January 1997 the Commission approached
the German authorities for further information on the matter. Not having received any official communication in response to
those requests, the Commission, by letter of 5 August 1997, informed the German Government of its decision to initiate a procedure
under Article 88(2) EC.
(4)
In that letter, the Commission in particular voiced its doubts as to: (a) the compatibility with the common market of alleged
State aid totalling DEM 131 million, granted to SMI by the THA and by Land Brandenburg; (b) compliance with the Community
rules on aid when the HEG shares were sold to Synergy. The Commission also required the German authorities to provide all
the documents, information and particulars needed for it to evaluate the compatibility of the aid already paid or to be paid
to SMI, pointing out that it would otherwise adopt a decision on the basis only of the information available to it.
9.
During the procedure, the German authorities several times communicated information to the Commission and submitted their
own observations. Only one interested third party (the Swedish Electronic Component Manufacturers Association) submitted observations
to the Commission, in support of the latter’s decision to initiate the procedure.
10.
On the basis of the information gathered during the procedure, on 11 April 2000 the Commission adopted the contested decision,
whereby it:
- –
- found that the grants made by the THA to SMI totalling DEM 64.8 million and the loan of DEM 70.3 million granted to that company
by Land Brandenburg constituted aid incompatible with the common market (Article 1);
- –
- found that the grant of DEM 1 million made by BvS to SiMI and the loan of DEM 4 million made to SiMI by Land Brandenburg constituted State aid incompatible with the common market (Article 2);
- –
- required Germany to take all necessary measures to recover from the beneficiaries the aid unlawfully granted to them (plus
interest accruing in the meantime), in accordance with the rules of national law, specifying to that end that ‘the term “beneficiaries”
[was to] encompass SMI, SIMI and Microelectronic Design & Development GmbH (MD & D) as well as any other firm to which SMI’s,
SIMI’s or MD & D’s assets [had] been or [would] be transferred in order to evade the consequences of [the] decision’ (Article
3).
11.
In stating the reasons for its decision, the Commission first explained why: (a) the grants constituted State aid within the
meaning of Article 87(1) EC (points 26 and 27) and (b) the aid was incompatible with the common market, not being eligible
for any of the exemptions set out in Article 87(2) and (3) (points 29 to 40). In that connection, as far as concerns us here,
the Commission also noted that, contrary to the German authorities’ contention, the grants made by the THA to SMI were not
covered by the decisions in which the Commission had authorised the second and third regimes for aid from the THA.
(5)
The Commission pointed out in particular that the grants concerned could have been covered by those regimes only if SMI had
been privatised and that, for that purpose, the transfer of 49% of the company’s capital to Synergy was not sufficient,
(6)
since ‘[the] public body [had] retained a majority holding in the firm and full control over its activities, while private
shareholders had only [taken] a minority holding’.
(7)
12.
Having established that the measures in question should count as State aid incompatible with the common market, and since
the aid had been granted illegally, the Commission then thought it proper to offer some detailed guidance on the resulting
obligation to effect recovery, ‘[h]aving regard to recent changes affecting the beneficiary’.
(8)
13.
The Commission first explained in general terms that ‘aid must be recovered from the firm which actually received it. Where
the beneficiary has subsequently been sold, aid must be recovered from the purchaser, irrespective of whether the corresponding
amounts were or were not taken into account in the conditions of sale’.
(9)
Applying that principle to the aid granted to SiMI, the Commission then noted ‘that its shares were sold to MD & D on 14
July 1999’, concluding therefrom that ‘this aid must be recovered from MD & D’.
(10)
14.
However, the Commission’s reasoning regarding recovery of the aid granted to SMI is more complex.
15.
Here, the Commission noted first that ‘[i]t is possible, indeed likely, that in a liquidation stemming from insolvency proceedings
all the firm’s remaining assets will be sold. In itself this raises no particular problem as the sale takes place under the
supervision of a liquidator, who is required to seek the best possible result in the interests of creditors, with the proceeds
of the sale of the assets being used to satisfy their claims. However, the proceeds of the sale of the assets might not be
sufficient to pay off all the firm’s debts and, in order to ensure full repayment, a liquidation is not therefore without
importance in terms of competition. Competing firms which might have suffered injury as a result of the incompatible State
aid will have the opportunity to fill the gap in the market left by the liquidated firm and themselves to buy the assets being
sold with a view to using them more efficiently. … Nevertheless, in order to prevent its decision from being frustrated and
to ensure that all distortions of competition are eliminated, the Commission has a duty, if necessary, to require that recovery
proceedings should not be confined to the initial recipient but should instead be extended to include any firm that continues
the business of the initial firm using the transferred production plant, in so far as there are aspects of the transfer on
either side which indicate that the business is in fact being continued’.
(11)
16.
Turning more specifically to the present case, the Commission then noted that ‘SMI’s assets were sold to MD & D together with
SIMI’s shares. The assets sale was necessary in order to allow MD & D to take over SIMI’s activities since SIMI had always
made use of SMI’s assets, thereby benefiting from the aid granted formally to SMI. The sale took place shortly after 28 June
1999, when the same administrator sold 80% of the shares in MD & D to Megaxess and the remaining 20% to employees of MD &
D’. According to the Commission, it was therefore evident ‘that all these transactions [were] closely connected and that they
amount to a transfer of all the assets owned by SMI and used by SIMI to MD & D’s new shareholders, in such a way as to shelter
them from the recovery of illegal State aid’. Under those circumstances, it believes, ‘the respective prices paid for MD &
D’s shares, on the one hand, and for SMI’s assets and SIMI’s shares, on the other, [had] no bearing on the assessment of the
overall transaction’.
(12)
17.
Moreover, since ‘Megaxess and the other buyers of MD & D, and of course MD & D itself, were perfectly aware of the existence
of the present procedure and should, in any case, have taken it into account’, the Commission then concluded that ‘the term
“the recipient” encompasse[d] not only SIMI and SMI but also MD & D and any other firm to which SMI’s, SIMI’s or MD & D’s
assets [had] been or [would] be transferred in order to evade the consequences of [the] decision’.
(13)
Proceedings before the Court
18.
By application lodged on 11 July 2000, the Federal Republic of Germany claimed that the contested decision should be annulled
and that the Commission should be ordered to pay the costs. The Commission of course opposed those claims and contended that
the applicant should be ordered to pay the costs. After the written procedure, during which a reply and a rejoinder also were
submitted, the parties presented oral argument on 21 November 2002.
Legal Assessment Introductory remarks
19.
In the application initiating these proceedings, the German Government puts forward four pleas in law, complaining in particular
of:
(i) breach of the right to a fair hearing and of Article 88(2) EC, in that the order for recovery is addressed also to SiMI,
MD & D and other unnamed undertakings, without the Commission having undertaken any inquiry in respect of them;
(ii) breach of essential procedural requirements originating, first, from an inadequate and erroneous reconstruction of the
facts (relating to the privatisation of SMI, to whether the loan made by
Land Brandenburg to SiMI could fall within an authorised aid regime and to the transfer of some benefit to SiMI, MD & D or third
parties) and, second, from a defective statement of grounds [relating to the privatisation of SMI and to the possible application
of an exemption under Article 87(2)(c) EC];
(iii) infringement of Article 87(1) and (2)(c) EC and of Article 88 EC, arising from the incorrect characterisation of the
measures at issue as State aid incompatible with the common market;
(iv) various defects relating to the order to recover the aid from undertakings other than SMI, particularly: the Commission’s
lack of competence; infringement in various respects of Article 87(1) EC and Article 88(2) EC; infringement of essential procedural
requirements through inadequate reconstruction of the facts and defective statement of grounds; and infringement of the principles
of legal certainty and proportionality.
