1999/274/EC: Commission Decision of 22 July 1998 on the misuse of restructuring aid for MTW-Schiffswerft and Volkswerft Stralsund, two companies formerly belonging to Bremer Vulkan Verbund, and the unauthorised provision of an investment loan of DEM 112,4 million to MTW- Schiffswerft (Text with EEA relevance) (notified under document number C(1998) 2405)
Date: 1998-07-22
Institutions: European Commission
Subjects: Germany, aid for restructuring, industrial restructuring, investment aid, investment loan, shipbuilding

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 22 July 1998

on the misuse of restructuring aid for MTW-Schiffswerft and Volkswerft Stral-
sund, two companies formerly belonging to Bremer Vulkan Verbund, and the
unauthorised provision of an investment loan of DEM 112,4 million to MTW-
Schiffswerft

(notified under document number C(1998) 2405)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/274/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Communities (1); the other Member States and interested
parties were asked to submit their comments.

Having regard to the Treaty establishing the European
Community, and in particular Article 93(2), first subpara-
graph, thereof,

Having given notice in accordance with the above Article
93 to the parties to submit their comments,

Whereas:

I. PROCEDURE

By letter dated 20 March 1996 the Commission informed
Germany of its decision to initiate proceedings under
Article 93(2) of the Treaty. The reasons given for the
decision were the suspected spillover of authorised
restructuring aid for MTW-Schiffswerft GmbH, Wismar
(MTW), Volkswerft GmbH, Stralsund (Volkswerft) and
other companies belonging to Bremer Vulkan Verbund
AG (BVV), and the unauthorised provision of an invest-
ment loan to MTW.

Germany commented on the Commission’s decision by
letter dated 3 September 1996. It made available to the
Commission a report by the Bundesanstalt f(cid:129)r vereini-
gungsbedingte Sonderaufgaben (BvS) on the loss of DEM
854 million in the context of the insolvency of BVV, and
sent under cover of a letter dated 22 July 1996 an audi-
tor’s report by the firm of accountants Susat & Partner
(Susat) on the contributions made by the ‘eastern yards'
(i.e. MTW and Volkswerft) to BVV’s central cash concen-
tration system. A revised final auditor’s report was drawn
up on 5 September 1996.

The comments submitted by two Member States in
response to the initiation of proceedings by the Commis-
sion were forwarded to Germany by letter dated 19 July
1996. Germany commented thereon in its abovemen-
tioned letter of 3 September 1996.

The comments and reports which the Commission
received after the main investigation proceedings were
initiated afforded a much better insight into the extent of
the misuse of funds and the operation of the cash concen-
tration system. But little was still known in particular

The Commission’s decision to initiate proceedings was
the European
published in the Official Journal of

(1) OJ C 150, 24.5.1996, p. 2.

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L 108/35

interested third parties and above all

about the uses to which the funds had been put in the
various BVV companies. In order that it might take an
informed decision on the recovery of the aid after first
giving all
the
companies concerned an opportunity to state their views,
the Commission decided to extend the scope of
the
Article 93(2) proceedings. In its decision to this effect the
Commission set forth the facts as they were apparent
from the documents then available and made a prelim-
inary assessment of the findings of its investigation.

By letter dated 22 November 1996 the Commission
informed Germany of its decision to extend the proceed-
ings. The decision was published in the Official
Journal (2).

Two Member States, two industry associations and seven
companies,
in which BVV either had or still has an
interest, submitted comments on the decision to extend
the proceedings. The Commission forwarded
the
comments to Germany by letter dated 17 April 1997.

Germany replied by letter dated 17 July 1997, stating that
it was unable to adopt a position on the comments owing
to the ongoing nature of the inquiry by the investigating
authorities and the proceedings pending before the
courts. The letter contains among other things a descrip-
tion of how the cash concentration system had developed
during the four months prior to the initiation of the BVV
insolvency proceedings.

II. FACTS

The facts as set out in the abovementioned letters and in
the Commission decisions of 20 December 1992 (3), 21
December 1993 (4), 11 May 1994 (5), 21 June (6), 20
September (7) and 14 November 1995 (8) are as follows.

1. The exceptional arrangements for shipyards in

the former German Democratic Republic

On 20 July 1992 the Council adopted Directive 92/
68/EEC (9) amending Directive 90/684/EEC (10) (Seventh
Directive on aid to shipbuilding) to enable yards in the
new German L(cid:132)nder to carry out the comprehensive
restructuring that was urgently needed if they were to
become competitive.

