Arrêt de la Cour


**Joined Cases C-328/99 and C-399/00**


**Italian Republic and SIM 2 Multimedia SpA
v
Commission of the European Communities**

«(Action for annulment – Decision 2000/536/EC – State aid granted to Seleco SpA)»

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| | | | | --- | | Opinion of Advocate General Geelhoed delivered on 27 September 2001 | | I - 0000 | |
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| | | | | --- | | Judgment of the Court (Sixth Chamber), 8 May 2003 | | I - 0000 | |
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Summary of the Judgment

*1..
: State aid – Definition – Aid from State resources – Aid granted by a private-law company owned essentially by a public authority – Resources of the undertaking constantly remaining under public control – Included

(Art. 87(1) EC)*

*2..
: State aid – Definition – Financial assistance granted by a Member State to a public or private undertaking – Assessment on the basis of the private investor criterion – Account to be taken of the context in which aid was granted

(Art. 87(1) EC)*

*3..
: State aid – Definition – Private investor test put into practice – Commission's power of assessment – Judicial review – Limits

(Art. 87(1) EC)*

*4..
: State aid – Recovery of unlawful aid – Obligation resulting from unlawfulness – Subject-matter – Restoration of the previous legal situation

(Art. 88(2) EC)*

*5..
: State aid – Recovery of unlawful aid – Procedures for recovery – Conduct of a private creditor – Obligation to use all the legal means available, including liquidation of the beneficiary

(Art. 88(2) EC)*

*6..
: State aid – Recovery of unlawful aid – Determination of the debtor where assets are transferred to a subsidiary – Economic continuity test

(Art. 88(2) EC)*

1.
The financial resources of a private-law company owned essentially by a public authority, and which acts under the control
of that authority, may be categorised as State resources within the meaning of Article 87(1) if they constantly remain under
public control and therefore available to the competent national authorities. see para. 33

2.
The notion of State aid within the meaning of Article 87 EC can encompass not only positive benefits such as, inter alia,
subsidies, loans or direct investment in the capital of enterprises, but also interventions which in various forms mitigate
the charges which are normally included in the budget of an undertaking and which therefore, without being subsidies in the
strict sense of the word, are of the same character and have the same effect. Pursuant to the principle that the public and private sectors are to be treated equally, however, capital placed directly
or indirectly at the disposal of an undertaking by the State in circumstances which correspond to normal market conditions
cannot be regarded as State aid. Thus, in order to determine whether investment by the public authorities in the capital of an undertaking, in whatever form,
may constitute State aid, it is necessary to determine whether, in similar circumstances, a private investor of a dimension
comparable to that of the bodies managing the public sector could have been prevailed upon to make capital contributions of
the same size, having regard in particular to the information available and foreseeable developments at the date of those
contributions. see paras 35-38

3.
Judicial review of an act necessitating a complex economic appraisal, in which the Commission puts into practice the private
investor test in order to ascertain whether investment by the public authorities in the capital of an undertaking constitutes
State aid, must be confined to verifying whether the Commission complied with the relevant rules governing procedure and the
statement of reasons, whether the facts on which the contested finding was based have been accurately stated and whether there
has been any manifest error of assessment or a misuse of powers. see para. 39

4.
The recovery of unlawful aid is the logical consequence of a finding that it is unlawful. see paras 53, 66

5.
To ensure that a Commission decision ordering the recovery of State aid incompatible with the common market is implemented
correctly, the Member State is required to act as if it were a private creditor. It must recover the aid without delay, using
all the legal means at its disposal, including seizure of the beneficiary's assets and, where necessary, its liquidation.
see paras 68-69

6.
The possibility of a company in economic difficulties taking measures to rehabilitate the business cannot be ruled out
*a priori* because of requirements relating to recovery of State aid which is incompatible with the common market. However, if it were permissible, without any condition, for an undertaking experiencing difficulties and on the point of being
declared bankrupt to create, during the formal inquiry into the aid concerning it individually, a subsidiary to which it then
transfers its most profitable assets before the conclusion of the inquiry, that would amount to accepting that any company
may remove such assets from the parent undertaking when aid is recovered, which would risk depriving the recovery of aid of
its effect in whole or in part. In order to prevent the effectiveness of the decision from being frustrated and the market from continuing to be distorted,
the Commission may be compelled to require that the recovery is not restricted to the original firm but is extended to the
firm which continues the activity of the original firm, using the transferred means of production, in cases where certain
elements of the transfer point to economic continuity between the two firms. see paras 76-78


JUDGMENT OF THE COURT (Sixth Chamber) 8 May 2003 [(1)](#Footnote1)


((Action for annulment – Decision 2000/536/EC – State aid granted to Seleco SpA))In Joined Cases C-328/99 and C-399/00,**Italian Republic,** represented by U. Leanza, acting as Agent, assisted by O. Fiumara, avvocato dello Stato, with an address for service in Luxembourg,applicant in Case C-328/99, and **SIM 2 Multimedia SpA,** established in Pordenone (Italy), represented by A. Vianello, avvocato, with an address for service in Luxembourg,

applicant in Case C-399/00,

v

**Commission of the European Communities,** represented by G. Rozet, acting as Agent, assisted by A. Abate and E. Cappelli, avvocati, with an address for service in
Luxembourg,

defendant,

APPLICATION, in Case C-328/99, for annulment of Commission Decision 2000/536/EC of 2 June 1999 concerning State aid granted
to Seleco SpA (OJ 2000 L 227, p. 24) and, in Case C-399/00, for annulment of Article 2(1) of that decision, in so far as it
requires the Italian Republic to take the necessary measures to recover the aid granted to Seleco SpA from Seleco Mulimedia
Srl with regard to the part not recoverable from the latter,