20.
It is easy to see that those pleas (or their various parts) are concerned with separate points of the contested decision:
the first plea, part of the second and the fourth refer to the order to recover aid (Article 3 of the decision), whilst some
parts of the second plea and the third are concerned with the measures at issue being characterised as State aid incompatible
with the common market (Articles 1 and 2). For the sake of a clear and ordered exposition, it will be appropriate in assessing
the pleas to begin with those relating to the characterisation of the various measures at issue (taken individually) as State
aid incompatible with the common market, and then to consider those concerned with the order to recover.
Characterisation of the grants made by the THA to SMI as State aid incompatible with the common market Arguments of the parties
21.
Apart from the general complaints regarding non-application of the exemption provided for in Article 87(2)(c)
(14)
and the inadequate statement of grounds on that point in the decision, which relate without distinction to all the measures
at issue, the specific complaints made by the applicant regarding characterisation of the grants paid by the THA to SMI as
State aid incompatible with the common market are based on the decisions, referred to above, in which the Commission authorised
the first and second regimes of aid from the THA.
22.
The German Government points out, in particular, that the decision on the first THA regime stated that, when the THA privatised
a firm, the selling price would not include elements of aid if the firm concerned was transferred to the highest bidder or
to the sole purchaser in an open and unconditional sale procedure. In the decision on the second THA regime, the Commission
explained that a negative selling price (meaning, essentially, a grant paid to the transferred firm or to the purchaser) would
not constitute State aid if liquidation of the firm would have been more costly. According to that decision, the German Government
continues, sale of a firm at a negative price had to be notified to and examined by the Commission only where the firm concerned
had more than one thousand employees; and if the sale was not effected in an open and unconditional procedure; if the firm
was not awarded to the highest bidder; or liquidation of the firm would have been less costly. In any other instance of privatisation,
the giving of financial grants would not be regarded as State aid or, at least, would be regarded as aid given under a regime
authorised by the Commission.
23.
The applicant believes that all the conditions imposed in the decision authorising the second THA regime were met in this
instance and, therefore, criticises the Commission for not considering that decision to be applicable ‘since it believed there
had been no privatisation) and contends that it was therefore wrong to characterise the grants made by the THA as State aid
incompatible with the common market. It complains in particular of:
- –
- a breach of essential procedural requirements through an inadequate and erroneous reconstruction of the facts, in that the
Commission did not take proper account of the conditions for the sale of 49% of SMI’s capital to Synergy and was mistaken
in holding that control of the company had not been transferred to the latter, thus coming to the mistaken conclusion that
the sale did not constitute a privatisation under the second THA regime;
- –
- a defective statement of grounds, in so far as the decision entirely disregarded the German authorities’ arguments to the
effect that the contracts for the sale of 49% of SMI’s capital to Synergy created a privatisation under the second THA regime;
- –
- an infringement of Article 87(1) EC and Article 88 EC, in so far as the Commission mistakenly held that the sale of 49% of
SMI’s capital to Synergy or the subsequent sale of the remaining 51% of the capital to Land Brandenburg did not create a privatisation
under the second THA regime and, it therefore wrongly characterised the measures at issue as State aid incompatible with the
common market.
24.
If, for reasons that will become apparent shortly, we focus on the complaint of inadequate and erroneous reconstruction of
the facts, the arguments of the parties can be summarised as follows.
25.
The German Government argues that the contested decision fails to consider the factual circumstances of the transfer of 49%
of SMI’s capital to Synergy and that the Commission did not even take time to assess whether or not in actual fact Synergy
had acquired management or control of the company. The Commission simply noted that Synergy had acquired only a minority holding
in SMI and inferred arbitrarily that the THA had retained control of the company and that there had therefore not actually
been a privatisation.
26.
However, the applicant claims, that mistaken inference would have been avoided if the Commission had examined the privatisation
contracts to which it had drawn attention in its communications to the Commission of 6 October 1997 and 7 and 14 February
2000. Those contracts showed that Synergy had taken over the management and control of SMI, since it had been given the right
to appoint two of the three directors, half the members of the audit committee and the chairman of the committee. Synergy’s
controlling position, according to the German Government, was further confirmed by (a) the fact that the para-social pacts
gave the company an option to purchase the remaining shares and gave the trustee appointed to manage the THA’s shares a corresponding
option to sell; (b) the fact that all important decisions required the consent of Synergy, since the articles of SMI laid
down an 85% majority vote for their adoption. Similar evidence was also to be found in the fact that the trustee for the THA’s
shares was given only secondary and limited powers of supervision.
27.
The Commission objects, in reply, that, notwithstanding the request for information addressed to the German Government in
the letter informing it that the procedure had been initiated, that government had only given it the relevant factual particulars
unwillingly and incompletely, so forcing it to adopt a decision on the basis of the only information available.
(15)
In particular, the Commission states that it was unable to take account of the material and legal circumstances of the transfer
of 49% of SMI’s capital to Synergy because (a) it only received the contracts for the transfer with the application and (b)
the claim that the content of those contracts had already been produced to the Commission in the three communications referred
to by the German Government was untrue. The Commission then adds that, in any case, given the legal meaning of privatisation
that it accepted, there was no reason to go more deeply into the transfer of the management and control of SMI to Synergy.
Assessment
28.
Having thus briefly described the positions of the parties, I shall now examine the complaint. It will be noted first of all
that, in the contested decision, the Commission found that the grants made by the THA did not fall to be included in the second
or third THA aid regimes since the sale of 49% of SMI’s capital to Sinergy ‘within the meaning of [those] regimes [could not]
be regarded as a “privatisation”’. In support of that finding, the Commission stated in particular that ‘[u]nder those regimes,
grants were authorised in the case of privatisation precisely because of THA’s unique and unprecedented task, namely the transformation
of a planned State economy into a market economy. Nevertheless, such aid can attain its objective only if
publicly owned enterprises are sold and
control of them transferred to private investors’. In the present case however, according to the Commission, ‘
a public body [had] retained a majority holding in the firm and full control over its activities, while
private shareholders had [taken] only a minority holding’.
(16)
29.
The text of the decision therefore shows clearly that the Commission did not accept that a ‘privatisation’ had been effected
in this case, the point being stressed that the THA had retained a majority holding in SMI and also ‘
full control over its activities’. But it also seems to have been established that, as the German Government noted and the Commission has not denied, that
assessment conflicted with the true facts because the contracts for the transfer of 49% of SMI’s capital gave Synergy control
of the company. It is therefore not difficult to conclude that the Commission’s assessment of the character of the measures
at issue as State aid incompatible with the common market was in fact based on an erroneous reconstruction of the facts.
30.
That conclusion does not, however, suffice for the complaint in question to be upheld, for we have to consider also whether,
as the Commission maintains, the erroneous reconstruction of the facts is in reality to be imputed not to the defendant but
to the applicant. This means that we must establish whether the erroneous reconstruction was due to the action of the German
Government which, notwithstanding the receipt on 15 August 1997 of a formal order of the kind referred to in
Boussac, failed to give the Commission the information requested, so authorising it to assess the measures at issue ‘on the basis
of the information available to it’.
(17)
31.
