96/614/EC: Commission Decision of 29 May 1996 concerning certain measures granted by Italy in favour of Breda Fucine Meridionali SpA (Only the Italian text is authentic) (Text with EEA relevance)
Date: 1996-05-29
Institutions: European Commission
Subjects: Italy, State aid, control of State aid, rail network, rail transport, restriction on competition













EUR-Lex - 31996D0614 - EN






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31996D0614

96/614/EC: Commission Decision of 29 May 1996 concerning certain measures granted by Italy in favour of Breda Fucine Meridionali SpA (Only the Italian text is authentic) (Text with EEA relevance)  


Official Journal L 272 , 25/10/1996 P. 0046 - 0052 





COMMISSION DECISION of 29 May 1996 concerning certain measures granted  by Italy in favour of Breda Fucine Meridionali SpA (Only the Italian text is authentic) (Text with  EEA relevance) (96/614/EC)THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, and in particular Articles 92 and  93 thereof, Having regard to the Agreement on the European Economic Area, and in particular Articles 61 and 62  thereof, Having given the interested parties notice to submit their comments, in accordance with the  abovementioned provisions, Whereas: I By letter dated 10 March 1995 the Commission informed the Italian Government of its decision to  initiate the procedure pursuant to Article 93 (2) of the Treaty in respect of the aid received by  Breda Fucine Meridionali (hereinafter referred to as 'BFM`). Following a formal complaint by a competitor of BFM, the Commission, by letter dated 17 October  1994, had asked the Italian authorities for information on the aid allegedly received by BFM. According to the information received by the Commission: -  BFM was controlled by Finanziaria Ernesto Breda, which in turn was part of the EFIM group, a  public holding company which went into liquidation in July 1992, -  Finanziaria Ernesto Breda was compulsorily wound up by a Decree of the Italian Minister for the  Treasury of 11 March 1994. According to the Decree, the company was irreversibly insolvent, with  liabilities of Lit 803 billion, -  BFM specialized, among other things, in the supply of railway equipment, and in particular steel  crossing frogs, the same market as the one on which the firm which lodged the complaint operates.  BFM's production of crossing frogs accounted for more than 40  % of its total output, -  BFM was falling into a deplorable financial situation. Information in the Commission's  possession suggests that: -  in 1992 BFM recorded losses had amounted to some Lit 27,6 billion on turnover of Lit 18,5  billion, -  in 1993 its losses had risen to Lit 36 billion, while turnover had fallen to Lit 13,5 billion, -  its debts reached Lit 88,7 billion in 1993, compared with share capital of Lit 17 billion,  reduced to zero as a result of the firm's losses, -  in the period 1985 to 1994, Finanziaria Ernesto Breda and EFIM bailed out BFM several times by  providing recapitalization funds, making good its losses and granting loans, -  BFM succeeded in remaining on the market and avoided being wound up, partly owing to an ad hoc  provision contained in Article 7 (2) of Decree Law No 487 of 19 December 1992, converted into Law  No 33 of 17 February 1993 (hereinafter referred to as 'Law No 33/1993`) concerning the winding up  of EFIM, which applies only to EFIM-controlled firms. It is clear from the foregoing why the Commission encountered serious difficulties in determining  whether the aid in question, in particular the recapitalization, the writing-off of losses and the  loans granted by EFIM and Finanziaria Ernesto Breda, as well as the non-application to BFM of the  general rules of the Italian Civil Code concerning the winding up and dissolving of companies, were  compatible with the common market. The Commission none the less decided to initiate the procedure  pursuant to Article 93 (2) of the EC Treaty in respect of the aid in question. II As part of the procedure, the Commission requested the Italian Government to submit its  comments, other Member States and interested parties being invited to do so in a notice published  in the Official Journal of the European Communities (1). Comments following the initiation of the procedure were received from Manoir Industries SA (Manoir)  by letter dated 21 November 1995 and from the German Government by letter dated 6 December 1995.  