1999/139/EC: Commission Decision of 22 April 1998 on aid granted by Germany to SHB Stahl- und Hartgußwerke Bösdorf AG (notified under document number C(1998) 1325) (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-04-22
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, aid to undertakings, redemption, regional aid

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COMMISSION

COMMISSION DECISION

of 22 April 1998

on aid granted by Germany to SHB Stahl- und Hartgußwerke B(cid:148)sdorf AG

(notified under document number C(1998) 1325)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/139/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of
Article 93(2) thereof,

Having regard to the Agreement on the European
Economic Area, and in particular Article 62(1)(a) thereof,

Having given the parties concerned the opportunity to
submit their comments, in accordance with the above-
mentioned provisions,

to initiate Article 93(2) proceedings was taken after bank-
ruptcy proceedings had been initiated in respect of SHB
on 18 October 1996.

The decision of 12 June 1996 had been taken after the
restructuring plan had been assessed for its compliance
with the Guidelines on State aid for rescuing and restruc-
turing firms in difficulty (2). The additional aid notified on
19 August 1996 was also described by Germany as
restructuring aid to the same firm. However, this aid had
already been granted in the first half of 1996, at a time
when the correspondence between Germany and the
Commission on the first aid measure had not been
completed.

Whereas:

I

On 5 February 1997, the Commission decided to initiate
proceedings under Article 93(2) of
the EC Treaty in
respect of restructuring aid to SHB Stahl- und Hart-
gußwerke B(cid:148)sdorf AG (hereinafter referred to as SHB)
which had been notified by Germany. The aid in question
consisted of a non-repayable grant of DEM 4,5 million
and the extension of the repayment period for a loan of
DEM 1,5 million by the Bundesanstalt f(cid:129)r Vereinigungs-
bedingte Sonderaufgaben (BvS), both of which were noti-
fied on 19 August 1996, and an acquisition of shares in
SHB valued at DEM 5 million by the Konsolidierungs-
fonds des Freistaats Sachsen (Saxony Consolidation Fund),
which had been the subject of a decision of 12 June 1996
not to raise any objections (1). The Commission’s decision

that,

In its Decision of 5 February 1997, the Commission had
pointed out
in accordance with the Guidelines,
restructuring aid should normally only need to be granted
once, but that this was not reason enough for concluding
that the new aid was incompatible without examining all
the relevant facts in the context of the proceedings. These
would also include the conditions and requirements
stipulated in the previous decision of 12 June 1996.

The restructuring plan on the basis of which the first aid
measure had been granted and the Commission had
adopted its decision of 12 June 1996 entailed the closure
of the firm’s forging capacity, concentration on cast-steel
production, and a reduction of costs (raw materials and
staff). The firm’s founding capacity was to be kept at the
same level. The estimated cost of restructuring was DEM
10 million.

(1) Aid N 743/95, letter SG(96) D/5958 of 28 June 1996.

(2) OJ C 368, 23. 12. 1994, p. 12.

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(a)

In its decision to initiate Article 93(2) proceedings, the
Commission had found, on the basis of the information
available at the time, that the additional aid did not
comply with the conditions of the said Guidelines for the
the notification submitted by
following reasons:
Germany did not contain a sufficiently detailed, coherent
and suitable restructuring plan;
(b) the plan which was
submitted did not involve any reduction in capacities
despite the fact that SHB was a large company active in a
it was not
sector in which there was overcapacity;
possible to demonstrate the proportionality of the aid in
question.

(c)

The information concerning restructuring measures was
all the less convincing given that bankruptcy proceedings
were initiated in respect of the firm a few months after
the aid had been granted. The Commission did not at
that time have any information on the implementation of
the original plan (to which the first aid measure N 743/95
was linked).

Before deciding to initiate proceedings, the Commission
informed the German authorities, by letter of 31 January
1997 (D/50466) that, since bankruptcy proceedings had
been initiated in respect of the SHB, they should take the
necessary steps to enter their claims on the list of cred-
itors in order to ensure repayment in the event that the
Commission adopted a negative decision regarding the
aid. In its letter of 25 February 1997 informing Germany
of
the
the initiation of Article 93(2) proceedings,
Commission repeated this request.