However, I doubt whether that is the true position. As the applicant rightly observes, far from availing itself of the authority
provided by the
Boussac judgment, the Commission continued to argue with the German authorities and to ask them for information in the course of
a procedure which lasted for all of two years and eight months, during which time the institution assuredly had the opportunity
of shedding light on a matter of particular importance to the broad logic of its decision, namely the control of SMI after
49% of its capital had been transferred to Synergy.
32.
But the most decisive point, I feel, is that the Commission was in fact informed that control of SMI had been transferred
to Synergy. In response to a request for information on 13 January 2000, on 14 February 2000 the German authorities stated
that, following the sale of 49% of SMI’s capital, the ‘THA’s responsibility for [the company] has ended, in so far as control
and management of the latter are now in the hands of Synergy, which has decided upon the re-structuring and management plan’.
Admittedly, that communication did not clarify the details of transfer of the control of SMI to Synergy and the relevant contracts
were not annexed to it but, clearly, had the Commission entertained doubts, it should have asked the German authorities for
explanations. At all events, the Commission’s action cannot be regarded as proper, for without reason it entirely disregarded
the German authorities’ communication and based its decision on the mistaken assumption that, following the transfer of 49%
of the capital of SMI, the THA had retained ‘full control over its activities’.
33.
I also believe that the argument used by the Commission in its rejoinder is unfounded: the Commission contended in particular
that there was no need to assess whether or not Synergy had taken control of SMI since in any case not even the transfer of
49% of the capital of a firm and of control of it would constitute a privatisation for the purposes of the second and third
THA regimes; that would require a transfer of a majority capital holding. But it may well be objected that that was not the
reason why the contested decision did not accept that a privatisation had been effected. As we have seen, in reaching that
conclusion the Commission relied only on the fact that the THA had retained not only a majority holding in SMI but also ‘full
control over its activities’. It also seems evident to me that, had the Commission sought to pursue the approach taken in
its rejoinder, then, as early as the decision, it would have had to explain just why the sale of 49% of a company’s capital,
with simultaneous transfer of control, would not imply a privatisation in terms of the second and third THA regimes, whilst
a sale of 51% of the capital would have been sufficient to attain that outcome.
34.
In the light of the foregoing considerations, I therefore believe that the present complaint is well founded and that, therefore,
the contested decision must be annulled to the extent to which it characterises the grants made by the THA to SMI as State
aid incompatible with the common market, without there being any need to consider the other complaints regarding that aspect.
Characterisation of the loan of DEM 70.3 million made to SMI by Land Brandenburg as State aid incompatible with the common
market
35.
With reference to the characterisation of the loan of DEM 70.3 million made to SMI by
Land Brandenburg as State aid incompatible with the common market, the applicant government takes exception, as with all the measures
at issue, to the non-application of the exemption provided for in Article 87(2)(c) EC and the inadequate statement of grounds
on that point in the decision, and alleges an infringement of Article 87(1) EC and Article 88 EC, in so far as that loan was
made in the context of the privatisation of SMI and was consequently covered by the decision authorising the second THA regime.
(i) Non-application of the exemption provided for in Article 87(2)(c) EC and the inadequate statement of grounds on that point
in the decision
36.
As regards this first aspect, the German Government essentially argues that the Commission was mistaken in rejecting, without
making an appropriate assessment and giving a statement of grounds, the applicability of the exemption provided for in Article
87(2)(c) EC whereby ‘aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division
of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division’
is compatible with the common market. The applicant government submits in particular that the Commission should have assessed
whether, within the meaning of that provision, the city of Frankfurt an der Oder (situated at the frontier with Poland) was
an ‘area’ that had been affected by the division of Germany and whether the various measures in favour of SMI and SiMI, both
of which were established in that area, were required in order to compensate for the disadvantage arising from its economic
isolation. The German Government continues that, had it been properly effected, such an assessment would necessarily have
prompted the Commission to apply the exemption concerned and, consequently, to declare the aid compatible with the common
market.
37.
The Commission replies that, during the procedure, the German authorities did not submit any argument regarding possible application
of that exemption and that the Commission therefore had no reason to dwell upon that aspect in detail. Nor, the Commission
says, were arguments put forward in the application in favour of applying that exemption, because the German Government did
not succeed in showing, as required by the case-law,
(18)
that the economic isolation referred to in respect of Frankfurt an der Oder was caused by the establishment of a political
frontier inside Germany. With more specific reference to the allegedly defective statement of grounds, the Commission points
out that the applicant was well aware of the restrictive interpretation consistently adopted by the Commission regarding that
exemption, so that in this instance it was sufficient to mention the exemption and to note that it was not applicable.
38.
Let me say immediately that I find the Commission’s arguments convincing and that I am therefore minded to regard those complaints
as unfounded. My reasons are given below.
39.
I would observe first that, since it lays down ‘a derogation from the general principle ... that State aid is incompatible
with the common market’, Article 87(2)(c) EC ‘must be construed narrowly’.
(19)
Applying this criterion, the Court has ruled that ‘the phrase “division of Germany” refers historically to the establishment
of the dividing line between the two occupied zones in 1948. Therefore, the economic disadvantages caused by that division
can only mean the economic disadvantages caused in certain areas of Germany by the isolation which the establishment of that
physical frontier entailed, such as the breaking of communication links or the loss of markets as a result of the breaking
off of commercial relations between the two parts of German territory’.
(20)
The Court has also pointed out that that exemption does not permit ‘full compensation for the ... economic backwardness suffered
by the new
Länder’, since ‘the differences in development between the original and the new
Länder are explained by causes other than the geographical rift caused by the division of Germany and in particular by the different
politico-economic systems set up in each part of Germany’.
(21)
40.
Therefore, in view of the narrow and specific scope of this exemption, I have to agree with the Commission that, not having
any information on the point from the German authorities, it was entitled to confine itself to noting that the measures at
issue were not required to compensate for the economic disadvantages caused by the division of Germany. In other words, if
it is true (as the Commission maintains, without having been contradicted by the applicant) that at no time during the procedure
did the German authorities invoke that exemption or give any information on the basis of which it might be considered applicable,
I do not believe that we can criticise the defendant institution for failing to examine the matter in greater detail or for
basing its decision on the information available.
(22)
41.
That view is further supported by the fact that, as the Commission rightly points out, even before the Court the German Government
provided no information which might lead to that exemption being held applicable. Far from showing that the measures at issue
were required in order to compensate for the economic disadvantages arising from the isolation of the city of Frankfurt an
der Oder caused by the establishment of the historical frontier inside Germany, the applicant government simply pointed out
that the city was close to the boundary with Poland and made a general claim of alleged economic isolation, although it gave
no further details.
42.
Furthermore, I think it is appropriate to add that a detailed statement of grounds on this point was not strictly necessary
in this instance partly because, as the Commission points out, the applicant was well aware of the Commission’s decision-making
practice and the particular conditions to which it made application of the exemption concerned subject. In a case very similar
to this one, where the German Government had argued that the Commission had not sufficiently stated its reasons for not applying
this exemption with reference to a particular aid scheme, the Court pointed out that the contested decision might ‘be reasoned
in a summary manner’ because it had been ‘adopted in a context well known to the German Government’ and that ‘it fit[ted]
into a well-established line of decisions, particularly in relation to that Government’.
(23)
43.
In the light of the foregoing considerations, therefore, I consider that these complaints must be rejected.
(ii) Infringement of Article 87(1) EC and Article 88 EC
44.
