61999C0017

I Introduction

1. By this action for annulment, France is contesting the Decision of 4 November 1998 in which the Commission declared aid granted by a Member State to the textile company Nouvelle Filature Lainière de Roubaix in 1996 to be for the most part incompatible with the common market.

2. France argues that the Commission had made its decision on an insufficient factual basis, without expressly requesting the missing facts. The statement of reasons on which the decision is based is also flawed. Finally, the Commission's findings concerning the long-term health of the firm, the amount of the aid in proportion to the resources provided by the beneficiary itself and the distortion of competition created as a result of the aid were based on manifest errors of assessment.

II Legal framework

3. At the time that the measures which are the subject of this dispute were taken, the Commission applied the following guidelines published in 1994:

Community guidelines on State aid for rescuing and restructuring firms in difficulty (hereinafter Guidelines). Under those Guidelines, approval of restructuring aid required the submission of a restructuring plan. Such a plan had to set out how the long-term viability of the recipient firm was to be restored and how undue distortions of competition through the aid could be avoided. Moreover, there had to be a guarantee that the amount of the aid was duly proportionate to the anticipated restructuring benefits. Finally, full implementation of the restructuring plan had to be ensured by means of regular reports to the Commission, in particular in the form of an annual report.

4. Point 3.2.2 of the Guidelines stated inter alia that:

Subject to the special provisions for assisted areas and SMEs ["small and medium-sized enterprises", author] set out below, for the Commission to approve aid a restructuring plan will need to satisfy all [author's emphasis] the following general conditions:

(i) Restoration of viability

The sine qua non of all restructuring plans is that they must restore the long-term viability and health of the firm within a reasonable time scale and on the basis of realistic assumptions as to its future operating conditions. Consequently, restructuring aid must be linked to a viable restructuring/recovery programme submitted in all relevant detail to the Commission. The plan must restore the firm to competitiveness within a reasonable period. The improvement in viability must mainly result from internal measures contained in the restructuring plan and may only be based on external factors such as price and demand increases over which the company has no great influence, if the market assumptions made are generally acknowledged. Successful restructuring should involve the abandonment of structurally loss-making activities.

To fulfil the viability criterion, the restructuring plan must be considered capable of putting the company into a position of covering all its costs including depreciation and financial charges and generating a minimum return on capital such that, after completing its restructuring, the firm will not require further injections of State aid and will be able to compete in the market place on its own merits. Like rescue aid, aid for restructuring should therefore normally only need to be granted once.

(ii) Avoidance of undue distortions of competition through the aid

...

(iii) Aid in proportion to the restructuring costs and benefits

The amount and intensity of the aid must be limited to the strict minimum needed to enable restructuring to be undertaken and must be related to the benefits anticipated from the Community's point of view. Therefore, aid beneficiaries will normally be expected to make a significant contribution to the restructuring plan from their own resources or from external commercial financing. To limit the distortive effect, the form in which the aid is granted must be such as to avoid providing the company with surplus cash which could be used for aggressive, market-distorting activities not linked to the restructuring process. Nor should any of the aid go to finance new investment not required for the restructuring. Aid for financial restructuring should not unduly reduce the firm's financial charges.

...

(iv) Full implementation of restructuring plan and observance of conditions

...

(v) Monitoring and annual report

...

III Facts

5. Filature Lainière de Roubaix was already facing, at the start of 1990, economic difficulties which led to tight liquidity and delays in paying tax and social charges. Consequently, an initial restructuring plan had been drawn up in 1993 but it did not achieve the desired effect. When the company became insolvent, the Tribunal de Commerce de Roubaix/Tourcoing (Commercial Court, Roubaix/Tourcoing) decided on 30 April 1996 to initiate the judicial administration (redressement judiciaire) procedure.

6. After competitors drew its attention to the possible granting of aid, the Commission requested the French Government to provide it with all the information necessary for it to assess the measures taken in respect of the company concerned in the light of the law relating to aid.

7. By letter of 19 September 1996, the Tribunal de Commerce de Roubaix/Tourcoing sent the Commission its judgment of 17 September 1996 concerning approval of a recovery plan. Under that plan the company was to be sold to a newly created public limited company with a capital base of FRF 510 000 named Nouvelle Filature Lainière de Roubaix. In accordance with the Tribunal's judgment, the shareholders were all natural persons. According to information from the French Government, they were mainly current and former employees (cadres) of the company. Under the judgment the business (stock, tangible movable assets and intangible assets) was sold to the above company on 1 October 1996 for FRF 4 278 866. (The total capital resources were thus FRF 4.8 million.)

8. It is also clear from that judgment that in addition to the successful recovery bid, another bid was made by employees of the company; however, the Tribunal did not consider it to be viable. According to the judgment, the French authorities had guaranteed aid to the amount of FRF 40 million for either of the recovery bids.

9. It can be seen from the documents in the case that Nouvelle Filature Lainière de Roubaix did not assume the debts or other liabilities of Filature Lainière de Roubaix. However, it did acquire the existing business, which it had to restructure. This was achieved primarily by closing down various sites. Thus, in 1996/97, Nouvelle Filature Lainière de Roubaix was obliged to use commercial premises that were too big for its purposes and the extra rent cost FRF 2.2 million. The adaptation to a smaller area cost FRF 2.5 million. Under-productivity of the company in the first six months was reported to have cost FRF 10 million. Further costs had been incurred as a result of making a large proportion of the employees of the former company redundant, although apparently costs should have been incurred only in respect of the remaining 248 employees. It is also claimed that costs were incurred as a result of the necessary reorientation of production. In addition, provision was made, following the takeover, for an investment programme amounting to some FRF 22 million for the purchase of new machinery and the development of new products.

10. By letter of 25 September 1996, France made it known that it was participating in the restructuring with an equity loan to the amount of FRF 18 million and an investment premium of FRF 22 million, that is to say a total of FRF 40 million.