II

By letter of 25 February 1997 (SG(97) D/1420) informing
Germany of the initiation of Article 93(2) proceedings,
the Commission called on Germany to submit
its
comments and supply the information needed for the
Commission to assess the aid. Germany stated its views by
letter of 7 April 1997 (registered on 7 April 1997 under
file number A/32789).

This letter informed the Commission that the additional
aid was designed to rescue SHB, which was threatened
with bankruptcy owing to an acute liquidity crisis, and to
attract a new investor. According to the information
supplied by Germany, it had not been possible to foresee
the need to initiate bankruptcy proceedings at the time
when the additional aid was granted (at the beginning of
1996, although it was not notified until August 1996).

The German authorities informally confirmed that,
in
connection with the bankruptcy proceedings, they had
entered on the list of creditors their claim arising from
the second aid measure. They also indicated that their
shareholding (the first aid measure) had been declared in
connection with the initiation of bankruptcy proceedings.

implementing the restructuring plan on which the
Commission’s first decision of June 1996 had been based.

III

The letter by which Germany was informed of
the
Commission’s decision to initiate Article 93(2) proceed-
ings was reproduced in a notice published in the Official
Journal of the European Communities (3). In this notice,
the Commission also asked the other Member States and
interested third parties to submit their comments.

France accordingly submitted its comments on the
proceedings by letter of 30 June 1997.

In so doing, it wished to inform the Commission that the
sector in question (cast steel) suffered from overcapacity
and that the French authorities supported the Commis-
sion in the interests of the proper functioning of the
common market.

These comments were forwarded to Germany by letter of
15 July 1997. Germany did not react to them.

IV

The information supplied by Germany in connection
with the proceedings was not sufficiently complete to
enable the Commission to reach a final decision. Con-
sequently, in its Decision 97/793/EC, the Commission
formally instructed Germany to provide, within two
months, all the information necessary to enable it to
assess the case (4), stipulating that, should Germany fail to
reply or should the information provided be incomplete,
it would take a final decision on the basis of the informa-
tion available to it.

In particular, the Commission requested details as to the
state of progress in implementing the restructuring plan
on which its first decision had been based, an exposition
of the reasons and economic circumstances which had
prompted the BvS to grant additional aid, an explanation
of the restructuring plan as adapted to the firm’s new
difficulties and the progress made in its implementation,
and the situation regarding the insolvency proceedings.

Germany replied to the Commission’s letter of 18 August
1997, by which it had been informed of this Decision, by
letters of 16 October and 27 October 1997 (registered on
17 October and 31 October 1997 respectively). From the
information contained therein, the Commission learned:

— that the restructuring plan in relation to which the
first Commission Decision of June 1996 had been
adopted had not been implemented either on time or
correctly,

— that the second aid granted at the beginning of 1996
had been designed to stave off the initiation of bank-
ruptcy proceedings threatening the firm as a result of
the delay which had occurred in implementing the
restructuring measures,

At the time of writing, the German authorities did not
have any detailed information regarding progress on

(3) OJ C 165, 31. 5. 1997, p. 10.
(4) OJ L 323, 26. 11. 1997, p. 29.

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— that the restructuring plan for the additional aid had
been the same as the one presented for the initial
grant of aid, the additional aid having been neces-
sitated by the delay in implementing that plan,

— that the firm had continued operating while bank-
ruptcy proceedings were in progress with the aim of
finding a new investor. A new company had been
formed,
‘Stahl- und Hartgußwerke B(cid:148)sdorf GmbH',
which had taken over the bulk of the assets belonging
to SHB (in liquidation). The remaining fixed assets
were to be sold. Neither the BvS nor the Land of
Saxony were financially involved in this takeover.

