Judgment of the Court of 14 September 1994. - Kingdom of Spain v Commission of the European Communities. - State aid to a public undertaking in the agricultural processing industry - Injection of capital. - Case C-42/93.



European Court reports 1994 Page I-04175



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

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1. State aid ° Concept ° Financial assistance granted to an undertaking by a Member State ° Criterion of assessment ° Reasonableness of the operation for a private investor pursuing a medium or long-term policy

(EEC Treaty, Art. 92(1))

2. State aid ° Prohibition ° Derogations ° Aid granted not contributing to the development of a region or a sector and capable of affecting trade between Member States ° Aid not within the derogations laid down in Article 92(3)(a) and (c) of the Treaty

(EEC Treaty, Art. 92(3)(a) and (c))

Summary

1. In order to determine whether investment by public authorities in the capital of an undertaking, in whatever form, is in the nature of State aid within the meaning of Article 92 of the Treaty, it is necessary to consider whether in similar circumstances a private investor of a size comparable to that of the bodies administering the public sector might have provided capital of such an amount.

Although the conduct of the private investor, with which the intervention of a public investor pursuing economic policy aims must be compared, need not be the conduct of an ordinary investor laying out capital with a view to realizing a profit in the relatively short term, it must at least be the conduct of a private holding company or a private group of undertakings pursuing a structural policy, whether general or sectoral, and guided by prospects of profitability in the longer term.

2. Aid in the form of an injection of capital granted to an undertaking, which is insufficient to re-establish its profitability, does not form part of a satisfactory restructuring programme, is used to offset losses and reduce debts and could have a negative impact on Community competitors by maintaining the undertaking' s competitiveness through artificially improving its financial position, is of such a nature as to preclude the application to it of one of the derogations from the prohibition on aid laid down in Article 92(3)(a) and (c) of the Treaty.

Parties

In Case C-42/93,

Kingdom of Spain, represented by Alberto José Navarro González, Director-General for Community Legal and Institutional Coordination, and Gloria Calvo Díaz, Abogado del Estado in the Legal Department for Matters before the Court of Justice, acting as Agents, with an address for service in Luxembourg at the Spanish Embassy, 4-6 Boulevard E. Servais,

applicant,

v

Commission of the European Communities, represented by Francisco Enrique González Diaz and Michel Nolin, of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of Georgios Kremlis, of the Legal Service, Wagner Centre, Kirchberg,

defendant,

APPLICATION for the annulment of Commission Decision 93/133/EEC of 4 November 1992 concerning aid granted by the Spanish Government to the Merco company (agricultural processing industry) (OJ 1993 L 55, p. 54),

THE COURT,

composed of: O. Due, President, G.F. Mancini, D.A.O. Edward (Presidents of Chambers), R. Joliet, F.A. Schockweiler, G.C. Rodríguez Iglesias, F. Grévisse, M. Zuleeg (Rapporteur), and J.L. Murray, Judges,

Advocate General: F.G. Jacobs,

Registrar: D. Louterman-Hubeau, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 1 February 1994,

after hearing the Opinion of the Advocate General at the sitting on 23 March 1994,

gives the following

Judgment

Grounds

1 By application lodged at the Court Registry on 11 February 1993, the Kingdom of Spain brought an action under the first paragraph of Article 173 of the EEC Treaty for the annulment of Commission Decision 93/133/EEC of 4 November 1992 concerning aid granted by the Spanish Government to the Merco company (agricultural processing industry) (OJ 1993 L 55, p. 54).

2 After discovering that in 1990 the Spanish authorities has granted aid to Merco in the form of an injection of capital amounting to PTA 5 900 million, the Commission decided to initiate the procedure provided for in Article 93(2) of the EEC Treaty.

3 Merco markets agricultural products and its shareholders are the Dirección General del Patrimonio del Estado (part of the Ministry of Finance) and the Fondo para la Ordenación y Regulación de la Producción de los Precios Agranios, ("FORPPA"), (a public body attached to the Ministry of Agriculture). Those two public bodies hold respectively 69.3% and 30.7% of Merco' s capital.

4 In 1990, when it was decided to carry out the capital increase which is the subject-matter of the decision at issue, Merco' s turnover was PTA 71 000 million, of which approximately 32 000 million related to the "oil" division, 23 000 million to the "cereals" division, 6 900 million to the "oilseed products and cotton" division and 6 000 million to the "fruit and vegetables" division. According to an audit report drawn up in 1991, Merco had a deficit in 1990 of PTA 8 727 million, plus the deficits from previous financial years amounting to PTA 9 800 million. As of 31 December 1990 the total deficit therefore amounted to PTA 18 527 million. According to that report, Merco could continue operating only if it received additional injections of capital. In those circumstances the Spanish Government decided to restructure the company.