In its complaint regarding infringement of Article 87(1) EC and Article 88 EC, the German Government argues that the Commission
mistakenly characterised the loan of DEM 70.3 million made to SMI by
Land Brandenburg as State aid incompatible with the common market because, it believes, the loan was made in the context of privatising
SMI and thus was covered by the second THA regime. The applicant government acknowledges that the Commission’s decision on
that regime authorised financial assistance from the THA, whereas in this case the assistance came from the
Land. It considers, however, that the decision must be interpreted as also covering action by public entities other than the THA
where, as here, the assistance is linked with a privatisation brought about by the THA and serves to relieve the latter’s
budget. In support of that interpretation, the German Government contends in particular that the Commission may not prescribe
which public resources Germany must use to finance specific measures without interfering unduly in decisions falling within
the exclusive competence of the national authorities.
45.
The Commission responds, first, that no privatisation was effected here as provided for in the second THA aid regime. It also
points to the contradictions in the reasoning of the applicant government, which, first, contends that SMI was entirely removed
from the control of the THA no later than the time of the sale to
Land Brandenburg of 51% of its capital and then seeks to justify the loan subsequently granted by the
Land on the basis of the second THA regime. Regardless of the link between that loan and the privatisation of SMI, the Commission
also maintains that the decision authorising the second THA regime must be construed narrowly and therefore cannot cover aid
granted by other public bodies.
46.
I consider that the Commission’s argument conclusively justifies rejecting the present complaint.
47.
I agree with the Commission that, since the decisions authorising the THA regimes derogate from the general principle that
State aid is incompatible with the common market, they must be construed narrowly.
(24)
Therefore, since those decisions refer exclusively to the measures adopted by the THA to ease the transition of the new German
Länder from a planned economy to a market economy, I do not think they can also cover measures adopted by other public entities,
such as
Land Brandenburg, supplementing those of the THA.
48.
Clearly, that does not mean that measures adopted by other public entities in order to facilitate the THA’s complex mission
cannot be treated by the Commission in the same way as those of the THA itself; it means only that such measures do not come
within the scope of the decisions authorising the THA regimes and must therefore be specifically notified to and approved
by the Commission in accordance with the provisions of the Treaty regarding State aid. Moreover, it seems clear to me that
this approach does not create any undue interference with the German authorities’ choices regarding the resources to be employed
in order to ease the process of privatisation: it only gives due legal effect to the choices freely made by those authorities.
49.
From the above, therefore, it follows that the present complaint must also be declared unfounded.
Characterisation of the grant of DEM 1.8 million made to SMI for removal operations as State aid incompatible with the common
market
50.
The German Government specifically disputes the characterisation of the grant of DEM 1.8 million made to SMI for removal operations
(by its account, from the BvS) as State aid incompatible with the common market. As has been stated earlier,
(25)
however, the contested decision treats the measure to which the applicant government refers as a grant given by the THA and
analyses it together with other grants made by that body, totalling DEM 64.8 million.
(26)
Therefore, since I have already proposed annulment of the contested decision in so far as it characterised the grants made
by the THA to SMI as State aid incompatible with the common market (see above, points 21 to 34), I consider that there is
no need to rule on this complaint, since the proposed partial annulment of the decision would render it redundant.
Characterisation of the loan made to SiMI by Land Brandenburg as State aid incompatible with the common market
51.
Referring to the characterisation of the loan of DEM 4 million made to SiMI by
Land Brandenburg as State aid incompatible with the common market, in addition to the general complaints regarding failure to
apply the exemption provided for in Article 87(2)(c) EC and the inadequate statement of reasons on that point in the decision
(already considered in points 36 to 43 to be unfounded), the applicant argues that the Commission made an erroneous reconstruction
of the facts and infringed Article 87(1) EC and Article 88 EC by failing to find that that grant was covered by an aid regime
authorised by the Commission. According to the applicant, that loan was granted on the basis of the ‘directive of
Land Brandenburg on the grant of resources from the consolidation fund for the protection of small and medium industrial undertakings’,
which provided for an aid scheme expressly authorised by the Commission.
(27)
52.
In response to those complaints, the Commission observes that, during the administrative procedure, the German Government
did not say that the loan had been granted on the basis of that directive by
Land Brandenburg and at no time did it invoke the decision authorising the relevant aid scheme. In those circumstances, according
to the Commission, it cannot be accused of failing to assess whether that loan was covered by the decision which authorised
the
Land Brandenburg aid regime.
53.
In the light of the Commission’s contention, which has not been contradicted by the applicant, I also feel that it cannot
be accused of failing to take account of the authorised aid regime. Without information on the legal basis for the measure
at issue and on its possible status under an authorised aid regime – the German authorities did not even refer to such a regime
in the course of the procedure – I believe that the Commission was entitled to assess that measure with reference only to
the provisions of the Treaty.
(28)
54.
In the light of the foregoing, therefore, I consider that the present complaints also must be declared unfounded.
Characterisation of the grant made by BvS to SiMI as State aid incompatible with the common market
55.
Referring to the characterisation of the grant of DEM 1 million made by the BvS to SiMI as State aid incompatible with the
common market, the applicant makes only the general complaints regarding failure to apply the exemption provided for in Article
87(2)(c) EC and the inadequate statement of grounds in the decision on that point. I therefore simply refer to the discussion
in points 36 to 43 and reject those complaints.
The order to recover aid from firms other than SMI
56.
Finally, as regards the order to recover aid from firms other than SMI, the German Government makes various complaints in
which, essentially, it accuses the Commission of:
- –
- infringing the right to a fair hearing, and Article 88(2) EC, in that the order for recovery is addressed also to SiMI, MD & D
and other unnamed undertakings, without the Commission having undertaken an inquiry in respect of them;
- –
- lacking competence to establish how the national authorities must proceed to recover the illegal aid;
- –
- infringing Article 87(1) EC and Article 88(2) EC, because of illegal extension of the status of beneficiary of the aid on
the basis of an alleged circumvention of the obligation to repay;
- –
- breaching essential procedural requirements through an inadequate reconstruction of the facts and defective statement of grounds;
- –
- and infringing the principles of legal certainty and proportionality.
57.
For reasons that will become apparent shortly, I think it appropriate to focus on the complaint of infringement of Article
87(1) EC and Article 88(2) EC, which raises important and delicate issues of principle regarding identification of the parties
required to repay illegal State aid upon a transfer of shares in the beneficiary company (a ‘share deal’) or of its assets
(an ‘asset deal’).
Arguments of the parties
58.
In this complaint, as indicated earlier, the German Government accuses the Commission of illegally extending to SiMI, MD & D
and other unnamed undertakings the status of beneficiary of the aid at issue (totalling DEM 140.1 million), with the resulting
obligation to repay.
59.
The applicant points out that none of those firms has received any economic advantage originating from public resources to
a value of DEM 1401.1 million and that none of them has received any benefit from the various measures adopted by the insolvency
administrator. Regarding those measures, it claims in particular (a) that SiMI received no advantage from the use of SMI’s
assets because it paid a fee in accordance with normal market conditions, and (b) that MD & D obtained no advantage from the
acquisition of 80% of the capital of SiMI and the assets of SMI, since it paid the market price to the latter.
60.