THE COURT (Sixth Chamber),,


composed of: R. Schintgen, President of the Second Chamber, acting for the President of the Sixth Chamber, C. Gulmann (Rapporteur), V. Skouris, F. Macken and J.N. Cunha Rodrigues, Judges,Advocate General: L.A. Geelhoed,
Registrar: L. Hewlett, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 30 May 2001, where the Italian Republic was represented by
O. Fiumara, SIM 2 Multimedia SpA by A. Vianello and T. Ballarino, avvocato, and the Commission by G. Rozet and V. Di Bucci,
acting as Agent, assisted by A. Abate,

after hearing the Opinion of the Advocate General at the sitting on 27 September 2001,

gives the following


### Judgment


1
By application lodged at the Court Registry on 1 September 1999 and registered under the number C-328/99, the Italian Republic
brought an action under the first subparagraph of Article 230 EC for:

─
annulment of Commission Decision 2000/536/EC of 2 June 1999 concerning State aid granted by Italy to Seleco SpA (OJ 2000 L
227, p. 24) (hereinafter
the contested decision), and

─
in the alternative, annulment of that decision in so far as it requires the Italian Republic to take the necessary measures
to recover from Seleco SpA the incompatible aid granted by Ristrutturazione Elettronica SpA (hereinafter
REL) in 1996 and in so far as it requires the Italian Republic to adopt the necessary measures to recover from Seleco Multimedia
Srl (hereinafter
Multimedia) and from any other undertaking which benefited from asset transfers the incompatible aid granted to Seleco, for the part
not recoverable from the latter.

2
By application lodged at the Registry of the Court of First Instance on 6 September 1999 and registered under number T-195/99,
SIM 2 Multimedia SpA (hereinafter
SIM Multimedia), legal successor to Multimedia, brought an action to annul Article 2(1) of the contested decision in so far as it requires
the Italian Republic to take all the necessary measures to recover from Multimedia the incompatible aid granted to Seleco,
with regard to the part not recoverable from the latter.

3
Pursuant to the third subparagraph of Article 47 of the EC Statute of the Court of Justice and Article 80 of the Rules of
Procedure of the Court of First Instance, the Court of First Instance, by order of 16 October 2000, declined jurisdiction
in Case T-195/99 in favour of the Court of Justice, so that the latter could adjudicate on the application for annulment.
That case was registered at the Registry of the Court of Justice on 31 October 2000 under the number C-399/00.

4
Given the connection between those two cases, the President of the Court decided, by order of 5 February 2001, to join them
for the purpose of the oral procedure and the judgment, in accordance with Article 43 of the Court's Rules of Procedure.**: Legal background**

5
Under Article 87(1) EC,
[s]ave as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever
which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall,
in so far as it affects trade between Member States, be incompatible with the common market.

6
The first subparagraph of Article 88(2) EC provides: If, after giving notice to the parties concerned to submit their comments, the Commission finds that aid granted by a State
or through State resources is not compatible with the common market having regard to Article 87, or that such aid is being
misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined
by the Commission.

7
In accordance with Article 88(3) EC,
[t]he Commission shall be informed, in sufficient time to enable it to submit its comments, of any plans to grant or alter
aid. If it considers that any such plan is not compatible with the common market having regard to Article 87, it shall without
delay initiate the procedure provided for in paragraph 2. The Member State concerned shall not put its proposed measures
into effect until this procedure has resulted in a final decision.**Facts in the proceedings**The parties concerned

8
Seleco was active in the consumer electronics market and, more specifically, in the sector of colour television sets, decoders
for encrypted programmes and video projectors and monitors.

9
Multimedia was established in 1995. In March 1996 Seleco hived off its most profitable activities (video projectors and monitors)
to Multimedia, providing ITL 29 billion in capital and becoming its sole owner. In June 1996, Multimedia was converted into
a company limited by shares. In July 1996, Seleco sold 33.33% of the shares which it held in Multimedia to Italtel and 33.33%
to Friulia SpA. Each package of shares was sold for ITL 10 billion. The remaining shares were transferred to a shell company
belonging to Seleco and then sold to a private company at a public sale by court order which took place on 20 December 1997
in the context of the liquidation of Seleco.The contested decision

10
At the end of 1993 Seleco's capital was held by SOFIN SpA, Friulia and REL (37%, 3.7% and 59.3%, respectively). SOFIN is
a private company. Friulia is a finance company entirely controlled by the Region of Friulia-Venezia Giulia, whose economic
development it is responsible for promoting. REL is a company created in 1982 and controlled by the Italian Ministry of Industry,
Commerce and Craft Trades, whose objective was to re-organise the consumer electronics sector by setting up companies, by
taking holdings in existing companies and by financing undertakings in which it had holdings.

11
At that time, Seleco's losses had risen to the point where its shareholders were required by Italian law to wind up the company
or to recapitalise it. In those circumstances, the shareholders originally opted to wind it up (board of directors' decision
of 1 February 1994) but subsequently, following the intervention of the Italian Government, concerned by the social unrest
caused by the decision to wind up the company, finally decided to recapitalise it.

12
Under that agreement, REL was to cover all losses in excess of the equity capital, including the part which should have been
absorbed by the other shareholders, while the latter were to reconstitute Seleco's capital. The agreement between REL and
the other shareholders was formalised by a directive of the Italian Council of Ministers before being notified to Seleco.
In that way, REL partially wrote off its claims on Seleco (ITL 16.8 billion out of a total of ITL 82 billion), Friulia contributed
ITL 13 billion (ITL 7 billion in capital contribution and the conversion of a loan of ITL 6 billion previously granted to
Seleco into shares in that company), SOFIN contributed ITL 19 billion and a consortium of banks contributed ITL 10.5 billion.