The Commission forwarded the comments to the Italian authorities on 31 January 1996, asking them to  send their reply, if any, within 15 days. No reply has been received to date. In its comments, Manoir, a French competitor of BFM on the market for steel crossing frogs, made  the following claims: -  BFM was able to stay in business solely because of the State aid it received, in particular the  derogation from Italian Law No 33/1993 on bankruptcy and insolvency, -  from July 1992, BFM was able to suspend all payments to suppliers, -  BFM lost its capital several times, and its own resources are zero, -  BFM had been operating at a loss for several years, -  as a result, competition on the Community market for crossing frogs was severely distorted, with  serious repercussions for Manoir which, being a privately owned company, was obliged to compete  against BFM with its own, necessarily limited resources. Manoir claimed, finally, that the aid in question did not qualify for exemption pursuant to Article  92 (3) of the Treaty and accordingly requested the Commission to seek repayment of the aid. The comments from the German Government, which agrees with the Commission's decision to initiate  the procedure, state that the assistance from the Italian Government through EFIM and Finanziaria  Ernesto Breda would not have been provided by a private investor in normal market economy  conditions, in view of BFM's debts which have only increased with time, and the financial situation  of the firm, all of which indicates that the measures constitute State aid. In its letter of 24 May 1995 the Italian Government, in response to the Commission's decision to  initiate the procedure, made the following statements: -  in the period preceding the liquidation of the EFIM group (July 1992), BFM did not benefit from  any guarantee scheme or measure, -  while EFIM was being wound up, the receiver paid BFM only the advances needed to pay its  workers; as from 1992 and apart from the said advance, BFM did not receive any financing, either  from Finanziaria Ernesto Breda or others, and the receiver appointed by the Italian Government to  wind up the EFIM group consistently complied with the principle of a private investor in a market  economy, without exception, the sole difference being that the liquidation of EFIM was governed by  the Italian laws on EFIM, -  in the last few years, BFM's debts grew not as a result of the new loans granted but solely  because of the financial charges accruing on previous debts, all the financing being granted at  market rates, -  all the financing granted by the parent companies to BFM was essentially intended for productive  investments which, at the time, could reasonably be expected to show a profit, -  even if the measures were to be regarded as constituting State aid, they should qualify for  exemption pursuant to Article 92 (3) of the Treaty in view of (i) the situation and prospects of  the firm, (ii) its sale to third parties, (iii) the location of the firm in the Mezzogiorno, in a  region meeting the requirements of Article 92 (3) (a) of the Treaty, -  BFM will become viable: in 1995, apart from its debts and financial charges, it achieved a  profit, albeit a small one. It is expected to make a considerable profit in 1996, -  consequently, a negative decision seems unfair as it would entail the winding up of the firm  without taking account of the efforts made to restructure it, -  Article 7 (2) of Law No 33/1933, which derogates from Articles 2446 and 2447 of the Civil Code  with respect to EFIM, seeks to allow firms in the EFIM group to remain in operation only for the  minimum time required to wind up the group. III The first task is to identify the Community rules applicable to the case in hand, taking  account of the market liable to be adversely affected by the measures in question, namely the  market for mangenese steel railway crossing frogs. Whereas rails are covered by the ECSC Treaty, crossing frogs are covered by Articles 92 and 93 of  the Treaty, as the distinction made in Chapter 73 of the combined nomenclature relating to articles  of iron or steel (code 7302  30  00 - Switch blades, crossing frogs, point rods and other crossing  pieces) makes clear. All BFM's other products are also covered by the EC Treaty. Article 92 states that, save as otherwise provided for in the 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 is, in so far as  it affects trade between Member States, incompatible with the common market. It is therefore necessary to determine whether the public resources allegedly granted to BFM  constitute State aid, whether they affect trade between Member States and, lastly, whether they  qualify for exemption pursuant to Article 92 (2) and (3) of the EC Treaty and may therefore,  although constituing illegal aid as they were not notified to the Commission, be regarded as  compatible with the common market. IV According to the case file, BFM which was established in the mid-60's and was never  profitable, has incurred heavy losses in the last 10 years, according to the balance sheets in the  Commission's possession. Its debts, which exceeded Lit 85 billion at the end of 1994, are currently  five times its initial share capital of Lit 17 billion. In just the period from 1990 to 1994, it  lost: -  in 1990: Lit 18 billion on turnover of Lit 14,6 billion, -  in 1991: Lit 14 billion on turnover of Lit 18,4 billion, -  in 1992: Lit 27,6 billion on turnover of Lit 19,9 billion, -  in 1993: Lit 36,1 billion on turnover of Lit 