V

The individual financial measures in favour of SHB were
notified by Germany as
restructuring aid. The first
measure took the form of a secured equity holding of
DEM 5 million from the Consolidation Fund of Saxony
(Commission decision of 12 June 1996). Subsequently, a
non-repayable grant amounting to DEM 4,5 million and a
deferral of redemption payments on a DEM 1,5 million
loan were granted. These measures are to be regarded as
State aid within the meaning of Article 92(1) of the EC
Treaty, since SHB was a firm in difficulty which would
not have been able to obtain credit from any bank or any
other private financial institution.

The additional aid notified subsequently must be deemed
illegal under Article 93(2) since it was granted before the
Commission had reached a final decision in its regard.
However, this is not to prejudge the aid’s compatibility
with the common market.

In order to be compatible with the common market, aid
must be covered by one of the derogations or exemptions
provided for in Article 92(2) and (3) of the EC Treaty and
the corresponding Article 61(2) and (3) of the EEA Agree-
ment. For the purposes of assessing restructuring aid
under Article 92(3)(c) of the EC Treaty, the criteria set out
in the Community Guidelines on State aid for rescuing
and restructuring firms in difficulty must be met.

that

far as

the first aid scheme was concerned,

As
the
Commission decided, following an examination of the
it was compatible with the
restructuring plan,
common market and that, accordingly, no objections were
to be raised against it. This decision of 12 June 1996 was
based on the following restructuring measures: the closure
of the firm’s forging capacity, its concentration on cast-
steel production without any increase in production
capacities, and a reduction of staffing levels and produc-
tion costs. These measures were designed to enable SHB
to regain its long-term profitability and viability.

However, the information now available to the Commis-
sion (letters of 16 and 27 October 1997) indicates that the
plan was not implemented correctly or on time. Yet, this
plan is the very basis on which the Commission adopted
its decision of 12 June 1996 declaring the aid in question
to be compatible with the common market. Conse-
quently, the Commission is obliged to conclude that the
aid approved by it on 12 June 1996 has not been granted
in accordance with the conditions set out in that decision.
According to point 3.2.2(iv) of the Community Guidelines
on State restructuring aid, the firm must implement the
restructuring plan in full. If it fails to do so, the Commis-
sion may, under Article 93(3) of the EC Treaty, take
measures to recover the aid provided that it does not
amend its original decision on the basis of a notification.

The fact that the German authorities had decided to
approve additional aid to this firm in financial difficulty
even before a decision on the first grant of aid had been
adopted is proof that the plan was not going to enable the
firm to restore its profitability in the long term. However,
the Commission, which did not receive notification of the
additional aid until August 1996, two months after the
firm had filed for bankruptcy, was not informed of this.

According to the information submitted, the additional
aid was divided up into instalments, the first of which was
paid over in January 1996. Germany justified the decision
to grant this first instalment of DEM 2 million in its letter
of 14 November 1996 (registered under file No A/38134
on 19 November 1996), by stressing the need to stave off
a serious liquidity crisis in order to avoid bankruptcy. At
the same time, the BvS had decided to defer repayment of
the funds paid out in the period 18 January 1996 to 30
September 1996, By preventing bankruptcy,
the BvS
hoped, as part of a second privatisation, to find a new
investor for the firm and to integrate it into a group of
foundries. However, the group in question subsequently
withdrew from the project.

On the basis of the conditions for its approval, this first
instalment should be classified as rescue aid rather than
restructuring aid (as the German authorities had portrayed
it) given that, according to the definitions contained in
such aid
point 2.1 of
‘provides a brief respite [ . . . ] while a long-term solution
can be worked out'.

the Community Guidelines,

However, according to point 3.1 of the Guidelines, rescue
aid, in order to be compatible with the common market,
must take the form of loan guarantees or repayable loans.
the aid approved for SHB in January
By contrast,
consisted of a non-repayable grant and the deferment of
redemption payments for a loan which can be regarded as

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a new loan, the terms and interest rate of which are
unknown to the Commission. That part of the aid granted
in the form of a non-repayable grant does not comply
with this requirement laid down by the Guidelines; as for
the deferment of redemption payments, the Commission
is not in possession of complete information.

within the scope of Article 92(3)(a) of the EC Treaty, a
large firm operating in a sector characterised by overca-
pacity must carry through a reduction in its capacities
proportionate to the amount of aid received in order to
avoid undue distortions of competition. This was not
provided for in the plan.