13
Following those measures, the recapitalisation was distributed as follows: SOFIN 42.64%, Friulia 28.89%, the consortium of
banks 23.33% and Seleco's employees 5.13%.

14
In 1994 and 1995, Seleco again recorded serious losses, making it necessary at the end of 1995 once more to choose between
winding up the company and recapitalising it. It was again decided to recapitalise. In particular, a new shareholder, the
private company SOREC, contributed ITL 28.8 billion. In February 1996 Seleco's capital was distributed as follows: SOREC
87.91%, SOFIN 5.22%, Friulia 3.49%, the consortium of banks 2.82% and employees 0.56%. In April 1996, Friulia granted Seleco
a convertible loan of ITL 12 billion against a guarantee consisting of Seleco's four industrial brands. In June of that year
REL allowed Seleco to repurchase its outstanding debt of ITL 65.2 billion for the sum of ITL 20 billion.

15
As those measures were not sufficient to guarantee the continuation of Seleco's business activities from a legal standpoint,
other measures were essential. Thus, Seleco issued a debenture loan, which was subscribed to by a consortium of banks, and
sold two thirds of its holdings in Multimedia, as mentioned in paragraph 9 of the present judgment.

16
Seleco was declared bankrupt on 17 April 1997. The receiver brought an action to revoke the repurchase for ITL 20 billion
of the outstanding debt of ITL 62.5 billion owed by Seleco to REL. The Italian court before which the case was brought cancelled
the preferential nature of Seleco's debt to Friulia. The latter received ITL 1 billion as compensation for the loss of the
lien on Seleco's four industrial brands which had been given to it as a guarantee.The contested decision

17
After it learned that the aid granted to Seleco, which had been notified to it by the Autonomous Region of Friulia-Venezia
Giulia, had already been implemented and that REL had partly written off its claims on Seleco under an agreement concluded
in 1994 for the purpose of covering the losses for the financial year 1993, the Commission decided on 27 September 1994 to
initiate the procedure laid down in Article 93(2) of the EC Treaty (now Article 88(2) EC). After subsequently learning from
press reports that other public aid had been granted to Seleco, the Commission extended that procedure to those other measures
by decision of 3 February 1998.

18
That procedure ended in the adoption of the contested decision, the operative part of which is worded as follows: *Article 1* The following aid granted by Italy to Seleco SpA is hereby declared incompatible with the common market:

(a)
the partial write-off in 1994 by Ristrutturazione Elettronica SpA of ITL 16.8 billion on a loan of ITL 82 billion;

(b)
the repurchase in 1996 by Seleco SpA of its outstanding debt to Ristrutturazione Elettronica SpA of ITL 65.2 billion for ITL
20 billion;

(c)
the conversion into shares by Friulia SpA of an ITL 6 billion loan granted by it in 1992;

(d)
a capital injection of ITL 7 billion by Friulia SpA in 1994;

(e)
a convertible loan of ITL 12 billion at 7% granted by Friulia in 1996 and guaranteed by a lien on four industrial brands owned
by Seleco.*Article 2*

1.
Italy shall take all the necessary measures to recover the aid referred to in Article 1, which has already been granted unlawfully,
from Seleco SpA and, additionally, with regard to the part not recoverable from Seleco, from Seleco Multimedia srl and any
other firm which benefited from asset transfers designed to frustrate the effects of this decision.

2.
Recovery shall be effected in accordance with the procedures of national law. The aid to be recovered shall include interest
from the date on which it was made available to the recipient until the date of its recovery. Interest shall be calculated
on the basis of the reference rate used for calculating the net grant equivalent of regional aid applicable at the time the
aid was granted.*Article 3* Italy shall inform the Commission, within two months of notification of this Decision, of the measures taken to comply with
it. *Article 4* This Decision is addressed to the Italian Republic.

19
In those circumstances, the Italian Republic and SIM Multimedia brought the present actions against the contested decision.**Substance**

20
The action brought by the Italian Government calls in question the categorisation of the operations by REL and Friulia as
State aid, the requirement to recover from Seleco the alleged aid which REL granted to it in 1996 and the requirement to cover
the so-called State aid from SIM Multimedia.Classification of the operations by REL and Friulia as State aidArguments of the parties

21
The Italian Government claims that, while the two operations to recapitalise Seleco carried out in 1994 and in 1996 clearly
carried an element of risk they nevertheless offered,
*a priori* , a reasonable chance of success. In that regard, the Italian Government points out that in 1994 the public capital injected
was about ITL 30 billion and the private capital injected was about ITL 32 billion. In 1996 the contribution from Friulia
came to ITL 12 billion and that from REL to ITL 45 billion, while the private sector contributed ITL 40.8 billion. That substantial
contribution by private investors is in itself sufficient to show that the two recapitalisation operations, the purpose of
which was to relaunch Seleco, were considered reasonable by private investors operating under normal market economy conditions.

22
The Italian Government contests the Commission's argument that private investors were induced by the public authorities to
recapitalise Seleco. In fact, it was public entities which decided to contribute only if private investors were willing to
do so.

23
As regards the operation carried out by REL in 1994, the Italian Government notes that the loan of ITL 82 billion was not
accompanied by any guarantee and that, if Seleco were to be wound up, REL had practically no chance of even partial recovery.
In those circumstances, REL preferred to waive a fifth of its claim, on the condition that other investors would pay for
the entire recapitalisation. In that way, it could withdraw from Seleco's capital, in accordance with the undertakings it
had given to the Commission to make over the shares it held in the sector's undertakings to private shareholders. In addition,
REL had reasonable expectations of recovering the remaining four fifths of its claim. REL made over the outstanding debt
of ITL 65.2 billion for a sum of ITL 20 billion in 1996 for the same reasons.