11. Subsequently, at the request of the Commission, France submitted additional information regarding the said aid measures. By letter of 22 November 1996, a document entitled Restructuring Programme was submitted. This made provision, inter alia, for several investment projects amounting to FRF 22.5 million in total. Various balance sheet projections of 22 November 1996, 2 April 1997 and 30 October 1998 (only for 1999) envisaged the results (in FRF million) set out in the table below.

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12. By letter of 18 August 1997, the Commission informed the French Government of its decision to initiate the procedure under Article 93(2) of the EC Treaty (now Article 88(2) EC) with respect to the aid. That decision contained a full statement of the facts and a preliminary assessment in the light of the guidelines for rescue aid. In that context the Commission also referred to the information which it would still need in order to make a final assessment and in particular to approve the aid. It expressly referred to the absence of a restructuring plan which meets the relevant requirements. Finally, the Commission expressly invited France to present any other information [it] might consider relevant for the assessment of the aid in question.

13. France submitted its comments in a letter dated 24 September 1997 and also sent additional information on 8 May, 21 July, 16 and 30 October 1998. Those documents show, inter alia, that the company had made an operating loss of FRF 0.9 million in 1997. Moreover, the French authorities were not able to say exactly what the aid was being used for.

14. On 4 November 1998 the Commission adopted the decision on aid granted by France to Nouvelle Filature Lainière de Roubaix.

The enacting provisions of that decision read inter alia as follows:

Article 1

The aid in the form of an investment premium granted by France to Nouvelle Filature Lainière de Roubaix amounting to FRF 7.77 million may be considered to be compatible with the common market on the basis of Article 93(3)(c) of the Treaty (now, after amendment, Article 87(3)(c) EC).

Article 2

The aid in the form of an investment premium granted by France to Nouvelle Filature Lainière de Roubaix amounting to FRF 14.23 million is incompatible with the common market.

Article 3

(1) The equity loan of FRF 18 million constitutes aid in so far as the rate applied by France is lower than the reference rate of 8.28% applicable at the time the loan was granted.

(2) The aid referred to in paragraph 1 granted by France to Nouvelle Filature Lainière de Roubaix is incompatible with the common market.

Article 4

(1) France shall take all necessary measures to recover from the recipient, Nouvelle Filature Lainière de Roubaix, the aid referred to in Article 2 which has already been illegally paid.

(2) Repayment shall be made in accordance with procedures and provisions of French law. The amounts to be repaid shall bear interest from the date on which the aid was paid to the recipient until the date on which it is effectively recovered. The interest shall be calculated on the basis of the reference rate used to calculate the net grant equivalent of regional aid.

(3) France shall without delay abolish the aid referred to in Article 3 by applying normal market conditions corresponding at least to the reference rate of 8.28% applicable at the time the loan was granted.

Article 5

France shall inform the Commission within two months of the date of notification of this Decision of the measures it has taken to comply with it.

15. Inasmuch as the decision declares the aid to be incompatible with the common market, the Commission submits that it cannot be justified under Article 92(2) and (3) of the EC Treaty. In particular, the aid cannot be justified as aid for restructuring since an adequate restructuring plan did not exist; since, according to the information available, the company concerned is only viable on a long-term basis on account of the aid; and since the aid is disproportionate to the expenditure of the recipient.

16. At the hearing of 23 November 2000, the representative of the French Government announced that Nouvelle Filature Lainière de Roubaix had since become bankrupt and had been wound up by judicial decision.

IV Forms of order sought

17. The French Republic claims that the Court should:

annul the Commission's decision C(1998) 3515 final of 4 November 1998 concerning aid granted to Nouvelle Filature Lainière de Roubaix, inasmuch as it declares the aid granted to be incompatible with the common market;

order the Commission to pay the costs.

18. The Commission claims that the Court should:

dismiss the action as unfounded;

order the French Republic to pay the costs.

19. The submissions of the parties are considered in greater detail below.

V Comments

20. Although the parties divide their submissions into three sections procedure, statement of reasons and infringement of Article 92 of the EC Treaty it seems appropriate to deal with the issues raised in those submissions in the context of the three factors underlying the Commission's decision. These are the absence of a restructuring plan (A), the establishment of Nouvelle Filature Lainière de Roubaix's long-term viability through the aid (B) and that aid in proportion to the costs and benefits (C). Finally, France's claim that the Commission ought to have commented on the avoidance of undue distortions of competition (D) must also be examined.

21. The parties agree that both the investment premium to the amount of FRF 22 million and the equity loan to the amount of FRF 18 million constitute aid within the meaning of Article 92(1) of the EC Treaty. With regard to the investment premium, this finding is based on the fact that the recipient undertaking was not required to give any normal market consideration in return for the amount of FRF 22 million and that the premium granted risks distorting competition in the common market. As regards the equity loan, a special feature of the aid as the Commission argued in its grounds for the decision is that the loan was granted at an interest rate well below the reference rate of 8.28%.

22. Accordingly, the only issue which still remains to be examined is whether the aid granted could be approved within the meaning of Article 92(3)(c) of the EC Treaty. It is apparent from the wording of paragraph 3 (may) that decisions taken within this context are at the discretion of the Commission. In this regard, the Court gives the Commission a wide discretion in its existing case-law. The Commission may rely on the criteria it considers to be most appropriate in order to determine whether an aid can be considered compatible with the common market. When examining the Commission's decision, the Court therefore limits itself to deciding whether the Commission has complied with the rules on procedure and the statement of reasons and has provided facts which are materially accurate. Furthermore, it examines whether, in its legal assessment of those facts, the Commission has not made any manifest errors of assessment which have affected the outcome and whether the exercise of its discretionary powers is contrary to the objective and purpose of Article 92 of the EC Treaty.

23. The Court has consistently acknowledged in its case-law that the Commission may rely on guidelines it has laid down for itself in order to simplify and render consistent its discretionary decisions. These are not binding legal provisions but they may be used as a guiding principle when making the assessment. This is how the Court checks whether the Commission has adhered to the Guidelines when it makes a decision.