14,7 billion, -  in 1994: Lit 13,8 billion on turnover of Lit 20,6 billion. In the period 1985 to 1994 to BFM received from EFIM and its subsidiary Finanziaria Ernesto Breda: (a)  capital injections of Lit 7 billion in 1986 and Lit 5 billion in 1987; (b)  debt write-offs of Lit 7,1 billion in 1985, Lit 11,2 billion in 1987, Lit 3,9 billion in 1988,  Lit 11,6 billion in 1990, Lit 17 billion in 1991; (c)  financing from the parent companies in respect of which BFM currently owes Lit 57 billion to  Finanziaria Ernesto Breda and Lit 6 billion to EFIM. In this connection, it should be noted that  EFIM, in its letter of 20 February 1996 in which it requests the Commission to authorize the  capital conversion of the abovementioned debts, acknowledges that BFM owes some Lit 63 billion to  the parent companies. In the light of the foregoing there are grounds for concluding that, prior to the entry into force  in July 1992 of the ad hoc provisions referred to below in Chapter V, BFM succeeded in remaining on  the market in question thanks to the public measures from which it benefited: on the one hand, the  financing and on the other the capital injections and wiping out of losses by the two parent  companies. In order to determine whether the measures in question constitute State aid, the Commission  considers (see communication to the Member States of 13 November 1993  (1)) that public enterprises  may derive an advantage from being State controlled: this is the case if the State provides public  funds in circumstances that go beyond its simple role as proprietor. If any public funds are made  available to the public enterprise on more favourable terms than those on which a private investor  would provide them to a private firm in the same financial and competitive position, or are  provided by the State to a public enterprise but would not be provided by a private investor to a  similar private firm in the same financial position, then the public enterprise is receiving an  advantage not available to private enterprises from their proprietors and competition on the common  market is distorted. In this respect, it matters little whether the aid to public enterprises is  granted direct by the State or indirectly through holding companies or other public enterprises. Furthermore, the Court of Justice of the European Communities has consistently held, since its  judgments in Case C-303/88  (1) and in Case C-305/89  (2) that, in order to determine whether a  public measure constitutes State aid, what must be assessed is the difference between the terms on  which the funds were made available by the State to the public enterprise in question and the terms  which a private investor would find acceptable in providing funds to a comparable private firm,  under normal market economy conditions. In its judgment of 3 October 1991 in Case C-261/89, Italy  v. Commission (3), the Court of Justice held that 'the fact that a financial contribution is  intended for productive investment does not by itself preclude such a contribution from  constituting an aid when, regard being had to the situation of the undertaking, it appears  improbable that a private shareholder would have subscribed the capital in question.` In the case in question, the contested measures, including the alleged grant of aid, the capital  contributions and the making good of losses, enjoyed by a firm like BFM, which has never been  profitable and which, under normal economic and legal conditions would have already been wound up  after losses which wiped out its share capital, cannot be regarded as measures which a private  investor operating under normal market economy conditions would have adopted in the normal course  of business. In other words, the measures taken by the public authorities in question constitute State aid  inasmuch as, in similar circumstances and according to id quod plerumque accidit, a private  investor, even one as large as EFIM or Finanziaria Ernesto Breda, would not have injected capital  and provided such large-scale financing without requiring a restructuring plan showing a prospect  of future viability. The case file, however, does not indicate that any restructuring of BFM was  planned, or that this was the aim of the public measures in question. In fact, it is highly likely that, under normal conditions - if BFM had been a private firm - its  owner would long ago have sought a declaration of bankruptcy; it is hard to believe that a private  operator would have allowed a firm to remain on the market that had losses exceeding turnover, had  no restructuring plan and failed to bring him any financial benefits. While the behaviour of a private investor which is to be compared with that of a public investor is  not necessarily that of an ordinary investor who puts in capital with a view to securing a return  in the fairly short term, it should at least be that of an investor who takes action to ensure the  survival of a firm which, although experiencing