24
As regards Friulia, the Italian Government points out that, although the Region of Friulia-Venezia Giulia has the majority
interest in the company's capital, private partners enjoy wide powers of decision-making and disinvestment. Friulia contributed
its own funds in 1994 and 1996. Its contributions were therefore not public in nature.

25
In any event, given the losses experienced by Seleco in the 1993 financial year, and noting that if the company was wound
up it could recover at the most only 50% of its loan of ITL 6 billion, Friulia decided in 1994 that it was appropriate to
convert that loan into shares and to inject capital of ITL 7 billion, as was done at the same time by private investors and
both public and private banks.

26
As regards the grant by Friulia in 1996 of a convertible loan of ITL 12 billion at 7%, guaranteed by a lien on four brands
owned by Seleco, the Italian Government maintains that operation is in accordance with the market. First, the value of the
brands was clearly substantial, and second, an obligatory loan for the same amount was granted at a lower interest rate and
without any guarantee or compensation by a consortium of private and public banks, without the Commission raising any objection
in that regard. The fact that when Seleco was wound up those brands were made over for only ITL 1 billion was due to the
considerable reduction in their value following bankruptcy. Finally, in contrast to what the Commission states in point 91
of the grounds of the contested decision, Italian law does not provide that where a bankrupt company is being wound up, the
debts arising out of a debenture loan are to be repaid before the other unsecured claims.

27
Referring to its communication 94/C 368/05 entitled
Community guidelines on State aid for rescuing and restructuring firms in difficulty, published in the
*Official Journal of the European Communities* of 23 December 1994 (OJ 1994 C 368, p. 12), the Commission contends that the measures in favour of Seleco do not conform
to the logic of a normal private investor. According to the Commission, the only purpose of those measures was to delay Seleco's
collapse as long as possible and to avoid the social consequences arising from a redundancy plan.

28
In that regard, the Commission maintains, essentially, that Seleco's difficult financial position was of long standing and
that no credible restructuring plan existed. In addition, the European consumer electronics sector had been undergoing a
crisis since 1992, as the result of overproduction coupled with rising costs, falling prices, greater competition and a sharp
reduction in the workforce. Since prices in Italy were falling more rapidly than in other Member States, Seleco's competitors
decided to increase their advertising budget and their investment in research and development.

29
The Commission contends that the decision not to wind up Seleco, adopted in 1994, and the participation by private and public
investors in its recapitalisation were in reality dictated by the Italian Government. They do not correspond to the operations
carried out by a private investor operating under normal market conditions. The fact that private investors took part in
both recapitalisations cannot automatically preclude that concomitant support by the public authorities constitutes State
aid. Those authorities should not become involved in senseless investments even if poorly advised private investors take
that risk.

30
According to the Commission, Friulia, 87% of whose authorised capital belongs to the Region of Friulia-Venezia Giulia, comes
under the control of that region. Consequently, its financial contribution was the result of action attributable to the Member
State.Findings of the Court

31
It is appropriate, first, to consider whether the operations carried out by Friulia referred to in Article 1(c), (d) and (e)
of the contested decision, mentioned
*inter alia* in paragraph 18 of the present judgment, must be regarded as having been carried out by means of State resources within the
meaning of Article 87(1) EC.

32
In that regard, although the Italian Government claims that Friulia's private partners have wide powers of decision-making
and of disinvestment, it does not deny the Commission's claim that the company was under the control of the Region of Friulia-Venezia
Giulia.

33
The financial resources of a private-law company such as Friulia, 87% of which is held by a public authority such as the Region
of Friulia-Venezia Giulia and which acts under the control of that authority, may be regarded as State resources within the
meaning of Article 87(1) EC (see, to that effect, Case 323/82
*Intermills* v
*Commission* [1984] ECR 3809, paragraph 32, and Joined Cases 67/85, 68/85 and 70/85
*Van der Kooy* v
*Commission* [1988] ECR 219, paragraphs 36 and 38). The fact that Friulia participated using its own funds is irrelevant in that regard.
For those funds to be categorised as State resources, it is sufficient that, as in the present case, they constantly remain
under public control and therefore available to the competent national authorities (see, to that effect, Case C-482/99
*France* v
*Commission* [2002] ECR I-4397, paragraph 37).

34
It follows that the Commission was right in holding in the contested decision that Friulia's operations were carried out by
means of State resources, within the meaning of Article 87(1) EC.

35
Next, it must be borne in mind that the aim of Article 87 EC is to prevent trade between Member States from being affected
by advantages granted by public authorities which, in various forms, distort or threaten to distort competition by favouring
certain undertakings or certain products. The notion of aid can thus encompass not only positive benefits such as subsidies,
loans or direct investment in the capital of enterprises, but also interventions which in various forms mitigate the charges
which are normally included in the budget of an undertaking and which therefore, without being subsidies in the strict sense
of the word, are of the same character and have the same effect (see Case 234/84
*Belgium* v
*Commission* [1986] ECR 2263, paragraph 13, and Case C-39/94
*SFEI and Others* [1996] ECR I-3547, paragraph 58).

36
It is settled case-law that investment by the public authorities in the capital of an undertaking, in whatever form, may constitute
State aid where all the conditions set out in Article 87(1) EC are fulfilled (see, in particular, Case C-142/87
*Belgium* v
*Commission* (
*Tubemeuse* ) [1990] ECR I-959, paragraph 25; Joined Cases C-278/92 to C-280/92
*Spain* v
*Commission* [1994] ECR I-4103, paragraph 20, and
*France* v
*Commission* , cited above, paragraph 68).

