Judgment — ECLI:EU:C:2003:55
Date: 2003-01-28
Based on: Treaty establishing the European Coal and Steel Community (1951);Treaty establishing the European Economic Community (1957)
Subject matter: State aids;Competition
Concepts: Statement of reasons;Acts of the institutions;Investments and financial aid;Principle of the protection of legitimate expectations;Commission;Private investor test;Implementation of the Commission decision and recovery;Aid relating to the division of Germany;General
Procedure: Action for annulment - unfounded
Origin: Germany

summary of the investment projects notified amounted to a coherent and detailed restructuring programme. The Court of First Instance has indicated that a document cannot be considered to be a genuine restructuring plan if it contains no provision for any particular measure to remedy the specific problems of the undertaking. Therefore, in the case in question, the aid from public funds was thus not linked to actual restructuring measures provided for in a programme drawn up for that purpose, those being essential conditions for a restructuring plan. (46) 55. According to Recital 52 et seq. in the preamble to the contested decision, the investment in the non-ECSC area amounted to DEM 96.9 million and that aid amounting to a total of DEM 96.1 million was granted. Of that sum, DEM 8.4 million corresponded to regional aid, DEM 3.6 million to investment allowances, while the remainder was financed through shareholder loans and guaranteed bank loans. The latter were granted under the general provisions of the Unification Treaty and the Treuhand Act. In October 1998, Germany informed the Commission that, in the period under consideration, the joint Federal Government/Länder regional development scheme did not apply to Treuhand companies, meaning that, when granting and guaranteeing the loans, the Treuhandanstalt and its successors were acting as a de facto regional aid authority, and the loans were a substitute for regional investment aid. 56. To my mind, the Commission was right to consider that the Guidelines on national regional aid, in force when the aid was granted, were the only legal basis applicable to assessment of the investment aid. The undertaking's EC activities are carried out in a sensitive sector and, under the legal framework for certain steel sectors not covered by the ECSC Treaty, the regional aid ceilings likewise apply. 57. I agree with the Commission that a return to viability has not been proved and does not appear very plausible, since it could simply be owed to exeptional income, in the form of the subsidies, and cannot be accepted as proof that the undertaking has become viable. The Court of First Instance has held that the existence of a positive cash flow is not sufficient to indicate the financial position of an undertaking, in particular where its liquidity is the result of massive subsidies. (47) (ii) Failure by the Commission to apply Article 87(2)(c) EC 58. Germany claims that the restructuring of the undertaking, together with the associated measures taken by the Treuhandanstalt and other public bodies, are a typical example of the application of Article 87(2)(c) EC, in particular because Gröditzer, as a steelmaking site, was seriously affected by the repercussions arising from the socialist regime's economic planning and by the problems it had in overcoming them, and because, as a result of the division of Germany, the region's average economic level is far from attaining that of the old Länder. 59. There are two reasons why I am unable to agree with the applicant's attempts to rely on Article 87(2)(c) EC in support of its claim that the aid granted to boost the economies of certain regions of the Federal Republic of Germany, which were affected by the division of the country, is compatible with the common market provided that it is required to compensate for the disadvantages caused by that division. The first reason is that, even if Article 87(2)(c) did apply, as the Commission has pointed out, the German authorities did not plead it at the correct time; nor did they adduce evidence that the conditions which are necessary for the provision to apply to an undertaking had been met. The second is based on the Court's interpretation of Article 87(2)(c) in Germany v Commission, (48) where, having confirmed that that article had not been repealed by either the Treaty on European Union or the Treaty of Amsterdam, the Court pointed out that, since it constitutes a derogation from the general principle that State aid is incompatible with the common market, Article 87(2)(c) must be construed narrowly, adding that the economic disadvantages caused by the division of Germany can mean only the economic disadvantages caused in certain areas of Germany by the isolation which the establishment of that physical frontier entailed, such as the breaking of communication links or the loss of markets as a result of the breaking off of commercial relations between the two