The German Government further observes that MD & D cannot be required to repay the aid granted to SMI merely because it acquired
that company’s assets: it would be absurd to believe that an obligation to repay must follow SMI’s assets forever since, if
that were the case, nobody would be prepared to buy them and they would simply be destroyed. The applicant also notes that
SiMI was not wound up after the sale of its shares to MD & D, and it continued to exist with its rights and obligations intact:
any liability for repayment of the aid should therefore also continue to attach to SiMI, and MD & D could not be held liable.
61.
The applicant also denies that the operations carried out by the administrator were intended to circumvent the obligation
to repay the aid. By selling SMI’s assets at the market price, the administrator did not in fact put those assets ‘in a safe
place’, because the money earned by the sale became part of the insolvency assets remaining subject to the obligation of repayment.
Nor does the fact that SMI’s goods were sold as a single lot constitute circumvention, because that sale yielded a higher
return than would have been realised by selling the goods separately and so increased the resources available for recovery
of the aid. Even if SiMI and MD & D had not been established, no investor would ever have been prepared to buy the insolvent
SMI with all its debts: the administrator could do nothing but sell the company’s assets at the market price.
62.
Lastly, the German Government disputes the Commission’s view that the distortion of competition produced by the grant of State
aid is not removed if whoever acquires the assets of the beneficiary undertaking uses them to continue the latter’s business.
The applicant claims that anybody acquiring the beneficiary undertaking’s assets at market price is not causing any distortion
of competition, since he has not obtained any abnormal advantage over his competitors.
63.
For its part, the Commission first gives a general clarification of its view as to how to identify who is required to repay
aid following a transfer of shares in the beneficiary company (a ‘share deal’) or of its assets (an ‘asset deal’).
64.
It begins by observing that no particular problems arise in a share deal, since the beneficiary company continues to exist
and only its ownership is modified. As the case-law also confirms,
(29)
in such a case the obligation to repay would remain with the company that has received the aid, regardless of changes of
ownership and regardless of whether the obligation to pay was taken into account in the conditions of sale. Since such a company
would be continuing the business that had received aid, it would continue to derive a benefit from the aid and so the distortion
of competition would remain.
65.
Nor would any particular problems arise where the assets of the beneficiary company were transferred to undertakings belonging
to the same group. Here, liability to repay the aid would fall both on the beneficiary company and on any group undertakings
which, by the transfer of assets, might profit from the favourable effects of the aid and derive economic advantage from it.
66.
However, as regards a sale of the beneficiary company’s assets to outside undertakings, the Commission makes – although somewhat
confusedly – a distinction according to whether the assets are sold separately or as a single lot.
67.
Where the goods are sold separately at the market price, the purchasers are not to be required to repay the aid.
(30)
In such a separate sale, the grant-aided business would end and room would be left for the beneficiary company’s competitors.
Thus, it would appear, as a result of recovery of the aid from the seller (whether the beneficiary company itself or the administrator
of the insolvency or liquidation)
(31)
the distortion of competition could be eliminated.
68.
But greater problems arise where the assets are sold as a single lot and the purchaser is thus able to continue in the business
of the beneficiary company. It would appear in this case that continuing the grant-aided business might cause the distortion
of competition to persist, so particular care would be needed to avoid the possibility of a transfer of the beneficiary company’s
goods leading to a substantial circumvention of the obligation to repay by transfer of the assets sold ‘to a safe place’.
The Commission appears to rule out the possibility of such circumvention only where the beneficiary company’s assets are sold
at market price and also in a single lot under an unconditional procedure open to all the company’s competitors: only in such
a case, it appears to me, would the purchasers not be required to repay the aid.
69.
The position thus having been described in general terms, the Commission points out in respect of this case that:
- –
- the decisions to commence insolvency proceedings and to establish SiMI and MD & D were taken between June and July 1997, that
is to say at a time when the German authorities were already undoubtedly aware of the Commission’s intention to initiate an
investigation procedure;
- –
- between then and June and July 1999, SMI’s business was pursued by SiMI by means of a lease of its assets. Having obtained
no information by which it might assess whether the price of the lease was in accordance with market conditions, the Commission
could only take as its starting point the fact that, during that period, SiMI and its subsidiary MD & D had benefited from
the aid illegally granted to SMI;
- –
- on 28 June 1999, when the Commission was about to adopt an adverse decision, together with an order for recovery, MD & D was
sold to Megaxess and to three of its own employees;
- –
- on 14 July 1999, the shares of SiMI and all the assets of SMI were sold to MD & D, but not by an open and transparent procedure.
70.
From a general assessment of these events, according to the Commission, it appeared that the various transactions were coordinated
so as to leave the obligation to repay with SMI and SiMI, allowing MD & D, free from that obligation, to continue the grant-aided
business (in particular, it was significant here that MD & D had bought SiMI’s shares and SMI’s assets immediately after it
had been sold to Megaxess). In the light of those events, the Commission therefore considers that the economic link that existed
as between MD & D, on the one hand, and SMI and SiMI, on the other, had not been broken in that the various transactions pursued
the single aim of allowing the grant-aided business to continue, circumventing the order for recovery. That would therefore
justify the obligation to repay being extended also to MD & D.
Assessment
71.
In examining the present complaint, it is first appropriate to note that the contested decision analyses the aid granted to
SiMI
(32)
differently from that granted to SMI.
(33)
For the sake of clarity and simplicity, the same order will be followed.
- (i)
- Recovery of the aid granted to SiMI
72.
First, the aid granted to SiMI: as has been seen, the contested decision notes simply that ‘its shares were sold to MD & D
on 14 July 1999’ and that, ‘[t]herefore, this aid must be recovered from MD & D’.
(34)
That automatic conclusion is explained by reference to a general principle set out earlier in that decision, that ‘aid must
be recovered from the firm which actually received it. Where the beneficiary has subsequently been sold, aid must be recovered
from the purchaser, irrespective of whether the corresponding amounts were or were not taken into account in the conditions
of sale’.
(35)
73.
Faced with a typical instance of a share deal, the Commission thus held that the aid must be repaid by the firm which had
acquired the shares of the beneficiary company, without any assessment as to the selling price. In the contested decision,
the Commission therefore used an approach different from that subsequently adopted in its written pleadings, where – as we
have seen – it is maintained that in similar instances the obligation to repay remains with the beneficiary company whether
or not that obligation has been taken into consideration in the conditions of sale. The German Government also states its
view regarding the latter position, criticising the contested decision and contending that any aid granted to SiMI must be
repaid by that company.
74.
Thus, in assessing the solution adopted in the contested decision, we must consider the disputed matter of recovering the
aid when the beneficiary company’s shares are sold, and seek to identify which of the parties involved (seller, beneficiary
company or purchaser) bears the liability for repayment.
75.
Here, guidance is offered by the judgment in
ENI-Lanerossi,
(36)
which seems to show that the aid granted to four firms owned by Lanerossi (itself owned by the public holding corporation
ENI) was required to be recovered from those firms even after Lanerossi had disposed of them to private investors,
(37)
regardless of the fact that the debt associated with repayment of the aid had not been taken into consideration in the conditions
of sale.
(38)
76.
However, that pronouncement appears to be contradicted by the Court’s judgment in the action which the Commission brought
for failure to recover the aid (
ENI-Lanerossi II)
(39)
In that second judgment, the Court described SNAM (the successor to Lanerossi) as beneficiary of the aid and held that recovery
had been duly effected through the repayment of aid by that company. Thus essentially the Court agreed that the aid could
be repaid by the ex-owner of the four firms that had received it (the seller), not requiring that the recovery should be from
those firms or, still less, from the private operators who had bought them.