37
It should also be noted that, pursuant to the principle that the public and private sectors are to be treated equally, capital
placed directly or indirectly at the disposal of an undertaking by the State in circumstances which correspond to normal market
conditions cannot be regarded as State aid (Case C-303/88
*Italy* v
*Commission* [1991] ECR I-1433, paragraph 20).

38
Therefore, in accordance with equally settled case-law, it is necessary to determine whether, in similar circumstances, a
private investor of a dimension comparable to that of the bodies managing the public sector could have been prevailed upon
to make capital contributions of the same size (Case C-261/89
*Italy* v
*Commission* [1991] ECR I-4437, paragraph 8;
*Spain* v
*Commission* , cited above, paragraph 21; and Case C-42/93
*Spain* v
*Commission* [1994] ECR I-4175, paragraph 13), having regard in particular to the information available and foreseeable developments at
the date of those contributions (
*France* v
*Commission* , paragraph 70).

39
Since that involves a complex economic appraisal, in reviewing an act of the Commission which has necessitated such an appraisal,
the Court must confine itself to verifying whether the Commission complied with the relevant rules governing procedure and
the statement of reasons, whether the facts on which the contested finding was based have been accurately stated and whether
there has been any manifest error of assessment or a misuse of powers (see
*inter alia* Case C-56/93
*Belgium* v
*Commission* [1996] ECR I-723, paragraph 11).

40
In this case, therefore, it is necessary to assess whether, in similar circumstances, a private investor of a dimension comparable
to that of REL or Friulia could have been prevailed upon to make capital contributions of the same size, having regard in
particular to the information available and foreseeable developments at the date of those contributions.

41
First, the parties agree that, at the time of the first recapitalisation of Seleco, that company's financial situation was
poor. As noted at point 62 of the grounds of the contested decision, although Seleco received State aid for more than 10
years, it failed to make a profit during that period, apart from a very small one in the financial years 1991 and 1992. In
particular, the net result for the financial year 1993 was ITL 77.5 billion in losses, an amount one and a half times Seleco's
equity capital (points 19 and 61 of the grounds of the contested decision). Moreover, that result came within the framework
of an economic recession which had caused a slowdown in growth, stronger competition and a sharp fall in prices in the European
consumer electronics sector, which had started to decline in 1992 (points 52 and 53 of the grounds of the contested decision).
In 1993, which was also the second year of decline for the Italian consumer electronics sector, price erosion in Italy was
more rapid than in the other Member States. On the Italian market, which according to forecasts would feel the effects of
the economic recession throughout 1994, Seleco's competitors invested far more in advertising and in research and development,
with some of them even launching new products (points 54 and 56 of the grounds of the contested decision).

42
Secondly, Seleco's restructuring plan for 1993 to 1996, which was the second since the beginning of the decade, forecast a
return to profitability in 1995, while the first plan, which covered the period 1990 to 1993, had forecast a return to significant profits in 1993
(point 68 of the grounds of the contested decision). However, at the request of Friulia, the restructuring plan for 1993
to 1996 was studied by KPMG Peat Marwick Corporate Finance, an independent outside expert, which came to the conclusion that
it was too ambitious, on the basis of both the firm's position and the plan's underlying assumptions. The KPMG study stated,
*inter alia* , that:

─
the forecast of a significant contraction in sales, counterbalanced by an 8% increase in prices as of the second half of 1994,
was unfounded,

─
Seleco did not have the means to launch its product as an advanced, quality product,

─
the assumption that prices would rise did not take account of the bargaining power of the supermarkets and hence of the subsequent
narrowing in Seleco's profit margins, which had always been its weak point. Seleco's positioning on a range of average prices
had never allowed it to establish itself, either in terms of margins (high prices) or in terms of quantity (insufficient market
share),

─
the development of the only really profitable sector of Seleco (professional products), predicted to expand by 21% in 1995,
risked being hampered by the group's financial crisis

.

43
Thirdly, it is clear from the minutes of Seleco's general meeting of 1 February 1994, a copy of which is attached to the Italian
Government's application, that REL, whose representatives took part in several meetings with representatives of the Ministry
of Industry and the Presidency of the Council, had stated that it was ready, in view of the interests linked to employment,
to cover the amount of the losses which exceeded the company's net assets in proportion to its shares, by partially waiving
the debt owed it by Seleco.

44
It follows from the foregoing that, as regards the recapitalisation of Seleco in 1994, neither Friulia nor REL acted like
a private investor operating under normal market conditions. A private investor would not, under those conditions, have made
the capital contributions made by Friulia or REL to an undertaking in difficulty such as Seleco without having a credible
and realistic restructuring plan or taking social concerns into account (see, as regards the latter point, Case C-303/88
*Italy* v
*Commission* , cited above, paragraphs 18 and 24), and thus not seeking to ensure the likelihood of profitability for such contributions.

45
The Commission was therefore right to consider that REL and Friulia could not expect that the capital contributions made in
the context of the 1994 recapitalisation of Seleco would generate an acceptable profit for a private investor operating under
normal market conditions.

46
Accordingly, it must be held that the interventions by REL and Friulia in the first recapitalisation of Seleco constitute
State aid within the meaning of Article 87(1) EC.

47
As regards the second recapitalisation of Seleco, it must be pointed out that Seleco showed a loss of ITL 64.2 billion for
the financial year 1995, almost twice the amount of its equity capital, although the company's restructuring plan for 1993
to 1996 counted on a
return to profitability in 1995.