5 During the preliminary part of the procedure reviewing that aid, the Spanish Government claimed that the objective of the reorganization of the company was to restrict its activities to profitable sectors and consisted, on the one hand, of the closure of the "oil" division and, on the other, of an injection of capital amounting to PTA 5 900 million. The "oil" division was the cause of a major part of the company' s profitability problems and accounted in 1990 for costs of approximately PTA 2 022 million.

6 In Article 1 of the decision at issue, the Commission declared illegal the aid granted by the Spanish government in the form of an injection of capital of PTA 5 900 million in Merco in 1990, because it was granted in breach of the rules of procedure laid down in Article 93(3) of the Treaty. Furthermore, that aid was considered to be incompatible with the common market under the terms of Article 92(1), since it did not fulfil the conditions for the granting of an exemption under Article 92(3).

7 According to Article 2 of the decision,

"The Kingdom of Spain shall withdraw the aid referred to in Article 1 and order the Merco company to repay the sum in question within two months of receipt of notification of this decision.

Repayment shall be made in accordance with the procedure and provisions laid down by national legislation, and in particular those concerning the default interest payable on monies owed to the Government, the interest running from the date on which the illegal aid concerned was paid."

8 In support of its action, the Kingdom of Spain relies on four pleas in law alleging infringement of Article 92(1) and (3) of the Treaty and illegality of the obligation to seek recovery of the aid.

Absence of aid adversely affecting competition as provided for in Article 92(1) of the Treaty

9 In its first plea, the Kingdom of Spain denies that the subscription of capital by the Patrimonio del Estado and FORPPA constitutes aid within the meaning of Article 92(1) of the Treaty. The behaviour of those organizations may be regarded as the normal conduct of a private investor within the meaning of the case-law of the Court of Justice.

10 The Kingdom of Spain considers that the Commission' s analysis of the capital increase in question failed to take its purpose into account; far from seeking to continue the undertaking' s activities in an artificial manner, Spain' s action merely facilitated the liquidation, in the least burdensome manner possible, of its oil division, which represented almost 50% of its total activities. It emphasizes that the reason why the liquidation of the oil division could be achieved only by means of a decision of the Council of Ministers of 12 July 1991 was that the cooperatives managed by Merco had objected to that decision since the end of 1989, the date on which the division ought to have been wound up.

11 According to the Kingdom of Spain, it is also apparent from the statements of account that the increase in capital to which the decision in question refers enabled certain company assets to be recovered, which would otherwise have been impossible, as well as a very considerable amount of contractual debts to be repaid, for the most part to small farmers whose existence could have been jeopardized if they had not been paid.

12 The Court has consistently held that investment by the public authorities in the capital of an undertaking, in whatever form, may constitute State aid where the conditions set out in Article 92 of the Treaty are fulfilled (see the judgment in Case C-305/89 Italy v Commission [1991] ECR I-1603, paragraph 18).

13 In order to determine whether such measures are in the nature of State aid, it is necessary to consider whether in similar circumstances a private investor of a size comparable to that of the bodies administering the public sector might have provided injections of capital of such an amount (see the judgment in Italy v Commission, cited above, paragraph 19).

14 The Court has stated that although the conduct of a private investor, with which the intervention of a public investor pursuing economic policy aims must be compared, need not be the conduct of an ordinary investor laying out capital with a view to realizing a profit in the relatively short term, it must at least be the conduct of a private holding company or a private group of undertakings pursuing a structural policy ° whether general or sectoral ° and guided by prospects of profitability in the longer term (see the judgment in Italy v Commission, cited above, paragraph 20).

15 Even on the assumption that the closing down of the "oil" division contributed to an improvement in Merco' s financial situation, the Commission is justified in stating that a measure of that kind cannot be considered to be a satisfactory restructuring programme which would ensure the company' s profitability (Section VIII, 13th and 14th paragraphs, of the decision at issue). It is apparent from Section III of the decision that the company' s other divisions, with the exception of those for oilseed products and cotton, also suffered financial losses in 1990. Moreover, the Spanish authorities have admitted that the injection of capital of PTA 5 900 million was not sufficient to restore profitability (Section II, fourth paragraph). Since the aid in question is therefore not linked to an adequate restructuring programme, the Kingdom of Spain' s argument cannot be accepted.

16 Nor has the Kingdom of Spain produced any evidence to support its claim that the increase in capital enabled certain assets of Merco to be recovered.

17 As to the argument based on the obligation to repay contractual debts to small farmers, the Court finds that this could have been achieved by means other than the aid in question.

18 The first plea submitted by the Spanish Government must therefore be rejected.

Effect on intra-Community trade

19 In its second plea, the Kingdom of Spain argues that the injection of capital by the Dirección General del Patrimonio del Estado and FORPPA could not have affected intra-Community trade since its aim, as the Commission states in its decision, was not to support Merco' s finances as a whole, but to liquidate the business sector of Merco which was the cause of the company' s most serious problems. In its view, moreover, it cannot be argued that the liquidation of an undertaking or one of its branches affects trade between Member States by distorting competition within the common market, when the effects of an undertaking' s closure or withdrawal from one of its business activities is precisely to enable other undertakings remaining in the market to compete for the abandoned market share with a view to taking it over.