24. Accordingly, the Commission's decision will be examined below with regard to the absence of a restructuring plan, the long-term viability of the company, the aid in proportion to the costs and benefits of restructuring and the avoidance of undue distortions of competition; that is to say, it will be examined for procedural errors, manifest errors of assessment or an inadequate statement of reasons.

A Restructuring plan

25. First, the parties are in dispute as to whether the Commission's finding that the French authorities had not submitted an adequate restructuring plan is justified.

26. It is pointed out that approval of restructuring aid under the Guidelines requires a restructuring plan which must set out in detail a viable restructuring/recovery programme implemented by way of internal measures. In particular, such a plan must make clear what the aid will be used for and how the long-term viability is to be restored. At the same time, such information is a prerequisite for assessing proportionality and adverse effects on competition. Assessment of long-term viability, proportionality and the adverse effect on competition will, however, be examined separately, as stated.

27. It must first be examined whether the Commission has complied with the procedural rules (1), then whether its assessment that the French authorities have not submitted an adequate restructuring plan is correct (2) and finally what grounds there are for that finding must also be examined.

(1) Procedure

Pleas in law and arguments of the parties

28. The French Government emphasises, first, that it had endeavoured to cooperate very closely with the Commission and to make available to it all the requested information. Despite this, the Commission's decision was based primarily on the argument that France had not submitted a restructuring plan and it had consequently not had enough information to be able to make a reliable assessment of the long-term viability of the company. France takes the view, however, that in such a case the Commission should only have taken interim measures, not a final decision. By nevertheless taking the decision at issue, the Commission had acted in breach of both the case-law of the Court and its own decision-making practice.

29. It points out that in Boussac the Court had essentially held that it is in the interests of protecting the rights of Member States that the Commission requires them to provide all the necessary information before it makes a final decision on the basis of the material at its disposal. It has also given more precise details on that obligation in Pleuger. Moreover, France claims that the Commission infringes the rules which it has recognised itself in its publication Competition law in the European Communities, Volume IIB, Explanation of the rules applicable to State aid, as at December 1996. Finally, the decision at issue also conflicts with its own decision-making practice, as can be seen, for example, from Decision 96/179/EC.

30. In the Commission's view, France's complaint is primarily based on a false premiss. The decision was certainly not based only on the fact that there was no restructuring plan. This was clear from the fact that in its statement of reasons, the Commission only devoted a short passage to examining that deficiency. An analysis of the reasons given in section IV.3 of the decision reveals that the decision was based on the lack of substantive conditions for approval of aid and not merely on the lack of information.

31. As to whether the aid may be approved as restructuring aid, the Commission had pointed out inter alia the importance of a credible restructuring plan for a positive decision on aid. At the hearing, the Commission representative emphasised that, according to the judgment of the Tribunal de Commerce, the French authorities had been ready to support a recovery plan which that French court already believed was not viable. It followed that the French authorities had certainly not made the aid dependent on a restructuring plan which was in accordance with the Guidelines.

32. Furthermore, however, the balance sheet figures submitted by France had been examined and the conclusion had been drawn that they did not point to the company's long-term viability. In addition, that analysis had been adjusted to take account of the latest information provided by France which revealed that the company had achieved only 16% of its predicted performance in an important market segment which constitutes 14% of turnover. The proportion of the aid to the costs and benefits of restructuring had also been assessed comprehensively and conclusively. In that connection, the financial commitment of the owners of the company had been weighed up against the aid from public funds and had been found to be disproportionate. Since it had failed completely to fulfil two of the four criteria stipulated in the Guidelines, in no circumstances could the aid granted be approved as restructuring aid. Therefore, there had been no need at all to have recourse to the argument that France had failed to provide sufficient information.

33. In the alternative, the Commission contends that the first complaint is also based on an erroneous interpretation of the rules concerning the procedure for monitoring aid.

34. In Boussac, the Court examined the Commission's argument that aid which has been granted by a Member State in breach of the procedure laid down in Article 93(3) of the EC Treaty remains unlawful and must therefore be recovered, even if it is otherwise compatible with Article 92(3) of the EC Treaty. In this connection, the Court pointed out that the monitoring of aid also includes the power of the Commission to take measures which safeguard the status quo in order to prevent Member States from jeopardising the provisions laid down in Articles 92 and 93 of the EC Treaty as a result of their behaviour. However, in accordance with those measures the Commission must also protect the legitimate interests of the Member States. Accordingly, the Commission is empowered not compelled to take interim measures. If a Member State refuses to give the Commission the assistance it needs in order to take its decision, the Commission may terminate the procedure and take a final decision on the basis of the available information.

35. In Pleuger the Court merely examined the requirements as to the statement of reasons on which Commission decisions are based. Furthermore, the situation that gave rise to that case is not comparable with that which is to be decided in this case. First, in that case, unlike the present one, the Member State did not cooperate with the Commission at all. Second, the decision concerned the existence of an aid programme and not the Commission's assessment of compatibility with the common market.

36. Moreover, by that decision the Court did not seek to alter its consistent case-law which requires Member States to provide the Commission with all the information it needs in order to take a decision in their favour in cases where they were intending to grant a company aid.

37. In the further alternative, the Commission argues that the publication referred to by France is not an official opinion but the work of a lawyer which is not binding in any way upon the Commission. Nor is the decision inconsistent with its habitual decision-making practice. It sends formal demands for information, such as that requested from France, only to those States which have refused to cooperate in clarifying the facts of a case.

Assessment

38. It needs to be examined whether, in making a final decision on the French aid in the present case without first formally requesting France to provide a restructuring plan which fulfils the relevant requirements, the Commission has infringed the rules concerning the procedure for assessing aid.