48
Since Seleco's restructuring plan had proved to be unachievable, and in the absence of any information concerning any other
restructuring plan which would make it possible in the present case to consider that second intervention acceptable, the Commission
was entitled to take the view that no informed private investor operating under normal market conditions would have made the
capital contributions that REL and Friulia made to Seleco at the time of its recapitalisation in 1996, since its financial
situation remained poor, and indeed critical.

49
Therefore, the interventions by REL and Friulia in the second recapitalisation of Seleco also constituted State aid within
the meaning of Article 87(1) EC.

50
The first plea put forward by the Italian Government must therefore be rejected.The obligation to recover the aid that REL granted Seleco in 1996Arguments of the parties

51
According to the Italian Government, the Commission's decision, in so far as it requires the Italian authorities to recover
the aid consisting in the repurchase in 1996 by Seleco of its outstanding debt to REL of ITL 65.2 billion for ITL 20 billion,
does not make sense in the light of the protection of Community interests. If such a repurchase operation constitutes aid,
it must be annulled. In that case, REL should return ITL 20 billion to the bankrupt company and subsequently declare its
prior debt of ITL 65.2 billion as unsecured during bankruptcy proceedings. Such a result would profit only Seleco.

52
The Commission states that, by ordering the recovery of the unlawful aid, it is merely applying a general, binding principle
which it cannot vary depending on the interests of the undertakings involved in bankruptcy proceedings. The recovery of unlawful
aid is the logical consequence of a finding that it is unlawful.Findings of the Court

53
In that respect, it must be borne in mind that it is settled case-law that recovery of unlawful aid is the logical consequence
of a finding that it is unlawful (see, in particular,
*Tubemeuse* , cited above, paragraph 66, and Case C-261/99
*Commission* v
*France* [2001] ECR I-2537, paragraph 22).

54
Accordingly, since the repurchase in 1996 by Seleco of its outstanding debt to REL of ITL 65.2 billion for ITL 20 billion
constitutes unlawful State aid, the Commission is entitled to order the Italian Republic to take the necessary measures to
recover it (see, to that effect, Case 310/85
*Deufil* v
*Commission* [1987] ECR 901, paragraph 24).

55
The fact that REL must return ITL 20 billion to the bankrupt company and apply for its earlier unsecured claim of ITL 65.2
billion to be registered among the liabilities of Seleco, even assuming it to be established, cannot in this instance call
in question the principle that unlawful aid must be recovered.

56
Accordingly, the second plea of the Italian Government must be rejected.The obligation to recover State aid from Multimedia

57
The contested decision, in so far as it requires the Italian Republic to recover the aid at issue from Multimedia, is the
subject of several pleas in law put forward as grounds for annulment. The Italian Government and SIM Multimedia both put
forward a plea alleging infringement of the right to a fair hearing. SIM Multimedia also puts forward pleas alleging the
non-existence of State aid to Multimedia, inadequacy of and contradictions in the statement of reasons for the contested decision,
and disproportion between the recovery order to the detriment of Multimedia and the size of the branch of the undertaking
at issue.

58
It is appropriate first to consider the plea alleging non-existence of aid to Multimedia.Arguments of the parties

59
SIM Multimedia claims that the Commission has not demonstrated that the branch of the undertaking which includes video projectors
and monitors (hereinafter
the multimedia branch), which was hived off from Seleco and incorporated in Multimedia, received the aid referred to in Article 1 of the contested
decision. As regards the aid granted by REL and Friulia to Seleco in 1994 (see Article 1(a), (c) and (d) of the contested
decision), SIM Multimedia maintains that it is clear from the analysis of Seleco's accounts for the financial years 1993,
1994 and 1995 that the multimedia branch derived no benefit from that aid. As regards the aid granted by REL and Friulia
to Seleco in 1996 (see Article 1(b) and (e) of the contested decision) the multimedia branch could likewise not have benefited
from it. That aid was allocated to Seleco after the multimedia branch was transferred to Multimedia.

60
SIM Multimedia points out that, after the multimedia branch was transferred to Multimedia, Seleco, which had obtained 100%
of the shares in Multimedia in exchange for that transfer, sold two thirds of those shares to Friulia and Italtel for a price
corresponding to the value of that branch of the undertaking, which had been valued by an independent expert. Consequently,
even supposing that the multimedia branch had benefited from the aid at issue, the amount of that aid would have been included
in the independent expert's appraisal of the value of the branch and subsequently transferred to Seleco through the price
paid for Multimedia's shares. Seleco therefore remained the sole real beneficiary of that aid. It follows that the assets
in that company's bankruptcy have neither been diminished nor suffered damage.

61
The Commission states that the multimedia branch was an integral part of Seleco, at least until 18 July 1996, when that company,
of which Multimedia was a full (100%) subsidiary, sold to Friulia and Italtel two thirds of the shares it held in Multimedia.
Therefore, the multimedia branch owed to the aid referred to in Article 1 of the contested decision not merely its survival,
but also its very existence. In that regard, the Commission points out that, given Seleco's state of deep crisis since 1983,
the undertaking would long since have collapsed without the aid from REL and Friulia. Moreover, that aid was granted to Seleco
to compensate for its operating losses as a whole, without the public authorities setting specific conditions as regards its
use. Therefore, all Seleco's branches benefited indiscriminately from that aid, in various ways. Without that aid, Seleco's
administrators would certainly have had to siphon off from own resources sums of money earmarked for multimedia activities
in order to satisfy social needs, which have priority by definition.

62
As regards, more particularly, the aid granted to Seleco in 1996 in particular, the Commission contends that there is no doubt
that it was used for the multimedia branch. It served as rescue aid, that is, aid intended to compensate for previous losses
sustained by Seleco ─ in this case, the losses recorded during the financial year 1995, when Seleco had not yet sold that
branch to Multimedia and the latter company was still only a shell company.

