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STATE AID — UNITED KINGDOM

State aid No C 36/2005 (ex N 373/2005 and CP 255/2005) — United Kingdom Investbx

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2005/C 288/09)

(Text with EEA relevance)

By means of the letter dated 20 October 2005 reproduced in the authentic language on the pages following this summary, the Commission notified the United Kingdom of its decision to initiate the procedure laid down in Article 88(2) of the EC Treaty concerning the abovementioned aid measure.

Interested parties may submit their comments on the aid measure in respect of which the Commission is initiating the procedure within one month of the date of publication of this summary and the following letter, to:

These comments will be communicated to the United Kingdom. Confidential treatment of the identity of the interested party submitting the comments may be requested in writing, stating the reasons for the request.

TEXT OF SUMMARY

PROCEDURE

By letter dated 26 July 2005, registered at the Commission on 28 July 2005, the United Kingdom notified the aid measure mentioned above, pursuant to Article 88(3) EC.

The Commission asked for further information on 19 August 2005, following to which a meeting between representatives of the United Kingdom and the Commission was held on 8 September 2005. During this meeting, additional information was provided by the United Kingdom representatives.

On 26 September 2005, the Commission received a complaint from the enterprise PLUS Markets Group plc, the holding company for Ofex plc, which operates and regulates the London-based Ofex market.

DESCRIPTION

The primary objective of the notified project is to create a means for SMEs in the West Midlands region to raise equity gap finance. Investbx is being set up to act as an intermediary exchange facility. It will bring together SMEs and investors to make it easier for SMEs to raise equity financing by creating a practical form for exchanging and/or issuing new shares of between GBP 0,5 million to GBP 2 million on an electronic platform (‘eBay approach’).

AWM — Advantage West Midlands, the regional development authority, will provide the funding of GBP 3,8 million for a period of five years. The funding will solely serve to set up and operate Investbx. None of these funds will be transferred to SMEs or to investors. After the period of five years, AWM will either sell its shares of Investbx or close it down.

Pursuant to the United Kingdom, the measure addresses a market failure particularly caused by imperfect information on both the demand and the supply side. SMEs usually face problems in finding adequate funding on the financial market. Investors have difficulties to gain appropriate and reliable information about potential investees. The United Kingdom claims that Investbx is a completely novel measure, serving a need that is currently not offered on the market.

However, following the arguments put forward by the complainant, Ofex, being described as an independent market in the United Kingdom focussed on trading in shares of SMEs, is already operating, and seeking to grow, in the same marketplace as the one in which Investbx will operate. It is further stated that, contrary to Investbx, Ofex had to obtain equivalent finance from the private sector on private sector terms whereas Investbx will be relieved of the costs of such funding. Allegedly, the public funding of Investbx may lead to an unfair competition with Ofex as a result of the aid and will damage the commercial interest of Ofex.

PRELIMINARY ASSESSMENT

The Commission considers the measure as constituting State aid in the meaning of Article 87(1) EC to Investbx, but neither the investors nor the SMEs using Investbx's services prima facie seem to be aid beneficiaries.

However, the Commission wishes to further verify the presence of State aid at the level of the investors and the enterprises invested in in the context of a formal investigation procedure.

Although the measure aims at bridging the equity gap for SMEs, the risk capital communication (1) does not foresee rules for such kind of measure. As none of the other existing State aid regulations, frameworks or guidelines seem to be applicable, an assessment could be based directly on Article 87(3)(c) EC.

The Commission at this stage has doubts as to the compatibility of the measure with Article 87(3)(c) EC, particularly in view of the third party comments.

The Commission wishes to assess further into detail the compliance with Article 87(3)(c) EC and in particular the presence of a well-targeted market failure, whether the aid instrument targets the identified market failure and whether the distortions of competition and the effect on trade are limited to ensure that the aid measure is not, on balance, against the European common interest.

TEXT OF LETTER

‘The Commission wishes to inform the United Kingdom that, having examined the information supplied by your authorities and by a complainant on the ad hoc aid referred to above, it has decided to initiate the procedure laid down in Article 88(2) EC.

1.   PROCEDURE

2.   DESCRIPTION OF THE MEASURE

2.1.   Primary objective of Investbx

2.2.   Innovative and novel measure

2.3.   Budget and duration

2.4.   Beneficiary of the measure

2.5.   Benefits flowing from Investbx

2.6.   Corporate structure of Investbx

2.7.   The current market in the United Kingdom

3.   COMMENTS PRESENTED BY THIRD PARTIES

4.   PRELIMINARY ASSESSMENT OF THE MEASURE

4.1.   Presence of State aid pursuant to Article 87(1) EC

4.1.1.   Aid to Investbx

4.1.2.   Aid to Investors and/or to the SMEs invested in

4.2.   Legality of the aid

4.3.   Compatibility of the aid

4.3.1.   Presence of a well-defined market failure

4.3.2.   The aid instrument has to target the identified market failure

4.3.3.   Distortions of competition and the effect on trade should be limited to ensure that the aid measure is not, on balance, against the common interest

5.   DECISION

The Commission at this stage concludes that the measure involves State aid pursuant to Article 87(1) EC to Investbx. It nevertheless wishes to further verify the presence of State aid at the level of the investors and the enterprises invested in. In addition, also in view of the third party comments, it currently has doubts as to the compatibility of the measure with the common market, in particular the presence of a well-targeted market failure, whether the aid instrument has an incentive effect and whether the distortions of competition and the effect on trade are limited to ensure that the aid measure is not, on balance, against the common interest.

In the light of the foregoing considerations, the Commission, acting under the procedure laid down in Article 88(2) EC, requests the United Kingdom to submit its comments and to provide all such information as may help to assess the aid, within one month of the date of receipt of this letter.

The Commission wishes to remind the United Kingdom that Article 88(3) EC has suspensory effect, and would draw its attention to Article 14 of Council Regulation (EC) No 659/1999, which provides that all unlawful aid may be recovered from the recipient.

The Commission warns the United Kingdom that it will inform interested parties by publishing this letter and a meaningful summary of it in the Official Journal of the European Union. It will also inform interested parties in the EFTA countries which are signatories to the EEA Agreement, by publication of a notice in the EEA Supplement to the Official Journal of the European Union and will inform the EFTA Surveillance Authority by sending a copy of this letter. All such interested parties will be invited to submit their comments within one month of the date of such publication.’

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(1)OJ C 235, 21.8.2001, p. 3.

(2)  The definition complies with Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (OJ L 124, 20.5.2003, p. 36).

(3)  Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1).

(4)  Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1).

(5)OJ C 235, 21.8.2001, p. 3.

(6)  Commission decision of 17 August 2000 on State aid No N 265/2000 — UK concerning the UK regional aid map for 2000–2006 (OJ C 272, 23.9.2000, p. 43).

(7)OJ C 74, 10.3.1998, p. 9.

(8)  See State aid No C 17/2004 — UK, not yet published in the Official Journal.

(9)  Take as example State aid No C 17/2004 — UK (“Enterprise Capital Funds”) and State aid No C 72/2003 — UK (“Invest Northern Ireland Venture 2003”).

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