(a) Insufficient information from the Member State

39. The Commission has infringed procedural rules if its only ground for the decision is that France has failed to submit sufficient information. In particular, the Commission can base a decision on aid on insufficient information from Member States only under very strict conditions. Since there were no written rules on the procedure for monitoring aid at the time when the decision was made, recourse must be had to the case-law developed by the Court. In its judgment in Boussac, the Court held that, once it has been established that aid has been granted or altered without notification, the Commission has the power to issue an interim decision requiring the Member State concerned to suspend immediately the payment of such aid pending the outcome of the examination of the aid and to provide the Commission, within such period as it may specify, with all such information and data as are necessary in order that it may examine the compatibility of the aid with the common market. Where a Member State has complied in full with the Commission's order, the Commission is obliged to examine the compatibility of the aid with the common market, in accordance with the procedure laid down in Article 93(2) and (3) of the EC Treaty. If 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.

40. A final decision on State aid based solely on the fact that the Member State concerned has not provided the Commission with sufficient information would therefore be unlawful. If the Commission does not consider that it is in a position to make a final assessment on the permissibility of the aid on the basis of available material, it may initially only take interim measures. However, it must also request the Member State to forward the missing information.

41. However, the decision to be assessed in this case is not based solely on France's failure to make the necessary information available. It also states that France did not submit a restructuring plan. However, that claim is followed by detailed arguments concerning the substantive compatibility of the aid with Article 92(3)(c) of the EC Treaty. It is clear that, in the Commission's view, the absence of a restructuring plan was merely one of several reasons why the aid was incompatible with Community law.

42. Moreover, the Guidelines state that the existence of a restructuring plan is a condition for the lawfulness of aid. In referring to the absence of such a plan, the Commission is not primarily arguing that it does not have the information necessary for the assessment of the aid. Rather, the absence of the restructuring plan means that the aid was not granted on the basis of an adequate plan drawn up in advance by the French Government. However, the Guidelines state that this is a condition for the lawfulness of restructuring aid. Since all aid runs the risk of altering conditions of competition in the common market to the detriment of other competitors, the risks involved must be minimised, if possible in advance. Only an adequate restructuring plan can fulfil that requirement.

43. Accordingly, by basing its decision (also) on the absence of a restructuring plan, the Commission has not infringed procedural rules.

(b) Absence of a Commission decision on the presentation of missing information

44. However, there would have been an infringement of procedure if the Commission had been obliged to issue an additional interim decision requiring France to forward the missing information.

45. From its decision in Boussac, the Court has imposed on the Commission the obligation to obtain the facts of the case in full before it makes a final decision. It can be deduced indirectly from that judgment alone that the Commission is obliged to clarify the facts of a case in full. The Court permits the procedure to be terminated without clarification of the facts only if the Member State concerned does not provide the requested information. The Commission's obligations as regards obtaining the facts are explained in greater detail in Pleuger. In that judgment the Court first of all refers to its comments in Boussac on the requirement for interim measures. Then, it continues, it is only if the Member State, notwithstanding the Commission's order, fails to provide the information requested, that the Commission is empowered to terminate the procedure and to make its decision, on the basis of the information available to it, on the question whether or not the aids are compatible with the common market. If the Commission intends to base its decision on realistic assumptions which the Member State contests, the Court also requires the Commission to exhaust all the means available to it to verify those assumptions. One way of doing this is to issue an interim decision in order to obtain specified items of information which may support or refute the Commission's assumption.

46. Such a measure limits the effect of the general rule that Member States must demonstrate that aid granted by them is compatible with the common market by submitting all the necessary information. Such a limitation is justified only if, when establishing the facts of the case, the Commission for its part intends to deviate from the facts it has received in favour of assuming, for instance, that an aid programme exists, in line with the information provided by the Member State. On the other hand, if the Commission makes an assessment of the facts it has received and the Member State concerned does not agree with that assessment, the Commission is in principle not obliged, prior to a final decision, to approach the Member State again with a request for additional information.

47. The decision at issue does not contain any realistic assumptions but rather the finding that the French Republic did submit information to the Commission, but not an adequate restructuring plan. The question whether the information provided constitutes an adequate restructuring plan is not a fait accompli but the subject of an assessment by the Commission and must therefore be examined for a manifest error of assessment.

48. Furthermore, a restructuring plan cannot be submitted after the event, at the Commission's request, but must, as its function suggests, be the basis of aid and must already exist when such aid is granted.

49. Moreover, the decision to initiate the Article 93(2) procedure was a Commission decision expressly drawing the attention of the French authorities to the lack of necessary information in particular a restructuring plan and requesting that all the relevant information be sent. In the proceedings which led to the judgment in Pleuger, however, the Commission did not request further information as part of the decision to initiate the Article 93(2) procedure; it merely requested comments from the Member State concerned and from other interested parties. Nor did it attach particular weight to the contested allegation emphasised by the Court that the aid which was the subject of the action in those proceedings was part of an aid programme. Admittedly, a decision to initiate the Article 93(2) procedure cannot be regarded as an interim order, as apparently represented to the Court in the statements concerning the joined cases in Pleuger. Nevertheless, it was not a question of informal contacts but of a legally binding measure which made it quite clear what information had to be obtained. As the Commission's more recent practice also shows, such a decision is in principle sufficient. A specific decision on the submission of information as, for example, Decision 96/179/EC referred to by France is only necessary in exceptional cases.

50. Lastly, it should be noted that the argument put forward by the French Republic is contradictory. On the one hand, it asks for a mandatory decision expressly ordering it to provide information. On the other it claims that the French authorities had endeavoured throughout the administration procedure to cooperate fully with the Commission. In particular it had regularly provided detailed answers to all requests for information it had received. However, in that case the decision which the French Republic had demanded could not have provided a clearer account of the facts.

51. Furthermore, I cannot agree with France's argument that the Commission was bound by the publication entitled Competition law in the European Communities, Volume II B, Explanation of the rules applicable to State aid, as at December 1996. Irrespective of its content, it is an unofficial publication and consequently the Commission cannot be bound by it as regards its decision-making practice.

52. No procedural irregularity can therefore be found to exist as regards the absence of a restructuring plan.

(2) Assessment of the information provided

53. It must therefore be examined whether the Commission was justified in concluding that the information available to it did not contain an adequate restructuring plan.