parts of German territory. However, the geographical rift is not the direct cause of those disadvantages suffered by the new Länder as a whole, but rather the different politico-economic systems set up in each part of Germany. (49) 60. For the reasons stated, this plea in law must also be dismissed in its entirety as unfounded. F - Sixth plea in law: erroneous assessment of the circumstances in which privatisation took place 61. This plea in law is subdivided into two parts. (i) Inaccurate interpretation of German law and erroneous application of the private investor criterion 62. The Federal Republic of Germany is of the opinion that, in Recital 75 et seq. in the preamble to the contested decision, the Commission has based its assessment of the cost of liquidation on incorrect figures. Germany claims that the distinction, drawn in Recital 80(a), between the obligations of federal institutions owned by the State and those of shareholders, is misleading, since guarantees are not forms of aid laid down in a State guarantees programme, but instead are comparable to declarations issued by holding companies, normal in the private economy, or to guarantees granted by subsidiaries. In respect of a subsidiary's liquidation costs, a private holding company governed by private law must bear in mind its obligation to act as guarantor of the subsidiary's debts if it has guaranteed its loans in the normal course of business. Likewise, under German law, where an undertaking goes into liquidation, the owner of the capital must bear the costs of site clearance, which in this case are estimated at DEM 87 million. In such circumstances, the shareholders would have had to meet costs of DEM 445 million to wind up the undertaking, and privatisation at a negative sale price of DEM 340 million was, without question, the cheapest option, thereby fulfilling the private investor criterion applicable to systems of aid. 63. The Commission states that, according to the report, the liquidation value of the assets amounted to DEM 94 million, a sum which has to meet the undertaking's liabilities in the order of priority stipulated by German insolvency legislation. Accordingly, the costs of liquidation are limited to that sum alone and, if the Member State were to include higher amounts arising from other obligations, it would be acting not as the owner but as a public authority, which would mean that those amounts could not be taken into account when applying the private investor criterion. 64. To my mind, for the purpose of reviewing the criteria used by the Commission to assess the privatisation procedure, it must be assumed that, as is stated in Recital 44 in the preamble to the Decision, the undertaking in question has been in difficulties since it was set up and has received, from several State shareholders, interest-free loans which it is not obliged to repay, which a private investor would never have granted. Germany calculates that the cost of liquidation would have been DEM 475 million, which breaks down into DEM 418 million (196 million in respect of shareholder loans, 49 million in respect of guaranteed bank loans, 26 million in respect of other liabilities, and 147 million in respect of provisions for miscellaneous costs) and 57 million for the cost of the liquidation itself, in particular, the operating and running-down costs incurred during that period. That calculation cannot be accepted as correct in the light of the Court's case-law, according to which a private investor pursuing a structural policy - whether general or sectoral - guided by prospects of viability in the long term, could not allow itself, after years of continuous losses, to make a contribution of capital which proves to be costlier than selling the assets, and which is, moreover, linked to the sale of the undertaking, which removes any hope of profit, even in the longer term. (50) Moreover, Germany has included in the total cost of the liquidation a series of costs to the shareholder which are in fact costs that the State has to bear in its capacity as a public authority; thus, the reimbursement of DEM 49 million in bank loans guaranteed by the Treuhandanstalt and other public bodies; a provision of DEM 15 million for long-standing debts; DEM 22 million for costs arising out of a social plan that are not required by any binding obligation; and a provision of DEM 87 million for the cost of site clearance, which includes the demolition of buildings, total clearance of the site, and the sale of the site, which would not have fetched more than DEM 9 million. 