20 As is clear from the considerations set out in reply to the first plea, the aid in question cannot be regarded as intended to facilitate the liquidation of the "oil" division of Merco.

21 Furthermore, it is apparent from the statistical table annexed to the contested decision that all the agricultural products marketed by Merco were traded between Member States. Accordingly, the Commission was entitled to consider that trade between Member States would be influenced by the aid at issue.

22 The second plea must therefore be rejected.

Compatibility of the aid with the common market

23 In its third plea, the Spanish Government argues that the injection of capital at issue must be eligible for the exemptions laid down in Article 92(3)(a) and (c). According to those provisions, the following may be considered to be compatible with the common market: aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious under-employment, and also aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.

24 The Kingdom of Spain claims first of all that Merco pursues its activities almost exclusively in areas eligible for regional aid under Article 92(3)(a) and (c). The marketing of agricultural products in Spain has suffered, and still suffers, from very serious deficiencies.

25 The Kingdom of Spain goes on to argue that the injection of PTA 5 900 millions facilitated the redeployment of Merco' s activities and made it possible to prevent irreparable consequences for the sector. The non-payment of sums owed to small farmers would have triggered an irreversible crisis which would have led to the ruin of most of them, obliging them to give up their activities and removing any possibility of encouraging regional and sectoral development. Furthermore, the protection afforded was essential and did not alter trading conditions in a manner contrary to the common interest. The increase of capital in question is therefore covered by Article 92(3)(a) and (c).

26 In the ninth paragraph of Section VIII of the decision at issue, the Commission states that even if the aid in question were to be considered regional aid, it would still not be eligible for those exemptions, since aid granted pursuant to those provisions must contribute to the region' s long-term development, which in this case means that the aid would have to be used, at the very least, to re-establish the profitability of the company without producing any unacceptable adverse effects on the conditions of competition within the Community.

27 It is apparent from the fourth paragraph of Section II of the decision at issue that the Spanish government has admitted that the injection of capital of PTA 5 900 million was not sufficient to re-establish Merco' s profitability and that other reforms would have had to be undertaken, in particular with regard to the undertaking' s financial structure. Since the Kingdom of Spain has not retracted that admission, the aid in question cannot be considered to be regional aid eligible for the exemptions laid down in Article 92(3)(a) and (c) of the Treaty.

28 With regard in particular to the exemption laid down in Article 92(3)(c) for aid to facilitate the development of certain economic activities, the Commission states in the 11th paragraph of Section VIII of the decision at issue that such an exemption is subject to two conditions: first, the aid must be necessary for the development of the sector from the point of view of the Community and, second, it must not affect trading conditions in a manner contrary to the common interest.

29 The Commission goes on to point out in the 15th paragraph of the same section that the aid in question was used to offset losses and reduce debts, that it was not linked to a satisfactory restructuring programme and that it could have had a negative impact on Community competitors by maintaining the company' s competitiveness by artificially improving its financial position.

30 Since the Kingdom of Spain has not submitted any evidence of such a kind as to cast doubt on that statement, this plea must be rejected.

Illegality of the obligation to seek recovery of the aid

31 The Kingdom of Spain' s final plea contests the legality of the obligation to recover the aid in question which is laid down in Article 2 of the decision at issue. Referring to the judgment in Case 310/85 Deufil v Commission [1987] ECR 901, Spain observes that such an obligation is not automatic and that a declaration that aid is incompatible with the common market within the meaning of Article 92 is not sufficient to give rise simultaneously to an obligation to recover the aid.

32 The Kingdom of Spain argues in particular that in the circumstances it is impossible to implement the decision at issue because Merco has ceased to exist in economic terms. It has ceased all its activities and is managed by a single administrator responsible for carrying out the final steps in the liquidation. In that regard the situation is different from that which came before the Court in Case C-142/87 Belgium v Commission [1990] ECR I-959, to which the Commission refers. In its view, the decision at issue has therefore become devoid of purpose.

33 It follows from the case-law of the Court that any procedural or other difficulties in regard to the implementation of the contested measure cannot have any influence on the lawfulness of that measure (see the judgment in Belgium v Commission, cited above, paragraph 63). Accordingly, the fact that Merco became insolvent after the decision at issue was adopted is irrelevant in this case.

34 The plea alleging that the obligation to recover the aid is illegal must therefore be rejected.

35 Since none of the pleas put forward by the Kingdom of Spain has been accepted, the application must be dismissed.

Decision on costs

Costs

36 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. Since the Kingdom of Spain has been unsuccessful, it must be ordered to pay the costs.

Operative part

On those grounds,

THE COURT

hereby:

1. Dismisses the application;

2. Orders the Kingdom of Spain to pay the costs.