Pleas in law and arguments of the parties

54. The French Government takes the view that the information it provided constitutes a restructuring plan within the meaning of the Guidelines.

55. The Commission emphasises that, on the evidence of that information alone, there was in fact no plan which complies with the Guidelines. In particular, when agreeing to grant the aid in the light of the judgment by the Tribunal de Commerce de Roubaix Tourcoing, the French authorities had not made their decision on the basis of a restructuring plan. This was also apparent from the fact that aid had also been offered for the competing recovery bid, although the national court subsequently did not consider that bid to be viable. However, even the various subsequent communications from France did not as a whole amount to a restructuring plan.

Assessment

56. It should first be pointed out that that finding based on the discretion accorded to the Commission can be examined only for a manifest error of assessment. A comprehensive definition of a manifest error of assessment is not to be found in the case-law. In Nölle the Court did, however, hold, in connection with the issue of anti-dumping regulations, that evidence is required to establish that a manifest error has occurred. If such evidence cannot be furnished, the fact that it cannot damages the case of the person who claimed that the regulation was unlawful. This in principle appears to be applicable in this instance.

57. As is apparent from the reasons for the decision, the Commission fails to take account inter alia of precise and comprehensible information concerning the development of the undertaking's long-term viability on the basis of the restructuring measures and figures relating to the restructuring costs. The documents in the case show that the French authorities did not at any time submit a comprehensive statement of the restructuring costs. On the contrary, figures are not provided for some items and, in the case of other items, such as the costs involved in a FRF 12 million social plan, it remains unclear whether the undertaking has to bear them at all.

58. As regards the trend shown by the overall company results, the documents in the case contain several balance-sheet projections. It remains unclear, however, how the figures mentioned in those projections are arrived at. The only known actual results for 1997 remain considerably below the projected figure.

59. Thus, it is not established that the French authorities actually submitted an adequate restructuring plan. To that extent, therefore, the Commission cannot be found to have committed a manifest error of assessment. On the contrary, the fact is that, under the Guidelines, there is no basis for approving the aid. That deficiency alone would be sufficient to justify the Commission's decision.

(3) Statement of reasons

Pleas in law and arguments of the parties

60. Lastly France also claims that the reasons given, in accordance with Article 190 of the EC Treaty (now Article 253 EC), for the finding that there was no restructuring plan, were insufficient. The French Government submits that it is settled case-law that the reasons on which an act is based must, in accordance with Article 190 of the EC Treaty, be stated by the institution adopting that act so that the Court of Justice can exercise its power of review without restriction and the parties affected by the act in question are put in a position to arrange for their defence. When the Commission contended that France had not provided it with sufficient information for it to assess the aid, it had merely been trying to divert attention from the numerous insufficiencies in the statement of reasons in the case of this decision.

61. The Commission replies that in accordance with consistent case-law the scope of the requisite statement of reasons depends on the nature of the act concerned and the circumstances of its adoption, in particular on the content of the act and the interest which those concerned may have in obtaining a detailed explanation of the reasons for adopting it. On the other hand, the statement of reasons is not required to go into all the relevant facts and points of law. In this respect, the act concerned may not be considered in isolation; it must also be understood in relation to the circumstances surrounding its adoption. The decision at issue here meets those requirements.

Assessment

62. The Court has consistently held that the statement of reasons must be appropriate to the act at issue and must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent Community court to exercise its power of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 190 of the EC Treaty must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question.

63. Substantive deficiencies in statements of reasons are not covered by Article 190 of the EC Treaty. The obligation to state reasons is a formal requirement which does not apply to substantive deficiencies. No procedural requirement is therefore infringed if the acting authority has disregarded factors which it rightly or wrongly considered irrelevant to the proceedings.

64. Against that background, the fact that the Commission relied inter alia on the absence of a restructuring plan cannot be regarded as a failure to state the reasons, as required by Article 190 of the EC Treaty, because the reasons for the Commission's finding are clearly set out.

(4) Interim result

65. In a nutshell, it should be noted that the Commission's decision is justified by the absence of a restructuring plan alone. The following considerations are therefore merely additional.

B Long-term viability

66. First of all, it should be pointed out that, under the Guidelines, the restoration of long-term viability requires that undertakings be in a position to cover all their costs and generate an appropriate minimum return.

(1) Procedure

67. The pleas in law and arguments of the parties concerning the procedural issues relating to the Commission's finding that a restructuring plan did not exist also by extension cover the Commission's findings on the long-term viability of the undertaking.

68. In this regard it should be noted that restructuring aid can be approved in accordance with the Guidelines only if it is demonstrated that the long-term viability of the undertaking concerned is being restored. The Commission is not therefore required to demonstrate that the undertaking is not viable in spite of its restructuring. In accordance with the obligations to state reasons which are laid down in the judgments in Boussac and Pleuger, the Commission is, however, required to obtain sufficient information to justify a conclusion as to viability. In this case, the Commission obtained information in the form of the projected profit and loss figures and the operating result for 1997 and its conclusions are based on that information. Whether those conclusions are justified is not a procedural matter but a matter for assessment by the Commission.

(2) Assessment of the information in this case

Pleas in law and arguments of the parties

69. France considers that the Commission made a manifest error of assessment in considering that the undertaking is not viable.

70. With regard to the trend shown by the undertaking's net results for 1996 to 1999, the Commission had stated on the one hand that the profit figures for 1996 amounting to FRF 20 million were artificially inflated by investment aid amounting to FRF 22 million; on the other hand, however, it had then calculated, on the basis of that information, that there had been a steady annual reduction in the figures of 60% to 70% since 1996. However, France also considers that to obtain the correct figures the Commission should have disregarded in its assessment the extraordinary invoice items linked to the investment aid. Had it done so, it would have reached the opposite conclusion, i.e. that far from decreasing, competitiveness had actually increased.

71. Secondly, France considers that the Commission also made an error of assessment in finding that the profit and loss figures for an essential part of the operation fell considerably short of expectation. The fact that a completely secondary area of production was discontinued does not mean that the entire undertaking was uncompetitive. On the contrary, the very swift reaction to that product's lack of success suggests competitiveness rather than the reverse.