63
The Commission also maintains that the parent company's subsequent decision to sell all or a large part of its shares in the
subsidiary to a third party is not relevant for the purposes of the subsidiary's obligation to reimburse the aid paid in error.
While a change in share ownership alters the internal distribution of assets with regard to the parent company, it does not
alter the production capacity of the subsidiary which, through the fact that its economic activities wrongly benefited from
unlawful aid, continues to distort competition.

64
Finally, the Commission points out that the price for transferring the multimedia branch was influenced by the fact that the
parties concerned, in particular Friulia and Italtel, as well as the independent expert, were certainly not unaware of the
risks inherent in the procedure initiated under Article 93(2) of the Treaty, which had been the subject of a communication
in the
*Official Journal of the European Communities* of 29 December 1994 (OJ 1994 C 373, p. 5), in particular the risk of having to repay the aid in due course.Findings of the Court

65
As a preliminary observation, it should be pointed out that, in accordance with Community law, when the Commission finds that
aid is incompatible with the common market, it may order the Member State to recover that aid from the recipient (Case 70/72
*Commission* v
*Germany* [1973] ECR 813, paragraph 20).

66
The recovery of unlawful aid is the logical consequence of a finding that it is unlawful (see
*Tubemeuse* , paragraph 66) and seeks to re-establish the previously existing situation (Case C-382/99
*Netherlands* v
*Commission* [2002] ECR I-5163, paragraph 89).

67
Article 2(1) of the contested decision provides that the Italian Republic is to take all the necessary measures to recover
the incompatible aid identified by the Commission, and which has already been granted unlawfully, from Seleco SpA and, additionally,
with regard to the part not recoverable from Seleco, from Multimedia and any other firm which benefited from asset transfers
designed to frustrate the effects of the contested decision.

68
The Commission, in giving the reasons for that element of the operative part of the contested decision, was right to observe
in point 113 that in order to ensure that the decision is implemented correctly the Member State is required to act like a
private creditor.

69
The Commission was also right to state in points 113 to 115 of the grounds of the contested decision, that:

─
... To ensure that the Commission decision is implemented correctly, the Member State is required ... to recover the aid without
delay, using all the legal means at its disposal, including seizure of the firm's assets and, where necessary, its liquidation
if it is unable to repay the amounts in question. The proceeds of the sale of the assets allow the creditors, including the
Member State, to be repaid even if they are not sufficient to cover all the debts of the firm and even if, consequently, the
aid is not recovered in full. In such circumstances, the liquidation of the firm is still important from a competition standpoint
as it frees the market segment previously held by the firm and makes it available to creditors, while giving them the opportunity
to acquire the assets and reallocate them more effectively.

─
There are, however, circumstances which can hamper that process, jeopardise the effectiveness of the recovery decision and
frustrate the rules on State aid. Such is the case when, following a Commission investigation or decision, the assets and
liabilities of the firm as an ongoing concern are transferred to another firm controlled by the same persons at below-market
prices or by way of procedures that lack transparency. The purpose of such a transaction can be to place the assets out of
reach of the Commission decision and to continue the economic activity in question indefinitely.

─
As in any other recovery procedure, the Member State must, like any other diligent creditor, exhaust all the legal instruments
available under its own legal system, such as those used to combat fraud against creditors in the form of acts carried out
by the firm in liquidation during the suspect period prior to the bankruptcy, which would allow such acts to be declared invalid.

70
Next, it is to be observed that, as is noted at point 47 of the grounds of the contested decision, according to the Italian
Government,
Seleco allegedly set up Multimedia above all in order to merge with the only other Italian producer of the same type of products
(video projectors, monitors and decoders), Italtel, and to benefit from the pooling of technical know-how and the customers
Seleco had on this market. The sale of the Multimedia shares also provided Seleco with some of the liquidity it needed in
order to cover its 1995 losses.

71
Moreover, it is apparent from the file that:

─
in March 1996, following the creation of Multimedia in 1995, Seleco hived off certain of its assets to Multimedia and became
its sole owner;

─
in June 1996, Multimedia was transformed into a company limited by shares;

─
in July 1996, Seleco sold two thirds of its shares in Multimedia to Italtel and to Friulia, for ITL 20 billion, with Seleco
retaining the final third;

─
the final third of the shares in Multimedia was sold in December 1997 to a private company at the Seleco bankruptcy sale.

72
In the present case, it is also common ground that the value of the multimedia branch transferred by Seleco to Multimedia
in exchange for all of the latter's shares had been estimated by a sworn expert appointed by the national court for that purpose.
It is also common ground that the price Friulia and Italtel paid for the purchase of two thirds of the shares which Seleco
held in Multimedia, which took place several months after that transfer, in effect corresponded to two thirds of the value
of the multimedia branch, as estimated by the abovementioned sworn expert. The Commission has not put forward any concrete
evidence that expert estimated the value of the multimedia branch transferred by Seleco to Multimedia taking into account
the risk that the latter company might be required, should the case arise, to repay all or part of the aid granted to Seleco.

73
It is further not in dispute that the administrator appointed by the court in Seleco's bankruptcy did not act to revoke the
transfer by Seleco of the two thirds of the shares which it held in Multimedia.

74
Finally, it is clear from the documents before the Court that the expert's report produced at the end of 1997 at the request
of the bankruptcy court set the value of Multimedia's trading capital considerably lower than what had been estimated in the
previous expert's report.

75
In those circumstances, the question arises whether Multimedia should also be considered as having been a beneficiary of the
aid.

76
In that regard, it is appropriate to point out that the possibility of a company in economic difficulties taking measures
to rehabilitate the business cannot be ruled out
*a priori* because of requirements relating to recovery of the aid which is incompatible with the common market.