77.
Further guidance on the point at issue is to be found in the later judgment in
Banks,
(40)
where the Court gave a preliminary ruling on the problem of recovering aid following privatisation of the beneficiary companies.
78.
In that ruling, the Court refused to accept in particular that, in that instance, the purchaser firms could be required to
repay the aid, noting that ‘[t]he fact that the State companies which succeeded British Coal [that is, the beneficiary companies]
were acquired subsequently in the context of an open and competitive tendering procedure under market conditions suggest[ed]
that the element of aid enjoyed by British Coal and those State companies [did] not exist in relation to the private undertakings
which won tenders, such as RJB. Since those undertakings [had] bought the companies in question under non-discriminatory competitive
conditions and, by definition, at the market price, that is to say at the highest price which a private investor acting under
normal competitive conditions was ready to pay for those companies in the situation they were in, in particular after having
enjoyed State aid, the aid element [had been] assessed at the market price and included in the purchase price. In such circumstances,
the undertakings to which the tenders were granted [could not] be regarded as having benefited from an advantage in relation
to other market operators (...). Private undertakings such as RJB, to which tenders were awarded, could not therefore be asked
to repay the aid element in question’.
(41)
Having so noted as regards the position of the purchasing companies, the Court then stated, more generally, that ‘in principle,
where a company which has benefited from aid has been sold at the market price, the purchase price reflects the consequences
of the previous aid, and it is the seller of that company that keeps the benefit of the aid. In that case, the previous situation
is to be restored primarily through repayment of the aid by the seller’.
(42)
79.
By that ruling, the terms of which were later reproduced in the
Falck judgment,
(43)
the Court therefore made it clear that, where a beneficiary company is sold at a price reflecting its market value after
the granting of aid, and therefore at a price which in a way includes the value of the aid, the aid must be repaid by the
seller.
(44)
In the Court’s view, that solution might not apply, however, where the selling price was determined taking into account the
possibility that the beneficiary company might have to repay (at least in part) the aid received
(45)
since, in that case, the value of the aid might not be entirely included in the selling price.
80.
Lastly, further (although not very clear) guidance on the point at issue is to be found in the recent judgment of the Court
in
Multimedia,
(46)
where the issues included determining whether the sale by the company Seleco of 66% of the shares in its subsidiary Multimedia
to third parties might remove the latter’s (presumed) liability to repay certain aid,
(47)
transferring that liability to Seleco (that is, to the seller).
(48)
The Court pointed out that ‘the sale of shares in a company which is the beneficiary of unlawful aid by a shareholder to
a third party does not affect the requirement for recovery’ and then noted that ‘the situation at issue here [was] different
from that case. It involve[d] the sale of Multimedia shares by Seleco, which [had] created that company, and whose assets
benefit[ed] from the sales price of the shares. Therefore, it [could not] be excluded that Seleco [had] retained the benefit
of the aid received from the sale of its shares at market price’.
(49)
Having so stated, the Court then annulled the Commission’s decision, ruling that the statement of reasons was inadequate,
‘in particular as regards the alleged irrelevance of the fact that the shares in Multimedia [had been] bought at a price which
seemed to be the market price’.
(50)
81.
As indicated, no clear position can be inferred from that judgment as to the recovery of aid in a share deal. Having stated
that ‘the sale of shares in a company which is the beneficiary of unlawful aid by a shareholder to a third party does not
affect the requirement for recovery’, the Court appears to have taken the view that in every case recovery must be made from
the company which received the aid. However, that interpretation seems to be contradicted by the subsequent passage, in which,
referring to the
Banks judgment, the Court essentially holds that selling the shares at the market price might give the benefit of the aid to the
seller. Thus we are left to understand that, when the shares are sold at the market price, it might be the seller who must
repay the aid, as also seems to be confirmed by the fact that the decision was annulled for failure to state grounds, specifically
with reference to the appraisal of the selling price of the shares.
82.
The above brief examination of the case-law shows essentially that, on the issue of recovering aid where the beneficiary company’s
shares are sold, the Court vacillates between two positions: the view that the aid must in every case be repaid by the beneficiary
company and the view that, if the shares are sold at a price which reflects the market value of the company after the aid
is granted, it is to be repaid by the seller. But in no precedent has the Court imposed the obligation to repay on the purchaser,
whose liability is indeed expressly ruled out where the sale is at market price (
Banks judgment).
83.
In that connection, I must point out that the first of those positions adopted by the Court appears clearly preferable since
it is more closely in line with the principles governing the recovery of aid. I consider that, if the company that has received
aid is not wound up and remains active in the market, the distortion of competition caused by the aid can be removed (or at
least reduced) only by placing the obligation to repay on that company: only in that way does it actually ‘[forfeit] the advantage
which it had enjoyed over its competitors on the market, and the situation prior to payment of the aid is restored’.
(51)
84.
Furthermore, although it is true that any person selling the shares of the beneficiary company at a price which reflects their
market value after the grant of aid gains an advantage from the revaluation of the company, it is nonetheless clear that any
such advantage does not remove that which the beneficiary company secures over its competitors. And indeed, it is this latter
advantage which causes distortions of competition and which therefore needs to be removed by recovery of the aid, whilst the
financial advantage obtained from sale of the shares may even not have an effect on the competitive operation of the markets,
since the person selling the shares will not necessarily be an economic operator. However, if it were made clear once and
for all that, even if its shares are sold at the market price, the beneficiary company is still under an obligation to repay
the aid received, the seller’s opportunities for speculation would be considerably reduced (and in practice would become part
of the normal risks of business), since any possible loss caused by the recovery of the aid would normally have to be taken
into consideration in determining the conditions of sale.
85.
In addition, the view that recovery must in every case be effected from the beneficiary company appears preferable
inter alia because it means that traders can be afforded greater certainty. The opposite view, namely that in specific circumstances
aid must be recovered from the seller, creates considerable uncertainty, because it is often difficult to establish whether
the selling price fully reflects the market value of the beneficiary company after aid has been granted and in no way discounts
the risk that the company will have to repay at least part of the aid. And that is without mentioning the enormous confusion
and considerable practical difficulties which might arise from acceptance of the view criticised here. If the position were
thus, it would be very complicated to recover aid granted to a major company quoted on the stock exchange, whose shares are
the subject of a large number of selling or buying transactions every day: every transaction could bring a financial benefit
to the seller and create a corresponding obligation to repay.
86.
Having stated my preference for the first of the two positions adopted by the Court, I feel none the less that, for the present
purposes, it is clear (and essentially acknowledged by both the parties) that at all events, on the basis of the relevant
case-law and principles, the Commission cannot impose recovery of the aid from the purchaser of the shares in the beneficiary
company without even taking account of the selling price.
(52)
87.
We must therefore conclude that the assessment made in the contested decision regarding repayment of the aid granted to SiMI
breaches the principles governing the recovery of aid which may be inferred from Article 87 EC and Article 88 EC.
- (ii)
- Recovery of the aid granted to SMI
88.
Regarding recovery of the aid granted to SMI, I will begin by noting that it is stated, in the contested decision, that ‘SMI’s
assets were sold to MD & D together with SIMI’s shares. The assets sale was necessary in order to allow MD & D to take over
SIMI’s activities since SIMI had always made use of SMI’S assets, thereby benefiting from the aid granted formally to SMI.