72. Thirdly, France maintains that it was also wrong to conclude from the fact that the undertaking's prices for Lycra wool are amongst the highest in Europe that the undertaking in question is one of the least competitive in that market. The undertaking's pricing policy was intended to place it in the middle to top of the range in terms of pricing and enable it to occupy a market niche. It could not therefore be inferred from such a pricing policy that there was a lack of competitiveness, unless a firm in difficulties was expected to sell its goods at dumping prices.

73. Fourthly, in its decision the Commission had not in any way assessed the information which pointed to the undertaking's long-term viability. In particular the provisional 1999 budget which was drawn up under the supervision of an official appointed by the national court was not taken into account at all.

74. The Commission argues first that it is clear that, in terms of net results, the undertaking was in free fall up to 1999 and could never have survived without the FRF 22 million subsidy. Even on the view France apparently espouses, the financial results were still decreasing steadily: the company had lost FRF 513 000 in 1996, FRF 2.3 million in 1997, FRF 2.4 million in 1998 and FRF 2.65 million in 1999. Operating results were uneven: a loss of FRF 1.96 million in 1996, a profit of FRF 5.866 million in 1997, followed by a 58% drop to FRF 2.461 million in 1998 and a 42% recovery to FRF 3.498 million in 1999. Were the net results considered without the unbudgeted items, it would show a loss of FRF 2.473 million for 1996, followed by a profit of FRF 3.566 million in 1997, a drop in 1998 to FRF 61 000 and finally a result of FRF 848 000 in 1999. In the light of those figures, it could not be concluded that the Commission had committed a manifest error of assessment in respect of viability in finding that the figures provided by France do not establish the undertaking's long-term viability.

75. On the second point, the Commission contends that the arguments to the effect that it assessed the viability of the undertaking as a whole exclusively on the basis of its assessment of a non-essential part of the operation are disproved by the wording of the actual decision. The Commission had stated in that decision that the earlier statements in respect of the undertaking as a whole were reinforced by the information concerning the individual part of the operation. Furthermore, the part of the operation in question was not entirely subordinate. It still made up 17% of the new undertaking's turnover. The slump in sales in that part of the operation amounted to 84% in respect of that part alone and 14% in respect of the undertaking as a whole. Thus, not only had the market niche strategy failed in an important area; the turnover as a whole had likewise fallen short of expectations.

76. As regards the third point, the Commission notes that the assessment of the pricing policy on the Lycra wool market was only of secondary importance in the overall consideration of the undertaking's viability. Furthermore, it was apparent from the documents provided by France that the former undertaking, Filature Lainière de Roubaix, had been originally active on a market for lower-priced goods. Nouvelle Filature Lainière de Roubaix had then reverted to producing higher-priced goods. However, the Commission had never denied that.

77. Fourthly, as regards consideration of the data sent on 30 October 1998, it should be pointed out that the Commission made reference in its decision to all facts brought to its notice in the manner provided for in Article 93(2) of the EC Treaty.

Assessment

78. It must first be observed once again that, on account of the nature of Article 92(3) of the EC Treaty as a derogation, the Commission is not required to show that the aid is incompatible with the common market; on the contrary, it must be established unequivocally that the aid is compatible with it. The Commission's statements are to be assessed in that light.

79. Under Point 3.2.2(i) on the long-term health of firms, the Guidelines state that the firm's competitiveness must be restored within a reasonable period. The improvement in viability must mainly result from appropriate internal measures. The company must be put into a position of covering all its costs and generating a minimum return on capital such that, after completing its restructuring, the firm will not require further injections of State aid and will be able to compete in the market place on its own merits. The assessment must be based on a detailed restructuring plan which ensures that the aforementioned criteria are met.

80. Evaluation of long-term health must be carried out on the basis of the figures and forecasts supplied by France concerning the economic results of the undertaking. The period 1996 to 1999 which the Commission takes as a basis for its assessment seems in principle to be appropriate for assessing the success or failure of the restructuring measures. It also appears admissible to consider and assess, as the Commission has done, the trend shown by individual parts of the undertaking as well as the said figures.

81. On the basis of that information, the Commission first of all stated in the contested decision that the net profit for 1996 which amounts to FRF 20 million is exclusively due to the aid. It added that the net profit dropped steadily by 60% to 70% from 1996 to 1999. There was in fact a drop by the percentage indicated. However, in the preceding sentence the Commission criticises those very net figures at least in respect of 1996 since, in its view, they were affected by the subsidy. Those very figures nonetheless form the basis of the drop in profit calculated by the Commission. To that extent, I would have to agree with the French Government's claim that the Commission's statements are ambiguous if not positively contradictory.

82. However, that error would mean that all or part of the decision was unlawful only if that decision was based on the error. That would be the case here only if the undertaking's long-term viability could be deduced from the other facts which formed the basis of the decision.

83. If, as the Commission does in its defence, we base the assessment on the complete set of figures, provided by France, concerning the undertaking's projected economic results, the picture that emerges as regards the long-term viability of the undertaking is a more mixed one. Thus, the financial results dropped steadily from 1996 whilst the operating profit and loss, as the Commission correctly points out, was more uneven. Whether or not that indicates a reasonable return on the capital invested is open to question.

84. Moreover, the value of those figures is doubtful since the overall company result for 1997 the only one known at the time of the Commission's decision clearly falls short of the projected figures.

85. The parties are also in dispute over the evaluation of the fact that the undertaking shed an unprofitable part of the operation in the restructuring period. I have to agree with the Commission that a part of the operation which makes up 17% of the turnover of an undertaking cannot be regarded as irrelevant to an assessment of its viability. It should also be stated that the view that an 84% drop in turnover in that part of the operation tends to indicate a lack of competitiveness on the part of the undertaking is not manifestly erroneous. Especially as the goods produced in that part of the operation were part of the new operating plan and were not a burden of the past inherited from the former firm. Only if that were the case could I agree with France that closing down that part of the operation was a sign of long-term viability. In the circumstances of this case, the closure seems to suggest a failure, at least in part, of the restructuring strategy. The internal measures taken for the purpose of restructuring, which are required by the Guidelines, simply failed to make the desired contribution to a successful restructuring process.