65. The Commission rightly asserts that, in the light of the undertaking's financial situation, it is unlikely that a private investor would have provided additional funding for a redundancy and early retirement scheme. Similarly, if the sale value of the site was only 9 million even if the undertaking was under an obligation to clear it, a private investor would not have injected any additional funding at its disposal in the event of winding up, since costs of that kind would have been borne by the State as the guarantor of environmental protection. In addition, if, in accordance with German law, in the case of insolvency, shareholder loans are to be considered as shareholder equity which cannot be claimed back from the assets and, if those loans were included in the cost of the liquidation, that cost would only amount to DEM 292 million. A comparison of that figure with the cost of privatisation, which totalled DEM 340 million, reveals that it would have been cheaper to wind up the undertaking than to privatise it, from which it follows that a private investor would have chosen liquidation. (ii) Failure to understand the bidding procedure 66. In connection with the objections raised by the Commission to the sale of the undertaking by competitive tender, Germany points out that in 1992 it had instructed an investment bank to start an international bidding procedure for the sale of the undertaking, to be open to all potentially interested parties, and free from any conditions governing the submission of tenders. It decided to sell the undertaking to Georgsmarienhütte because it had made the most favourable financial offer. Germany considers that the Commission's conduct amounts to unjustified interference with the autonomy of the Member States, since there are no provisions of secondary Community legislation governing the procedure for privatisation of undertakings or stipulating that sales must be conducted through a bidding procedure, the only criterion which can be inferred from the Treaty being that, as the owner of the capital, the State must conduct itself in the same manner as a private investor. Germany claims that the Commission has also failed to prove that other potentially interested parties would have paid more for the undertaking, or that different privatisation procedures would have led, in this case, to a more promising outcome. Finally, the German Government states that it is aware that the Commission has laid down a number of general principles governing procedures for the privatisation of undertakings, (51) under which Member States are released from the duty to notify. According to those principles, where privatisation is carried out through a transparent and unconditional sale by public auction, as a result of which the contract is awarded to the highest bidder, it will be deemed that no aid was granted. That does not mean, however, that other bidding procedures are not capable of ensuring that the Member State, as owner of the capital, conducts the sale in the best conditions possible, even if it is not exempt from the duty to notify, a duty which the German Government carried out. The price cannot be the sole deciding factor in determining whether the sale involves aid in favour of the buyer; instead, there must be an evaluation of all the circumstances surrounding the contract, which ought, in addition to the nominal price, including the assumption of liabilities, also to cover such matters as the acquisition of the undertaking's debts by the investor, and the guarantees and obligations entered into by the buyer. Under the agreement for the privatisation of Gröditzer, the buyer undertook to invest DEM 39.6 million, which was the amount of the 100% penalty for non-compliance with obligations, by 31 December 2002; 717 jobs were guaranteed, together with 45 training posts; and a penalty of DEM 40 000 per job per year was stipulated until 31 December 2002. 67. The Commission considers that it follows from the fact that in this case there was no open, transparent and unconditional tendering procedure, leading to the award of the contract to the highest tenderer, that the procedure entailed the grant of aid. Indeed, neither the involvement of private banks, using customary business media, nor the actual notification of the measures is sufficient to rule out the existence of the aid. 68. Once again, I endorse the Commission's arguments in support of its conclusion that the procedure was not unconditional, open or transparent. First, the memoranda from the investment banks, which expressly mentioned the possibility that State aid might be granted, did not call for any binding bid; instead, bidders were asked to submit a business plan, setting out detailed commitments regarding the creation or saving of jobs, future investment, and financing. The undertakings selected were invited to take part in bilateral negotiations; and the commitments entered into would have had a decisive influence on the purchase price. No concrete tender was sought, nor were any parameters or ceilings fixed for the assessment of tenders. In addition, the procedure took place without an open invitation to tender, meeting clear requirements, but rather with an invitation to open individual negotiations regarding commitments to be entered into by both seller and buyer, which were to be finalised in a process which was not clearly defined. It can