77
However, as the Commission is essentially maintaining before the Court, if it were permissible, without any condition, for
an undertaking experiencing difficulties and on the point of being declared bankrupt to create, during the formal inquiry
into the aid granted it, a subsidiary to which it then transfers its most profitable assets before the conclusion of the inquiry,
that would amount to accepting that any company may remove such assets from the parent undertaking when aid is recovered,
which would risk depriving the recovery of that aid of its effect in whole or in part.

78
Thus the Commission pointed out at points 116 and 117 of the grounds of the contested decision that:

─
in order to prevent the effectiveness of the decision to recover the aid from being frustrated and the market from continuing
to be distorted, the Commission may be compelled to require that the recovery is not restricted to the original firm but is
extended to the firm which continues the activity of the original firm, using the transferred means of production, in cases
where certain elements of the transfer point to economic continuity between the two firms;

─
the elements examined by the Commission include the purpose of the transfer (assets and liabilities, continuity of the workforce,
bundled assets, etc.), the transfer price, the identity of the shareholders or owners of the acquiring firm and of the original
firm, the moment at which the transfer was carried out (after the start of the investigation, the initiation of the procedure
or the final decision) and, lastly, the economic logic of the transaction.

79
In this case, it is, admittedly, relevant to point out, as the Commission does in points 118 and 119 of the grounds of the
contested decision, that:

─
Seleco hived off in March 1996 its most profitable assets to Multimedia, injecting ITL 29 billion into the capital of that
company;

─
that transaction, which helped to deprive Seleco of its substance in two respects (activities and capital), occurred at a
time when the Commission had initiated the procedure laid down in Article 93(2) of the Treaty;

─
it is likely that the transaction was not limited to a transfer of assets and that the transfer of Seleco's main activities
was accompanied by the transfer to Multimedia of the corresponding workforce (or part of it) and hence of its social security
debts at the very least;

─
after Seleco sold two thirds of its shares in Multimedia, the latter remained under the control of Seleco and/or Friulia (which
was itself Seleco's third shareholder and which had granted Seleco a convertible loan of ITL 12 billion).

80
However, it must be observed that, in that statement of reasons, the Commission makes no mention of the price of the transfer,
although it referred to that element in the contested decision as one of the two which had to be taken into account.

81
In that regard, it stated in its rejoinder,
*inter alia* :

─
that it assumed that the price of the transfer of the multimedia branch was influenced and dictated by the circumstances.
In other words, when the sales price and the value of the assets at issue were fixed, the parties must certainly have known
that they risked incurring a procedure under Article 88(2) EC and being required in due course to repay the aid categorised
as unlawful, and

─
that, whatever the price of the sale, it is not relevant in the present case, since it concerns an operation relating to the
shares.

82
As regards the first of those statements, it is appropriate to point out that, as stated in paragraph 72 of the present judgment,
the Commission had not put forward any concrete evidence to show that the sworn expert took account of such a risk in his
estimate of the value of the multimedia branch.

83
As regards the second statement, while it is correct 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 situation at issue here is different
from that case. It involves the sale of Multimedia shares by Seleco, which created that company, and whose assets benefit
from the sales price of the shares. Therefore, it cannot be excluded that Seleco retained the benefit of the aid received
from the sale of its shares at market price (see, to that effect, Case C-390/98
*Banks* [2001] ECR I-6117, paragraphs 77 and 78).

84
In addition, the Commission did not take into account in the contested decision the consequences of the obligation on the
part of the Italian Republic to recover the unlawful aid from Multimedia with regard to the private company which, at a court-ordered
public sale as part of the liquidation of Seleco, bought the final third of the shares in Multimedia.

85
In the light of the foregoing, it is apparent that the statement of the reasons on which the contested decision is based is
inadequate for the purposes of Article 253 EC, in particular as regards the alleged irrelevance of the fact that the shares
in Multimedia were bought at a price which seemed to be the market price, although that point was required also to be taken
into account in the present case.

86
In those circumstances, Article 2(1) of the contested decision must be annulled in so far as it provides that the Italian
Republic is to take all the necessary measures to recover the aid referred to in Article 1 from Multimedia, with regard to
the part not recoverable from Seleco.

87
The remainder of the application is dismissed. **Costs**

88
Under Article 69(3) of the Rules of Procedure, where each party succeeds on some and fails on other heads the Court may order
that the costs be shared or that the parties bear their own costs. In Case C-328/99, since each party has been partially
unsuccessful, the parties should bear their own costs.

89
Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been
applied for in the successful party's pleadings. In Case C-399/00, since Multimedia has applied for costs and the Commission
has been unsuccessful, the Commission must be ordered to pay the costs.

On those grounds,

THE COURT (Sixth Chamber),
hereby:**1.
**Annuls Article 2(1) of Commission Decision 2000/536/EC of 2 June 1999 concerning State aid granted by Italy to Seleco SpA
in so far as it provides that the Italian Republic is to take all the necessary measures to recover the aid referred to in
Article 1 from Seleco Multimedia Srl with regard to the part not recoverable from Seleco SpA;**

2.
**Dismisses the remainder of the application;**

3.
**Orders, in Case C-328/99, the Italian Republic and the Commission of the European Communities to bear their own costs;**

4.
**Orders, in Case C-399/00, the Commission of the European Communities to pay the costs.****

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| Schintgen | Gulmann | Skouris |
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| Macken | Cunha Rodrigues | |
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Delivered in open court in Luxembourg on 8 May 2003.

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| --- | --- |
| R. Grass | J.-P. Puissochet |

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| --- | --- |
| Registrar | President of the Sixth Chamber |

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: Language of the case: Italian.