When the exceptional arrangements were adopted the
Commission gave an undertaking that it would make use
of its monitoring and investigatory powers in order to
ensure that the yards in the new L(cid:132)nder received only

(2) OJ C 65, 1.3.1997, p. 17.
(3) Case N 692/B/91 (MTW).
(4) Case N 692/F/91 (VWS).
(5) Case N 692/I/91 (MTW).
(6) Case N 84/95 (VWS).
(7) Case N 572/95 (MTW).
(8) Case N 801/95 (VWS).
(9) OJ L 219, 4.8.1992, p. 54.
(10) OJ L 380, 31.12.1990, p. 27.

such aid as was needed to enable them to restructure. To
that end,
the aid was to be released in instalments.
According to Directive 92/68/EEC, however, the oper-
ating aid had to be paid by 31 December 1993, that is to
say before most of the operating losses had had an effect
on liquidity.

2. Disbursement of the aid

MTW was privatised in 1992 and sold on 11 August of
that year to the BVV-owned company Hanse-Holding.
On 2 October 1992 Germany notified the aid that was to
accompany the privatisation. Since it was clear to the
German authorities (from the discussions held in the
spring of 1992 in connection with Directive 92/68/EEC)
that the Commission would authorise the release of the
planned aid in instalments only,
the Treuhandanstalt
concluded a collateral agreement on l October 1992. This
had the effect of circumventing the clause in the privat-
isation agreement whereby the Commission reserved the
right to withhold its approval, in particular as regards the
disbursement of the aid. A lump-sum cash subsidy of
approximately DEM 686,5 million was accordingly paid
to MTW on 6 October 1992 (343,8 million), 6 January
1993 (275,1 million) and l December 1993 (67,6 million).
The payment took the form of a loan, on which interest
was not to be payable until after the aid proceedings were
If and when the Commission gave its
terminated.
consent, the obligation to pay interest was to cease to
apply retroactively as of the day on which the principal
was paid. This collateral agreement was not notified to the
Commission, and was made available by Germany only
on 18 November 1996 in response to repeated queries
about the Susat report.

The Commission authorised the release of a first instal-
ment of DEM 223,3 million of restructuring aid by letter
dated 6 January 1993. With an eye to the deadline for the
disbursement of operating aid laid down in Directive
92/68/EEC, at the Commission’s request the DEM 463,2
million which had not yet been released was placed at the
end of 1993 in a blocked account (held, not by the
Treuhandanstalt as expected, but by the company).
Payments from this blocked account were then made only
following authorisation for release from the Commission
on 18 May 1994 (DEM 220,8 million), 5 October 1995
(DEM 194,0 million) and 3 April 1996 (DEM 48,4
million) (11).

In the privatisation agreement, provision was made not
only for payment of the lump-sum cash subsidy, but also
for the granting to MTW of a loan of DEM 112,4

(11) Case N 207/96. This payment of the balance took place at
the end of the reflection period following the hiving-off of
MTW from BVV.

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million to finance investments. The loan was to be free of
interest for four years, after which it was to bear interest at
a rate 1,5 % above the discount rate. It was notified as
part of the overall aid package on 2 October 1992. It was
common ground between the Commission and Germany
that, because of
the favourable rate at which it was
granted, the loan constituted State aid, the grant equiva-
lent of which was put at DEM 45 million. The Commis-
sion never authorised the release of the loan as up until
the end of the reflection period it was not needed to
finance any investment. By letter dated 15 March 1996,
Germany announced that the loan had been granted on
22 March 1993. The funds were never used to finance
investment at MTW.

Volkswerft was sold on 18 February 1993 to a consortium
led by BVV. Germany transmitted the privatisation agree-
ment on 17 March 1993, and the actual notification of the
aid dates from 7 May 1993. A collateral agreement similar
to the one in the MTW case was concluded on 9 March
1993. A lump-sum cash subsidy of DEM 585 million was
paid in three instalments on 25 March 1993, 2 August
1993 and 6 January 1994. Contrary to the Commission’s
expectations no blocked account was created in the
Volkswerft case. The Commission was sent a copy of the
payment agreement on 18 November 1996.