therefore be inferred that the obligations entered into influenced the price stipulated. Second, the differences between positions in the final negotiations were necessarily due to the procedure chosen and the purchasing company, Georgsmarienhütte, had the opportunity to adapt its final position to the seller's requirements, so that, in the absence of genuine competition, there was no guarantee that the consideration paid for the commitments entered into, which had not been notified to all the tenderers in advance, reflected the normal market price. That lack of transparency is confirmed by Article 6 of the contested decision, which states that, under Article 9(2) of the agreement of 27 February 1997 governing the sale of shares in Gröditzer to Georgsmarienhütte, Germany planned to grant to the undertaking a loan amounting to DEM 3.3 million by way of an advance against regional aid to be received. 69. Finally, I do not accept Germany's contention that the Commission's complaints about the privatisation procedure amount to interference with a Member State's autonomy. While Article 259 EC lays down safeguards for the system of private ownership of property, Article 87 EC and Article 4(c) CS prohibit the grant of State aid where property is transferred from public to private ownership. I agree with the Commission that the fact that the undertaking was sold to the highest bidder in an auction, because the other bidders were not prepared to purchase it unless the State provided more funds, does not prove that the terms agreed with the successful bidder did not include aid. 70. For the reasons given, this plea in law also must be dismissed in its entirety as unfounded. VI - Costs 71. 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 other party's pleadings. Since I propose the dismissal of Germany's application, and since the Commission has applied for an order for costs, the applicant Member State must be ordered to pay the costs. VII - Conclusion In view of the foregoing considerations, I propose that the Court of Justice should: (1) dismiss in its entirety the application brought by the Federal Republic of Germany for the annulment of Articles 4 to 7 of Commission Decision 1999/720/EC, ECSC of 8 July 1999 on State aid granted by Germany to Gröditzer Stahlwerke GmbH and its subsidiary Walzwerk Burg GmbH. (2) order the applicant to pay the costs. 1: - Original language: Spanish. 2: - Notified under document number C(1999) 2264. The aid was granted to Gröditzer Stahlwerke GmbH and its subsidiary Walzwerk Burg GmbH (OJ 1999 L 292, p. 27). 3: - Under the arrangements governing the Treuhandanstalt, aid granted to undertakings under its management which operated in non-sensitive sectors, did not have to be notified, provided that, in the period 1992 to 1994, the undertaking concerned had fewer than 1 500 employees and the aid was less than DEM 150 million. In 1995, those thresholds changed to 250 employees and DEM 50 million. 4: - In the contested decision, the Commission assessed Walzwerk's position under the EC Treaty, but only in connection with the privatisation and in so far as it entered into the total cost of the liquidation. 5: - Commission Decision No 2496/96/ECSC of 18 December 1996 establishing Community rules for State aid to the steel industry (OJ 1996 L 338, p. 42). 6: - OJ 1997 C 395, p. 5. 7: - Commission Decision No 3855/91/ECSC of 27 November 1991 establishing Community rules for aid to the steel industry (OJ 1991 L 362, p. 57). 8: - OJ 1999 L 192, p. 53. 9: - OJ 1999 L 192, p. 55. 10: - These Articles correspond to Articles 9 CS and 12 CS. 11: - A situation which was not envisaged, but which, however, occurred on 16 March 1999, entailed the resignation of all the Members of the Commission. In the Declaration of 21 March 1999 on the resignation of the Commission, the Council of the European Union noted their decision, observed that it was necessary to renew the membership of the institution as soon as possible, and requested that, until such time, the Commissioners continued to carry out their duties in accordance with the Treaty. 12: - Under Article 5 of the Rules of Procedure of the Commission 93/492/Euratom, ECSC, EEC of 17 February 1993 (OJ 1993 L 230, p. 15), which were in force when the contested decision was adopted, the quorum required to adopt agreements was a majority of the number of Members specified in the Treaty. 13: - The applicant refers to Case 223/85 RSV v Commission [1987] ECR 4617, in which the Court held that the Commission had infringed the rules of good administration by waiting 26 months before adopting a decision regarding aid. However, certain factors singled that case out from the vast majority of aid cases with which the Commission is required to deal, in that it was established that the contested aid concerned only the supplementary costs of an operation for which aid approved by the Commission had already been granted. 14: - Joined Cases T-126/96 and T-127/96 BFM and EFIM v Commission [1998] ECR II-3437, paragraph 47. 