86. On the other hand, the Commission's conclusion that the high prices for Lycra wool indicated a lack of competitiveness on the part of the undertaking in that market segment does not appear to be convincing. France explains that that pricing policy was part of a specific market strategy, a point which the Commission does not contest. It is not clear from the documents in this case whether or not the undertaking is now achieving success with its strategy.

87. Overall, it can be stated that the Commission's assessment of the long-term viability of the undertaking is not without its defects. As already mentioned, those defects are only relevant, however, if there is a chance that the assessment would have turned out differently in a later decision. However, that is not the case. If all the company's figures are used as a basis for the assessment, they do not in fact point beyond doubt to its long-term viability. In addition, the closure of the aforementioned part of the operation increases doubt as to viability. France has thus been unsuccessful in demonstrating that the Commission committed a manifest error of assessment in finding that the restoration of the undertaking's long-term viability was not ensured.

88. The Commission's assessment is also confirmed by the fact that the undertaking became bankrupt in the interim, although the bankruptcy has no legal implications for these proceedings.

(3) The statement of reasons

Pleas in law and arguments of the parties

89. As regards long-term viability, the French Government considers that the Commission made an error of assessment when it concluded, without stating further reasons, from the fact that the undertaking's prices for Lycra wool were amongst the highest on the European market that it was uncompetitive. Furthermore, the Commission had not made any mention of the data sent by the French Government on 30 October 1998 which pointed to the long-term viability of the firm.

90. The Commission contends that, as far as prices for Lycra wool are concerned, the passage quoted by France was taken out of context. On the failure to take account of the information provided on 30 October 1998, it should be noted that the decision was adopted on the basis of the figures provided by France on 16 October 1998. The letter of 30 October 1998 could not have altered the outcome in any way.

Assessment

91. In principle, high prices indicate a lack of competitiveness if other suppliers offer comparable products at lower prices. The question whether that is the case here does not concern the statement of reasons; it is relevant only in examining the Commission's assessment. The reference to high prices constitutes sufficient grounds as it is an adequate basis for the Commission's decision.

92. The alleged failure to take account of the communication of 30 October 1998 could have constituted a lack of grounds, had that letter contained new arguments which would have had to be refuted. However, it contained nothing new, at least as regards the long-term viability of the undertaking.

93. Nevertheless the grounds for the decision are not without their defects on this very matter of the undertaking's long-term viability. I have already gone into the contradiction in the description of the trend in the profit and loss figures. Furthermore, the Commission expressly states that the French Government did not forward a restructuring plan which would allow the Commission to assess restoration of the recipient company's long-term viability and the need for the aid. It nonetheless makes observations on that matter which are in fact designed to justify its decision.

94. Although regrettable, these contradictions are insignificant in the overall context of the decision. The Commission gives an adequate explanation of the reasons for its conclusion that the undertaking's long-term viability is not demonstrated. Moreover, since France was involved in the administration procedure, it had sufficient information to be adequately informed regarding the grounds for the Commission's decision, despite the contradictions.

(4) Interim result

95. Since long-term viability is a sine qua non for the approval of restructuring aid, the Commission was entitled to refuse to approve the aid for that reason alone.

C Aid in proportion to the contribution made by the beneficiaries of restructuring

96. As regards the aid granted in proportion to the contribution made by the beneficiaries of restructuring, the dispute is confined to the Commission's assessment of that matter.

Pleas in law and arguments of the parties

97. The French Government submits that the rule set out in Point 3.2.2(iii), that aid beneficiaries are normally required to make a significant contribution to the restructuring plan from their own resources, is not binding and does not require a strict interpretation by the Commission.

98. France takes the view that where the purchasers of an undertaking are natural persons employees of that undertaking and the money contributed reflects their personal economic circumstances, their commitment within the context of the restructuring plan must be considered to be significant within the meaning of the Guidelines.

99. Furthermore, it claims that the decision contains three errors of assessment in that regard.

100. First, the Commission had failed to take into account the fact that the recipient is an SME and is in an objective 2 zone, although provision is made for this in the Guidelines.

101. Secondly, the Commission was wrong to set the contribution made by the purchasers against the overall amount of aid (in which case, according to the Commission, the private commitment amounts to a mere 12% of the public funds). On the contrary, a relationship must be established between the private capital and the comparable subsidies which in this case come to a mere FRF 22 million. On this basis, the proportion of private funds in the restructuring measure constitutes 22% of the aid.

102. Thirdly, the Commission had not assessed adequately the considerable restructuring measures taken by the recipient undertaking (60% reduction in the original capacity, redundancy for 339 of the 587 employees). Those facts must, likewise, be taken into account in determining the proportion of aid.

103. The Commission considers, first, that it no longer matters, basically, whether France's complaint on this score is justified since, even if it was, the actual form of order sought could not be granted, as the observations on the undertaking's long-term viability have shown. Therefore, the following observations must be regarded as having been made only in the alternative.

104. The Commission also points out that it can in fact derogate from the Guidelines in exceptional, duly justified, cases. However, the approval of State aid is presented as an exception in the Treaty and must therefore be dealt with restrictively. The aid must be assessed in relation to its effect. Account should be taken here of the fact that the recipient undertaking operates in a market where stiff competition in the past led to a massive drop in the workforce.

105. In the Commission's view, Points 3.2.3 and 3.2.4 of the Guidelines, which France relies on, contain concessions in certain cases which have nothing to do with these proceedings.

106. As regards the purchasers' contribution in proportion to the State funds, in accordance with the Guidelines that contribution must be set against the overall costs involved in restructuring and in this instance the contribution constitutes 12% of those costs.