The reason given by Germany for the premature disburse-
ment of the funds was that the buyers would not other-
wise have been prepared to take over the urgently needed
day-to-day running of the company. The funds bore a
normal commercial interest rate and had therefore been
granted in accordance with the rules applicable to State
aid. A blocked account had not been created for the
Volkswerft
the
Treuhandanstalt did not consider it necessary, essentially
since the Commission had authorised the release of all
operating aid in December 1993.

funds because, according to Germany,

investment aid and closure aid was authorised on the
basis of amounts actually or soon to be paid out. But
because the Commission had no knowledge of
the
disbursements made without its authorisation, the actual
flow of funds differed markedly from the money outflow
that should have resulted from the Commission’s deci-
sions on the release of aid. In fact, only the MTW funds
placed, as indicated above, in a blocked account at the
end of 1993 were disbursed in accordance with the rele-
vant Commission decisions.

The funds not yet needed for restructuring were placed by
the two yards at the disposal of BVV AG under separate
arrangements in the form of interest-bearing loans. Since
October 1993 BVV had operated a cash concentration
system (12). MTW and Volkswerft joined the system at the
end of 1994 on instructions from the group’s top manage-
ment. Initial demands by the BvS that the two eastern
yards’ contributions be covered by bank guarantees were
dropped in view of BVV’s persistent refusal.

Under Directive 92/68/EEC, Germany had to provide
evidence in the form of annual reports by an independent
accountant that the aid was benefiting only yards in the
former GDR. Further to this measure, the Commission
and Germany agreed that quarterly reports (so-called
should be provided. These reports,
spillover
which were mostly very late in forthcoming, were
produced by the same firm of accountants as audited
BVV’s annual accounts.

reports)

investments in BVV,

The reports confirm that the funds whose release was
authorised by the Commission benefited only MTW and
Volkswerft, that (in 1994) MTW and Volkswerft were run
as separate profit centres, and that no spillover effects had
occurred in transactions between MTW and Volkswerft
and other BVV-owned companies. With regard to the
yards’
is confirmed that, as
required by the Commission, these had been undertaken
on normal market terms. The Susat report draws the
conclusion that the authors of the spillover reports did
not perform their mandate properly. Being aware of the
expectations of the BvS and the Commission, they should
at least have appended to their confirmatory certificates a
reservation to the effect that they had not examined the
funds in BVV, especially in the cash
placement of
concentration system.

it

3. Monitoring of the uses to which the aid was put

The aid to MTW and Volkswerft consisted of operating
aid, investment aid and closure aid to finance the redun-
dancies accompanying the restructuring. Whereas the
the operating aid was authorised by the
release of
Commission under Directive 92/68/EEC in a lump sum
to cover the expected operating losses and strengthen the
equity capital base, the release of the instalments of the

For 1994 BVV reported a profit of DEM 56,5 million and
in the spring of 1995 contemplated paying a dividend
once more. Susat concludes that ‘the management (of
BVV) portrayed the group’s profitability in 1994 and at
the beginning of the 1995 financial year in too favourable
a light. Although the group’s annual accounts as at 31
December 1994 (...) comply with the statutory balance
sheet and valuation requirements as currently worded and
with one interpretation of
the principles of proper
accounting, the margin for manoeuvre (...) was exploited
to the utmost.'

(12) See Section II(5)

for an explanation of how the system

worked.

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On the whole, therefore, the reports submitted by BVV
and the then auditors described the financial transactions
in an incomplete manner and painted too positive a
picture of BVV’s financial position.

4. Investigations into the extent to which funds

were misused

Several

reminders

and high-level

The first signs of liquidity problems began to emerge at
BVV in September 1995, but
the company gave the
impression that the difficulties had been overcome within
a few days. However, the crisis erupted again in late
October/early November 1995. The Commission accord-
ingly sent an initial letter on 10 November 1995 asking
whether the terms and conditions of the funds transferred
by MTW to BVV were still in line with the spillover ban.
Further questions concerning Volkswerft followed on 27
talks
November.
followed in December and January. It is clear from the
reports submitted by Germany that by late October 1995
the German authorities were aware of extremely high
losses at BVV and that they knew, at the latest after talks
between BVV and the BvS and various authorities on 29
November 1995, that a massive misuse of funds had taken
place and that the resources of the eastern yards were ‘no
longer sufficient to meet their needs'. Nevertheless, the
Commission received an initial report only on 2 February
1996, followed on 23 February 1996 by a further interim
report by the firm of accountants KPMG, which had in
the meantime been newly appointed as auditors by the
BvS. The Commission’s decision to initiate formal invest-
igation proceedings under Article 93(2) was necessarily
based on these two interim and incomplete reports.