15: - Recital 3 of the contested decision states that Germany supplied the Commission with further information and papers by letters dated 23 September and 13 November 1997; 24 July, 14 August and 14 October 1998; and 7 and 20 January, 1 February and 29 March 1999. Meetings between the Commission and Germany took place in January 1998, on 1 December 1998, and on 11 March and 23 and 29 April 1999. 16: - Case C-99/98 Austria v Commission [2001] ECR I-1101, paragraph 56. 17: - Case C-24/95 Alcan [1997] ECR I-1591, paragraph 25. 18: - Case C-5/89 Commission v Germany [1990] ECR I-3437, paragraph 17, and Case C-169/95 Spain v Commission [1997] ECR I-135, paragraph 48. 19: - Case 120/73 Lorenz [1973] ECR 1471, paragraph 3. 20: - Case 84/82 Germany v Commission [1984] ECR 1451, paragraph 11; Case C-312/90 Spain v Commission [1992] ECR I-4117, paragraph 18; Case C-39/94 SFEI and Others [1996] ECR I-3547, paragraph 38; and Austria v Commission, cited above, paragraph 74. 21: - Case T-44/90 La Cinq v Commission [1992] ECR II-1, paragraph 41, and Case T-459/93 Siemens v Commission [1995] ECR II-1675, paragraph 31. 22: - Case C-278/95 P Siemens v Commission [1997] ECR I-2507, paragraph 16. 23: - Joined Cases C-15/98 and C-105/99 Italy and Sardegna Lines v Commission [2000] ECR I-8855. 24: - Case 14/59 Société des fondéries de Pont-à-Mousson v High Authority [1959] ECR 215. 25: - Paragraph 1, p. 227. 26: - Ibid., Paragraph 2, p. 227 to 229. 27: - See, in particular, p. 240. 28: - Case 328/85 [1987] ECR 5119. 29: - Council Regulation (EEC) No 1430/79 of 2 July 1979 on the repayment or remission of import or export duties (OJ 1979 L 175, p. 1). 30: - Joined Cases T-129/95, T-2/96 and T-97/96 Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission [1999] ECR II-17, paragraph 147. That finding was upheld by the Court of Justice in the order of 25 January 2001 in Case C-111/99 P Lech-Stahlwerke v Commission [2001] ECR I-727, paragraph 41. 31: - Case T-6/99 ESF Elbe-Stahlwerke Feralpi v Commission [2001] ECR II-1523, paragraphs 61 and 62. 32: - In paragraph 314 of Case T-371/97 British Airways and Others v Commission [1998] ECR II-2405, the Court of First Instance held that the mechanism of the holding company, in which the companies are independent of one another, in conjunction with the system of verification by independent consultants and the scheduling of payment of the aid in several tranches, could be treated as an adequate and appropriate means by which to guarantee that the nominal beneficiary would be the sole beneficiary of the aid. 33: - OJ 1988 C 320, p. 3. 34: - ESF Elbe-Stahlwerke Feralpi v Commission, cited above, paragraphs 125 and 126. 35: - The decision in question is Commission Decision 97/21/EC, ECSC of 30 July 1996 on State aid granted in favour of Compañía Española de Tubos por Extrusión SA, located in Llodio, Álava (OJ 1997 L 8, p. 14), which was adopted pursuant to the ECSC Treaty and the EC Treaty. The authorisation for State aid to Productos Tubulares (OJ 1998 C 409, p. 6) was granted because the undertaking had undergone a complete restructuring and its ECSC production, which was for internal consumption, was negligible and was not offered for sale. 36: - Case 134/84 Williams v Court of Auditors [1985] ECR 2225, paragraph 14, and Case T-347/94 Mayr-Melnhof v Commission [1998] ECR II-1751, paragraph 334. 37: - Commission Decision No 2320/81/ECSC of 7 August 1981 establishing Community rules for aids to the steel industry (OJ 1981 L 228, p. 14). 38: - Case 214/83 Germany v Commission [1985] ECR 3053, paragraphs 45 to 47. 39: - Case T-129/96 Preussag Stahl v Commission [1998] ECR II-609, paragraph 41. 40: - Case C-210/98 P Salzgitter v Commission [2000] ECR I-5843, paragraphs 54 to 56. 41: - Case T-331/94 IPK v Commission [1997] ECR II-1665, paragraph 45, and Case T-158/96 Bolzano and others v Commission [1999] ECR II-3927, paragraph 64. 42: - Case 214/83 Germany v Commission, cited above. 43: - OJ 1994 C 368, p. 12. 44: - OJ 1998 C 74, p. 9. 45: - Order of the President of the Court of 3 May 1996 in Case C-399/1995 Germany v Commission [1996] ECR I-2441, paragraph 80. 46: - BFM and EFIM v Commission, cited above, paragraph 88. 47: - BFM and EFIM v Commission, cited above, paragraphs 83 and 84. 48: - Case C-156/98 Germany v Commission [2000] ECR I-6857, paragraphs 46 to 56. The Court of First Instance gave a similar interpretation in its judgment in Joined Cases T-132/96 and T-143/96 Freistaat Sachsen and Others v Commission [1999] ECR II-3663, paragraphs 136 and 137. 49: - In reply to a question I asked at the hearing, the agent for the Federal Government acknowledged that, in the light of that judgment, which was delivered while the written phase of these proceedings was in progress, this head of claim had little chance of success. 50: - Joined Cases C-278/92 to C-280/92 Spain v Commission [1994] ECR I-4103, paragraph 26. 51: - XXIII Report on Competition Policy 1993, point 403.