The assets sale took place shortly after 28 June 1999, when the same administrator sold 80 % of the shares of MD & D to Megaxess
and the remaining 20% to employees of MD & D’.
89.
According to the Commission, it was therefore evident ‘that all these transactions [were] closely connected and that they
amount to a transfer of all the assets owned by SMI and used by SIMI to MD & D’s new shareholders, in such a way as to shelter
them from the recovery of illegal State aid’. Under those circumstances, in its opinion, ‘the respective prices paid for MD
& D’s shares, on the one hand, and for SMI’s assets and SIMI’s shares, on the other, [had] no bearing on the assessment of
the overall transaction’.
(53)
90.
And since ‘Megaxess and the other buyers of MD & D, and of course MD & D itself, were perfectly aware of the existence of
the present procedure and should, in any case, have taken it into account, the Commission therefore concluded that ‘the term
“the recipient” encompasse[d] not only SIMI and SMI but also MD & D and any other firm to which SMI’s, SIMI’s or MD & D’s
assets [had] been or [would] be transferred in order to evade the consequences of [the] decision’.
(54)
91.
Those passages concerning recovery of the aid granted to SMI show that the Commission also regarded SiMI, MD & D, and any
other firm which had acquired the assets of any of those three companies in order to evade the consequences of the decision,
as ‘beneficiaries’. In that way, the Commission therefore extended the liability (it is unclear whether joint or subsidiary)
for repaying the aid granted to SMI to such companies and firms.
92.
As regards SiMI, it appears that its liability stems simply from the fact that it ‘had always made use of SMI’S assets, thereby
benefiting from the aid granted formally to SMI’.
(55)
Before the Court, as has been seen, the Commission also stated that, not having obtained information enabling it to assess
whether the price paid by SiMI to SMI to lease its assets was in accordance with market conditions, it could only take as
its starting point the fact that, between June/July 1997 and June/July 1999, SiMI had benefited from the aid illegally granted
to SMI.
93.
However, here it seems clear to me, first, that the Commission cannot impose on a subsidiary the obligation to repay the aid
granted to the parent company solely because it had leased the latter’s assets for a given time, and, second, that the Commission
cannot base that obligation to repay on the mere assumption, unsupported by any evidence, that the price at which the parent
company leased out its own assets to the subsidiary was not in accordance with market conditions.
94.
In the light of those considerations, therefore, I consider that the assessment which led the Commission to extend to SiMI
liability for repayment of the aid granted to SMI is in breach of the principles governing the recovery of aid.
95.
As to the liability of MD & D, as we have seen, the Commission took as its basis the fact that, immediately after selling
that company to third parties, the insolvency administrator sold it SMI’s assets and SiMI’s shares. Without making any assessment
of the price paid for the three transactions, the Commission held that they were ‘closely connected and that they amount[ed]
to a transfer of all the assets owned by SMI and used by SIMI to MD & D’s new shareholders, in such a way as to shelter them
from the recovery of illegal State aid’. To ensure that the transactions effected by the administrator could not possibly
frustrate the decision, the Commission therefore extended to MD & D liability for repayment of the aid granted to SMI.
96.
However, the assessment of MD & D’s liability also appears to me to be in breach of the principles governing the recovery
of aid, since it extends the repayment obligation to that company on the basis of an unproven circumvention of the decision
in that SMI’s assets were alleged to have been sheltered from the obligation to repay.
97.
Here I would observe, first, that SMI’s assets certainly cannot escape the obligation of recovery by reason of the sale of
SiMI’s shares, because that company only made use of those assets under a leasing contract. And since, as the German Government
has claimed without being contradicted by the Commission, SiMI’s shares were sold at market price, that operation did not
remove resources from the insolvency assets which were still subject to the public claim in respect of recovery of the aid.
98.
But nor did SMI’s assets escape the obligation of recovery by reason of their transfer to MD & D because, in that case also,
as the German Government claims without having been contradicted by the Commission, the sale was at market price. By means
of that sale, the administrator therefore realised a sum equal to the market value of the goods, and that sum became part
of the insolvency assets which were subject to the obligation to repay. By selling SMI’s assets at market price in order to
honour the company’s debts (which of course included those for repayment of the aid), the administrator therefore in no way
circumvented the Commission’s decision. Nor can we perceive any such circumvention in the administrator’s sale of SMI’s assets
as a single lot, because the German Government has claimed, without being contradicted by the Commission, that a higher sum
was thereby obtained than would have been realised by selling those assets separately.
99.
Furthermore, the Commission has not suggested that, in this case, any actions were performed which defrauded the creditors
and may have reduced the assets of the insolvent company, nor has it maintained that, in the context of the insolvency procedure,
there was any breach of the principle of the equal ranking of creditors, to the detriment of the public creditors. In such
a situation, I believe that, if the claims in respect of recovery of the aid were properly listed among the liabilities of
the insolvency, the sale of SMI’s assets at market price cannot have led to any form of circumvention of the obligation to
repay.
(56)
100.
That said, I must also observe that MD & D’s liability cannot be validly founded, as the Commission appears to contend in
its written pleadings, on the different assumption that the sale of SMI’s assets as a single lot (allowing the grant-assisted
business to be continued) did not take place in an open and transparent procedure, and therefore did not permit elimination
of the distortions of competition stemming from the aid.
101.
In fact those arguments can easily be countered by the fact that, in the contested decision, MD & D’s liability was not based
upon that assumption: no passage in the decision maintains that the sale of SMI’s assets as a single lot did not take place
in an open and transparent procedure or that in that way some of SMI’s competitors were prevented from acquiring the assets
which the company used to pursue the grant-assisted business. The contested decision and the documents before the Court reveal
various details which suggest precisely the opposite, such as for example the fact that the sale concerned came about within
the context of a court-supervised insolvency procedure; that the sale did not occur immediately but was preceded by unsuccessful
negotiations with another United States company; and that no competitor of SMI was found to have complained of any lack of
transparency in the operation.
102.
In the light of the foregoing considerations, therefore, I believe that the assessment which led the Commission to extend
liability for repayment of the aid granted to SMI to MD & D also breaches the principles governing the recovery of aid. The
same applies to the extension of that liability to any firm which acquired the assets of SMI, SiMI or MD & D in order to circumvent
the consequences of the decision since, in that regard, the Commission appears essentially to refer to the assessment made
in respect of MD & D.
- (iii)
- Conclusions
103.
On the basis of the foregoing, I consider that this complaint must be upheld and that, as a consequence, the contested decision
must be annulled to the extent to which it ordered recovery of aid from firms other than SMI, without there being any need
to consider the other complaints relating to that aspect.
Costs Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if the are applied
for in the successful party’s pleadings. However, under Article 69(3) of the Rules of Procedure, if each party succeeds on
some and fails on other heads, the Court may divide the costs or decide that the parties are to bear their own costs. Since,
as has been seen, I consider that both Germany and the Commission must be partially unsuccessful, it seems fair to propose
that each should bear its own costs.
Conclusions In the light of the foregoing considerations, I propose that the Court should:
- –
- annul Commission Decision 2000/567/EC of 11 April 2000, on the State aid implemented by the Federal Republic of Germany for
System Microelectronic Innovation GmbH, Frankfurt an der Oder (Brandenburg) to the extent to which it characterises the grants
made by the THA to SMI as State aid incompatible with the common market and to the extent to which it orders recovery of the
aid from firms other than SMI;
- –
- dismiss the remainder of the application;
- –
- order the parties to bear their own costs.