temporary difficulties, will return to  profitability. This is not the case with BFM, whose debts are so large as to rule out any prospect  of profitability, even in the long term. No private investor operating under normal market economy  conditions could, even with a view to the longer term and the future sale of the firm, continue to  finance an enterprise in such debt for so long a period. In view of the foregoing, the Commission concludes that the public measures in question constitute  State aid within the meaning of Article 92 of the Treaty. V Article 7 (2) of Law No 33/1933 provides for the non-application to members of the EFIM group,  which includes BFM, of the mandatory rules contained in Articles 2446 and 2447 of the Italian Civil  Code which provide that firms with losses which reduce their share capital to less than the legal  minimum (Lit 200 million) must be wound up. BFM managed to remain on the market and avoid being  wound up, unlike a private firm in similar circumstances, by virtue of the ad hoc derogation from  the general system provided for in Article 7. The application of these Articles of the Civil Code  to BFM would probably have led to its bankruptcy and disappearance from the market. This provision, which is not a general but a specific measure intended to benefit a specific firm,  constitutes State aid as it enabled BFM to avoid repaying its public debts, its debts to public  enterprises, and its debts towards public financial institutions. The provision in question would  thus enable BFM to remain in operation without repaying State aid declared incompatible and without  being wound up. As a result, this Decision would be deprived of its effectiveness. The special rules, introduced in July 1992, should have been terminated at the end of 1994.  However, as in 1995, Italy extended to 1996 by a Ministerial Decree of 24 January 1996 the measure  relating to a special scheme for the liquidation of EFIM in respect of several members of the group  not yet sold or wound up, in this case BFM. From July 1992, therefore, the Italian Government  protected and continues to protect BFM from possible bankruptcy or insolvency, completely altering  the original assessment of the liquidation of EFIM, namely as a scheme used for the minimum time  needed to sell its companies or wind them up. It is clear that any extension of this scheme on behalf of BFM, in view of the serious distortions  of competition on the common market that are involved, can be justified only for objectively valid  reasons. The italian authorities, however, have not given any reasons for extending the special  scheme apart from stating that time was needed to find a buyer. It is obvious that this  justification is unacceptable as otherwise the Italian authorities could prolong the scheme in  question sine die for as long as they liked until a purchaser was found. The impossibility of finding a purchaser for BFM during all this time is further evidence of the  deplorable financial situation in which BFM currently finds itself. It is so precarious that it has  been impossible to sell the firm within a reasonable period. Consequently, even the extension in respect of BFM of the effects of the provisions of the Law in  question, namely Article 7 (2) of Law No 33/1993, extended by the Decree of 24 January 1996, should  be regarded as State aid since, by artifially enabling BFM to remain on the market and hence giving  it an edge over its competitors, it distorted competition on the relevant market. The Commission also notes that the derogation provided for in Law No 33 enabled BFM to: -  benefit from a grant of Lit 2  710 million from the liquidator of EFIM to pay the wages of  surplus workers, -  freeze the amount owed to suppliers, totalling Lit 9  941 million, -  suspend repayment of loans totalling Lit 6  609 million granted by the financial establishments  Isveimer and IMI, -  suspend interest payments, totalling Lit 4  478 million, to banks from 17 July 1992. It is clear that the specific measures adopted by Italy in derogation from ordinary law had the  sole purpose of maintaining BFM artificially on the market from July 1992, enabling it to operate  without meeting its financial obligations towards public enterprises. VI Article 92 (1) of the EC Treaty provides that any aid granted by Member States which affects  trade between Member States is incompatible with the common market. The geographical market for railway crossing frogs may be defined as the Community market. All the  leading Community producers of crossing frogs are present throughout the Community and tender  competitively for contracts awarded by the appropriate bodies in the Member States, thus exporting  a large proportion of their output to other Member States. Furthermore, according to the information available to the Commission, competition is intensified  by the huge overcapacity on the market  (1). The Italian authorities have referred to the marginal nature of BFM's exports. In Case C-305/89,  the Court stated in this connection that 'where an undertaking operates in a sector in which there  is surplus production capacity and producers from various Member States compete, any aid which it  may receive from the public authorities is liable to affect trade between the Member States and  impair competition, inasmuch as its continuing presence on the market prevents competitors from  increasing their market share and reduces their chances of increasing exports.