Rescue aid must also be restricted to the amount needed
and be paid only for the time needed to devise the neces-
sary recovery plan. The Guidelines stipulate that
this
should not generally exceed six months. However, the
deferment of redemption payments is for a period of
more than six months (18 January to 30 September).
Consequently, the conditions for rescue aid cannot be
deemed to have been met.

SHB received a total of DEM 4,5 million in the form of a
non-repayable grant in the period January to July 1996
and deferment of redemption payments for an amount of
DEM 1,5 million. All of this aid was notified as restruc-
turing aid, the notifications having been accompanied by
brief information concerning a restructuring plan. When
adopting its decision of 5 February 1997, the Commission
found that, on the basis of the information then at its
disposal, the restructuring plan did not seem to meet the
relevant conditions of the Guidelines.

The plan on the basis of which the additional aid was
approved was the same as the one which had been
submitted to the Commission for
the purposes of
assessing the initial aid in October 1995. The forecasts
contained in this plan went up to 1995/1996. Even
though it was stated that the firm would end 1997 with a
positive result, the results obtained in 1995 did not match
the plan’s forecasts. The delay in implementing the plan
means that
the plan is no longer coherent, and the
assumptions on which it is based have become unrealistic.
The necessary corrections had clearly not been made. The
Commission is therefore unable to conclude whether it is
a restructuring plan which will help the firm return to
long-term profitability and viability.

SHB operates in a sector (founding and forging) in which
there are structural overcapacities. Its forging activities
were, according to the plan, to be closed down in full
during 1995/1996, although the Commission does not
have a detailed description of the measures which have
been implemented. Germany indicated that
it was
precisely this closure that has been postponed.

Extracts from the plan which have been submitted to the
Commission do not contain any information on the re-
cipient’s contribution to the restructuring. Similarly, they
do not contain any undertaking that implementation will
be monitored to ensure adherence to the plan, nor any
obligation to submit annual reports on such implementa-
tion.

VI

In view of the above, and in particular by virtue of Section
V, the Commission finds that the aid granted to SHB and
notified as restructuring aid does not satisfy the condi-
tions set out in the Community Guidelines on State aid
for rescuing and restructuring firms in difficulty. The aid
must
therefore be deemed incompatible with the
common market,

HAS ADOPTED THIS DECISION:

Article 1

The following restructuring aid measures granted by
Germany to SHB Stahl- und Hartgußwerke B(cid:148)sdorf AG
are incompatible with the common market in accordance
with Article 92(1) of the EC Treaty and Article 61(1) of
the EEA Agreement and does not meet any of the condi-
tions for a derogation or exemption under Article 92(2)
and (3) of the EC Treaty or Article 61(2) and (3) of the
EEA Agreement:

(a) the equity holding of DEM 5 million from the

Consolidation Fund of Saxony,

(b) the non-repayable grant of DEM 4,5 million and the
loan of DEM 1,5 million in respect of which it was
decided that repayments should be deferred.

Article 2

The plan did not envisage any additional capacity reduc-
tion, whereas the aid was doubled and the planned
closure of the firm’s forging capacities was not properly
put into effect. When the aid was granted, SHB was a
large firm. Even though it is located in a region falling

Germany shall take appropriate measures to ensure repay-
ment of the aid granted illegally. The amount to be repaid
shall bear interest from the date on which the aid was
granted at a rate equal to the reference rate used for
calculating the net grant equivalent of regional aid in
Germany applicable on that date.

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Aid shall be recovered in accordance with the procedures
and provisions of German law. The applicable provisions
shall be applied in such a way as not to make repayment
impossible.

Article 4

This Decision is addressed to the Federal Republic of
Germany.

Article 3

Done at Brussels, 22 April 1998.

Germany shall
inform the Commission within two
months of the date of notification of this Decision of the
taken to comply with this
measures which it has
Decision.

For the Commission

Karel VAN MIERT

Member of the Commission