- 1 –
- Original language: Italian.
- 2 –
- OJ 2000 L 238, p. 50.
- 3 –
- In the contested decision, the grant of DEM 1.8 million for removal operations was described as a grant from the THA but the
application shows that it was from the Bundesanstalt für vereinigungsbedingte Sonderaufgaben (the body which succeeded the
THA).
- 4 –
- See the notice of initiation of the procedure, published in OJ 1997 C 352, p. 3.
- 5 –
- Decisions E 15/92 and N 768/94, not published in the OJ.
- 6 –
- As the documents in the case show, Synergy was in fact assigned 49% of the capital of HEG, which only later changed its name
to System Mikroelektronik (SMI). But, since the contested decision refers to Synergy taking 49% of the capital of SMI, I shall
use the same expression in this Opinion, for the sake of simplicity.
- 7 –
- Point 26. The Commission stressed in particular that ‘[t]he THA regimes applied only to loans and guarantees and not to grants,
except in case of privatisations’ and that ‘[u]nder those regimes, grants were authorised in the case of privatisation precisely
because of THA’s unique and unprecedented task, namely the transformation of a planned State economy into a market economy’.
Nevertheless, such aid can attain its objective ‘only if publicly owned enterprises [were] sold and control of them transferred
to private investors’.
- 8 –
- Point 42.
- 9 –
- Point 43.
- 10 –
- Point 44.
- 11 –
- Points 47 and 48. As evidence of the fact ‘that the business is in fact being continued’, the Commission in particular refers
to: ‘what is transferred (assets and liabilities, staff, consolidated assets), the purchase price, the identity of the shareholder,
the owner of the initial firm and the buyer, the time at which the transfer takes place (after investigations have begun,
after the initiation of the formal investigation procedure or after adoption of the final decision), and the commercial character
of the transfer’. The Commission was also careful to state that its considerations on recovering aid from firms which continue
the business of the original beneficiary ‘also apply when the business is transferred in the course of insolvency proceedings’.
- 12 –
- Points 50 and 51.
- 13 –
- Point 52.
- 14 –
- This states that ‘aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division
of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division’
is compatible with the common market.
- 15 –
- The Commission refers here to the Boussac case (Case C-301/87 France v Commission [1990] ECR I-307), according to which ‘[i]f the Member State, notwithstanding the Commission’s order, fails to provide the
information requested, the Commission is empowered to terminate the procedure and make its decision, on the basis of the information
available to it, on the question whether or not the aid is compatible with the common market’ (paragraph 22).
- 16 –
- Point 26: emphasis added.
- 17 –
- .Boussac, paragraph 22.
- 18 –
- The Commission refers in particular to Joined Cases T-132/96 and T-143/96 Freistaat Sachsen and Others v Commission [1999] ECR II-3663, and to Case C-156/98 Germany v Commission [2000] ECR I-6857).
- 19 –
- .Germany v Commission, paragraph 49.
- 20 –
- Ibid., paragraph 52.
- 21 –
- Ibid., paragraphs 53 and 55.
- 22 –
- In support of this see, for example, the judgment of the Court in Case C-382/99 Netherlands v Commission [2002] ECR I-5163, pointing out that ‘the legality of a decision concerning State aid, particularly in regard to the obligation
to state reasons, is to be assessed in the light of the information provided by the Member State at the time the decision
was adopted’. On the basis of that principle, the Court held in particular that the applicant government could not ‘argue
that the Commission failed to consider the objective of protection of the environment when assessing the compatibility of
the disputed measures with Article 92(1) of the Treaty’ because it had ‘not invoke[d] such grounds during the administrative
phase’ (paragraph 84).
- 23 –
- .Germany v Commission, paragraph 105.
- 24 –
- Regarding the requirement of interpreting narrowly provisions which provide for ‘a derogation from the general principle ...
that State aid is incompatible with the common market’, see Germany v Commission, paragraph 49.
- 25 –
- See above, in note 3.
- 26 –
- More specifically, according to the contested decision, the grants made by the THA to SMI, totalling DEM 64.8 million, break
down as follows: 45 million for investments, 18 million to meet the undertaking’s liquidity requirements and 1.8 million for
removal operations.
- 27 –
- A reference to the decision authorising this regime is found in OJ 1995 C 295, p. 24.
- 28 –
- See Netherlands v Commission in which, as has been stated, the Court pointed out that ‘the legality of a decision concerning State aid, particularly in
regard to the obligation to state reasons, is to be assessed in the light of the information provided by the Member State
at the time the decision was adopted’ (paragraph 84).
- 29 –
- Case C-303/88 Italy v Commission [1991] ECR I-1433.
- 30 –
- It is not clear whether, in excluding the purchasers’ liability, the Commission also requires the sale to be made by an open
and unconditional procedure. However, I would observe that, were that the case, the reasons for the distinction between separate
sale of the beneficiary company’s assets and sale as a single lot would not be clear.
- 31 –
- It is not very clear which of these instances the Commission is referring to but, from the general nature of its arguments,
it seems we may deduce that the same rule should apply to a sale of assets by the beneficiary company, in a voluntary liquidation
or upon insolvency.
- 32 –
- Paragraph 9.1, point 44.
- 33 –
- Paragraph 9.2, points 45 to 52.
- 34 –
- Point 44.
- 35 –
- Point 43.
- 36 –
- Case C-303/88 Italy v Commission, cited above.
- 37 –
- It appears that the sale occurred after initiation of the procedure under Article 88(2) EC and a few months before the Commission
adopted the decision ordering recovery.
- 38 –
- In particular, see paragraphs 56-60.
- 39 –
- Case C-350/93 Commission v Italy [1995] ECR I-699.
- 40 –
- Case C-390/98 Banks [2001] ECR I-6117.
- 41 –
- Paragraph 77.
- 42 –
- Paragraph 78.
- 43 –
- Joined Cases C-74/00 P and C-75/00 P Falck [2002] ECR I-7869, paragraphs 180 and 181.
- 44 –
- However, it is not clear whether, in stating that the previous situation is to be restored ‘primarily’ through repayment of
the aid by the seller, the Court intended to imply that other persons bore any subsidiary liability.
- 45 –
- That might, for example, occur where the shares are sold during a procedure initiated by the Commission under Article 88(2)
EC.
- 46 –
- Joined Cases C-328/99 and C-399/00 SIM Multimedia [2003] ECR I-4035.
- 47 –
- According to the Commission decision contested in that case (Decision 2000/536/EC of 2 June 1999, OJ 2000 L 227, p. 24), Multimedia
bore subsidiary liability for the repayment of certain aid granted to Seleco since, during the investigation procedure, the
latter had transferred a particular branch of the undertaking to Multimedia.
- 48 –
- In particular, see paragraph 60.
- 49 –
- Paragraph 83, which also cites paragraphs 77 and 78 of the Banks judgment.
- 50 –
- Paragraph 85.
- 51 –
- Case C-348/93 Commission v Italy [1995] ECR I-673, paragraph 27. To the same effect, see also Case C-480/98 Spain v Commission [2000] ECR I-8717, paragraph 35).
- 52 –
- See, in particular, paragraph 77 of the Banks judgment.
- 53 –
- Points 50 and 51.
- 54 –
- Point 52.
- 55 –
- Point 50.
- 56 –
- In that connection, see in particular Case C-142/87 Belgium v Commission (the Tubemeuse case) [1990] ECR I-959, paragraph 62.