` (2). VII Having concluded that the public measures which benefited BFM constitute State aid and that  they adversely affected intra-Community trade, it must be decided whether the aid is compatible  with the common market, even though it is unlawful for not having been notified to the Commission. Article 92 (2) and (3) refer to several types of aid which are or could be compatible with the  common market. Article 92 (2) provides that aid having a social character, granted to individual  consumers, and aid to make good the damage caused by natural disasters or exceptional occurrences  are compatible with the common market. That provision is not applicable to the aid in question as it is not aid of a social character  granted to individual consumers and is not intended to make good the damage caused by natural  disasters. Among the possibly relevant provisions of Article 92 (3) invoked by the Italian authorities are  subparagraphs (a) - aid to promote the economic development of areas where the standard of living  is abnormally low or where there is serious underemployment, and (c) - aid to facilitate the  development of certain economic activities or of certain economic areas, where it does not  adversely affect trading conditions to an extent contrary to the common interest. As regards Article 92 (3) (a), it is clear that the aid in question was not granted under a public  regional programme. Nor do the documents in the case indicate that the aid was granted to create  jobs in an assisted area. On the contrary, close scrutiny reveals that the measures were  specifically intended to facilitate the industrial survival of BFM, irrespective of the cost. With regard to Article 92 (3) (c), the Italian authorities state that the measures in question  allowed BFM to restructure and hence to return to profitability in the future. The Commission notes  that the Italian authorities have not furnished any evidence in support of the claim that the aid  was granted in connection with a restructuring plan. Furthermore, even if the public shareholders  had considered adopting a restructuring plan, the fact is that any such plan would have been wrong  and ill-advised. The documents in the case show that there was never any question of restructuring  BFM and that a hypothetical restructuring was not the reason for the State aid grants, the latter  having clearly been ad hoc measures designed to allow an enterprise to survive without reference to  any economic logic or any form of restructuring. It should also be pointed out that, contrary to the statements of the Italian authorities to the  effect that the enteprise is profitable, BFM recorded losses in 1995 amounting to Lit 15 billion on  turnover of Lit 28,1 billion; losses totalled Lit 27,6 billion in 1992, Lit 36,1 billion in 1993  and Lit 13,8 billion in 1994. At the same time, the profit-and-loss account, which does not take  account of income and financial charges, showed negative balances of Lit 1  994 million in 1995,  Lit 4  217 million in 1992, Lit 5  103 million in 1993 and a positive balance of Lit 87 million in  1994. In view of the foregoing, the Commission must conclude that the Italian statements relating  to the viability of BFM are unfounded. Lastly, it is hard to understand how the alleged viability of the firm constitutes, as the Italian  authorities claim, a reason on a strictly operational level for the claim that the aid is  compatible, without taking account of the financial burden which the firm would normally have to  bear. Nor does it seem compatible with Community law that an enterprise which would have disappeared  without the aid grants and the special derogations from Italian law benefits from favourable  treatment on the ground that its operating results are improving, and is kept on the market solely  by virtue of illegal aid. This line of reasoning would give an illegal advantage to Member States  that delay the abolition of aid measures as much as possible. The Commission consequently concludes that the measures in question do not qualify for exemption  pursuant to Article 92 (2) or (3) of the Treaty. Lastly, the fact that a Commission decision to prohibit illegal aid and require its repayment could  entail the liquidation of BFM, as the Italian authorities assert, should be examined in the  specific context of the case in question. The BFM case is covered by the liquidation plan submitted  to the Commission by EFIM. According to that plan, at the end of a transitional