107. Lastly, in arguing that the Commission should have taken account of the cuts in capacity and jobs made by the undertaking, France failed to appreciate the spirit of the guideline concerned, according to which only those contributions which the undertaking has made from its own resources can be taken into consideration.

Assessment

108. As regards aid in proportion to restructuring costs and benefits, it is apparent from Point 3.2.2.(iii) of the Guidelines that the amount and intensity of the aid must be limited to the strict minimum needed to enable restructuring to be undertaken and must be related to the benefits anticipated from the Community's point of view. Therefore, aid beneficiaries will normally be expected to make a significant contribution to the restructuring plan from their own resources or from external commercial financing.

109. That criterion is intended to avoid providing the company with surplus cash which could be used for aggressive, market-distorting activities not linked to the restructuring process. This could also happen if the aid were to free up within the company or among the proprietors resources which could be used to distort competition. The Commission accordingly takes account of the existing financial resources of the company and its shareholders, pursuant to its Guidelines published in 1999. Although those Guidelines cannot be applied directly to this case, they do incorporate the lessons learnt by the Commission in applying the earlier Guidelines and can therefore be consulted for clarification, provided that they do not manifestly contain a change in the policy adopted in the earlier Guidelines.

110. The Commission should therefore also take account of a situation in which the proprietors of the undertaking have only limited resources as employees of the former undertaking and invest all such resources in an attempt to keep their operation running. In particular, a straightforward comparison of contributions in proportion to the costs of restructuring is impossible in such circumstances. This is shown by Commission practice. In the decision concerning the aid granted to the Italian company Seleco, the Commission considered that a contribution from the proprietors' own funds amounting to 40% of the total funds invested still did not constitute a sufficiently substantial private contribution. However, in its decision concerning aid granted to the German company Wildauer Kurbelwelle GmbH, the Commission regarded a private contribution of just 19.5% as a substantial (and adequate) proportion of the restructuring costs.

111. However, for such an examination to be carried out, the French authorities would have had to provide more precise information concerning the financial circumstances of the proprietors, as well as a detailed restructuring plan showing the restructuring costs in particular. Only such a plan could have ensured that the aid would be used exclusively for restructuring measures and not for an aggressive pricing policy.

112. Without such information, only the investor's contribution to the costs of the entire project is known. On that basis, it does not in any event appear to be a manifest error of assessment on the Commission's part to consider that the capital base of FRF 510 000 and a purchase price of FRF 4.8 million was a substantial private contribution to restructuring compared with FRF 40 million in State aid.

113. In that connection, I must agree with the Commission's view that the State aid in its entirety, not just the investment premium of FRF 22 million, must be used for purposes of comparison. Assessing whether contributions are substantial involves a comparison of all State and private resources. State aid in its entirety, not just one aspect of it, carries the risk of distortions of competition. On that criterion, the purchasers' contribution to the financing of the new company constitutes a mere 12% of the State aid granted. That is obviously not a reasonable proportion.

114. Even Point 3.2.3 on conditions for restructuring aid in assisted areas and Point 3.2.4 on aid for restructuring small and medium-sized enterprises do not alter that finding. Those two points specify that aid may be granted on less stringent conditions in those cases. However, that relates only to capacity reductions to offset the effect on competition and, in the case of small and medium-sized enterprises, reporting obligations, aspects which are not dealt with in the Commission's decision.

115. Contrary to the view taken by France, it was not necessary to include the redundancies and closures in the comparison either. Under the Guidelines, such measures are of no importance in assessing the criterion at issue.

116. Consequently, there is likewise no manifest error of assessment in the Commission's finding that the aid granted is disproportionate to the costs and benefits of restructuring because the company's purchasers did not make a substantial contribution to restructuring.

D Prevention of distortions of competition

117. As regards the prevention of distortions of competition, the French Government contests both the Commission's assessment and the statement of reasons.

(1) Assessment of the information available

118. In the French Government's view, the Commission's assessment, that the undertaking's relatively small market share on the European market is still in itself no reason for ruling out the possibility of a distortion of competition, does not take account of the facts communicated to the Commission on 30 October 1998. Had the Commission taken account of those facts, it might have come to the conclusion that there was no question of distortion of competition. Instead, the Commission seemed to rely solely on the very generally held opinions of various competitors.

119. In contrast, the Commission observes that the French position is in complete contradiction to the wording of the contested decision. In that decision, the Commission gave detailed consideration to the undertaking's viability and the aid in proportion to cost and benefit. In the light of the finding that the aid failed to meet two out of the four criteria contained in the Guidelines, it was no longer even remotely necessary to go into the issue of distortions of competition.

120. It is sufficient here to point out, once again, that aid must as a rule meet all the requirements laid down by the Guidelines in order to be approved within the meaning of Article 92(3) of the EC Treaty. On the basis of the aforementioned findings, the Commission was no longer required to go into the issue of the risk of distortions of competition.

(2) Statement of reasons

121. The French Republic claims that the decision contains no reasoned or detailed statements on the issue of avoiding distortions of competition.

122. The Commission disputes that claim, submitting that it is perfectly adequate for it to be established in the reasons for the decision that two of the four criteria of the aforementioned Guidelines had not been met. In that case, it is no longer necessary to discuss a third criterion.

123. Since the Commission took the view that it was no longer necessary to consider this criterion after its earlier examination of others contained in the Guidelines, there was no need to present a statement of reasons in this regard. As already explained, this view is also correct.

E Summary

124. The Commission's decision is justified on three grounds. The French Republic failed to provide an adequate restructuring plan, the long-term viability of Nouvelle Filature Lainière de Roubaix after restructuring was not demonstrated and the aid granted was not in proportion to the company proprietors' contribution to the restructuring measures. The French Republic was unable to disprove the Commission's findings on those issues.

VI Costs

125. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been asked for in the successful party's pleading. France is therefore ordered to pay the costs.

VII Conclusion

126. In the light of the foregoing considerations, I propose that the Court should:

(1) dismiss the application

(2) order the French Republic to pay the costs.