period, firms that  have not found buyers will be wound up. Italy has twice extended the special liquidation  arrangements, without the authorization of the Commission - on the second occasion by Decree of 24  January 1996. In view of the failure to find a purchaser, BFM should already have been wound up at the end of  1994, the original date provided for in the law on the liquidation of EFIM. Thus the liquidation of  BFM would be a logical consequence of the plan drawn up by the Italian legislator for the  liquidation of the EFIM group rather than an excessively inflexible application of the Community  rules. VIII In view of the foregoing, it must be concluded that the public measures from which BFM  benefited, namely: (a)  capital injections amounting to Lit 12 billion, or Lit 7 billion in 1986 and Lit 5 billion in  1987; (b)  making good of losses totalling Lit 50,8 billion, of which Lit 7,1 billion in 1985, Lit 11,2  billion in 1987, Lit 3,9 billion 1988, Lit 11,6 billion in 1990, and Lit 17 billion in 1991; (c)  financing granted to BFM by Finanziaria Ernesto Breda and by EFIM, resulting in a debt towards  the two parent companies of Lit 63 billion; (d)  Article 7 (2) of Law No 33/1993, extended by Decree of 24 January 1996, which enabled BFM to  halt repayments of public debts and debts to public enterprises, including amounts owed by it to  public financial institutions, and to remain operational without repaying State aid declared  incompatible and without being wound up; (e)  the provisions of Law No 33/1993 to the extent that they enabled BFM to suspend repayments of  loans granted by the public financial institutions Isveimer and IMI totalling Lit 6  609 million; constitute illegal State aid, in so far as they were not notified to the Commission and are  incompatible with the common market, as they do not qualify for any of the exceptions provided for  in Article 92 (2) and (3) of the Treaty. According to the case-law of the Court of Justice, in particular the judgment of 2 February 1989 in  Case 94/87, Commission v. Germany, the relevant provisions of national law must be applied in such  a way that the recovery required by Community law is not rendered practically impossible  (1), HAS ADOPTED THIS DECISION: Article 1 The State aid granted to BFM, namely: (a)  the capital contributions totalling Lit 12 billion, consisting of Lit 7 billion in 1986 and  Lit 5 billion in 1987; (b)  the making good of losses totalling Lit 50,8 billion, consisting of Lit 7,1 billion in 1985,  Lit 11,2 billion in 1987, Lit 3,9 billion in 1988, Lit 11,6 billion in 1990, and Lit 17 billion in  1991; (c)  the financing granted to BFM by Finanziaria Ernesto Breda and by EFIM, the amount owed by BFM  to its two parent companies totalling Lit 63 billion; (d)  Article 7 (2) of Law No 33/1993, as extended by the Decree of 24 January 1996, inasmuch as it  enabled BFM to postpone repayment of its public debts, its debts to public enterprises and its  debts toward public financial institutions, and to remain in business without repaying State aid  declared incompatible and without being wound up; (e)  the provisions of Law No 33/1993 inasmuch as they allowed BFM to suspend repayments of loans  granted by the public financial institutions Isveimer and IMI totalling Lit 6  609 million; is illegal as it was not notified in advance to the Commission in accordance with Article 93 (3) of  the EC Treaty. The aid is also incompatible with the common market within the meaning of Article 92 of the  Treaty. Article 2 Italy shall recover the aid paid to BFM in accordance with the provisions of Italian  law relating to the recovery of amounts owed to State. In order to abolish the effects of the aid, interest shall be charged on the amount of aid, as from  the date of its award and until the date of its repayment. The rate shall be that used by the  Commission to calculate the net grant equivalent of regional aid in the period in question. Article 3 Italy shall forthwith suspend, with regard to BFM, the application of the provisions  relating to the extension of the derogation from ordinary law with regard to the public debts and  the debts to public enterprises. Furthermore, Italy shall, solely with regard to BFM, forthwith  suspend the application of the provisions relating to the suspension of the repayment of loans  granted by the public financial institutions. Article 4 Italy shall inform the Commission, within two months of the notification of this  Decision, of the measures taken to comply herewith. Article 5 This Decision is addressed to the Italian Republic. Done at Brussels, 29 May 1996. For the Commission Karel VAN MIERT Member of the Commission (1)  The market for crossing frogs in Europe continues to suffer from  overcapacity. In 1996 total estimated capacity in the Community (Manoir, BFM, Jadot, Jez Amurrio)  is 8  400 crossing frogs, whereas maximum demand will probably total only 5  615 units.  (2)  Paragraph 26.  (1)  [1989] ECR, p. 175.