investigations into the use made of the aid by BVV and
confirms that a total of DEM 854,0 million had been
placed by MTW and Volkswerft in BVV’s cash concentra-
tion system by 31 December 1995 (13). Susat is of the
opinion that it is impossible to determine unequivocally
how much of this amount is accounted for by State aid. It
is equally impossible to identify specific payments made
under the cash concentration system as deriving from the
aid or from the funds received from MTW and Volks-
werft, since other subsidiaries of the BVV group such as
Flender Werft and STN Atlas Elektronik were also net
contributors to the system. Total deposits in the cash
concentration system by the end of 1995 amounted to
DEM 972,1 million,
including the abovementioned
amount of DEM 854,0 million originating from MTW
and Volkswerft. (14)

Over time the aid became so inextricably mixed up with
the yards’ other funds, such as advance payments received
or own liquidity, that it is no longer possible to say what
is aid and what is not. However, on the assumption that
all aid which had not yet been used by 31 December
1995 was placed in the cash concentration system, the
following amounts may be identified as aid:

(million DEM)

MTW

Volkswerft

268,1

55,3

1,5

60,7

107,2

0,0

324,9

167,9

112,4

85,0

0,0

54,4

28,1

Operating aid

Investment aid

Closure aid

Subtotal
(Lump-sum cash subsidy)

+ investment loan

+ accrued interest on aid

(estimate) (1)

+ transferable interim payments of

16,0

regional aid

The KPMG interim report contains an initial itemisation
of the main uses and recipients of the funds taken from
the cash concentration system. The basis for this itemisa-
tion was a letter dated 31 January 1996 from a senior
employee of BVV to the BvS. The origin of the funds in
the cash concentration system had at that time hardly
been explored, as a result of which only a spread of
potentially misused funds could be mentioned in the
decision initiating proceedings.

It was then that Germany commissioned Susat to clarify
matters further. In the first part of its comments of 3
September 1996, Germany reports on the findings of the

Grand total

538,3

250,4

Grand total both yards

788,7

(1) Source: Susat report of 5 September 1996, Annex 2a; by contrast to
Germany’s comments of 3 September 1996, this interest calcula-
tion is based on the actual dates on which the funds were
disbursed. The figures do not include any interest on the invest-
ment loan as this was provided interest-free until March 1997.

(13) According to the auditor’s report, some further transactions
took place up until 21 February 1996, so the balance in
favour of
the eastern yards on that date was DEM 846,1
million.

(14) As a result of a series of transactions and interest accrued
before BVV became insolvent, the total amount of claims by
the two yards on BVV increased to DEM 868,9 million
(including DEM 596,9 million for MTW and DEM 272,0
million for Volkswerft).

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The interim payments of regional aid originate from aid
received under the joint Federal Government/L(cid:132)nder
programme for improving regional economic structures.
Under the privatisation agreement, they were to be paid
back by the yards to the BvS.

5. Investigations into the uses to which the misused

funds were put

Finding answers to the question as to what the misused
funds had actually been spent on proved to be extremely
difficult. Although BVV had announced the opening of
debt composition proceedings on 21 February 1996, the
new chairman of the managing board was prepared only
days before the liquidation began on l May 1996 to place
documents at
the disposal of Susat’s employees and
release the previous auditors from their obligation of
secrecy. The requested documents were not made avail-
able until later, and then only partially. The BVV board
members responsible for financial and auditing matters
said they were not prepared to talk. It was therefore not
possible to verify the BVV data set out in the letter of 31
January 1996 (see above). As indicated in the Commission
decision extending the proceedings, Susat saw no reason
to question the veracity of BVV’s statements. Nevertheless
the figures did not, it realised, reflect every movement of
funds between 1993 and 1995,
individual transactions
having been singled out. Nor, it said, could any direct
connection between the in-payments made by MTW and
Volkswerft and specific uses be deduced from the data.

Lawyers acting on behalf of DSR-Senator Lines GmbH
have proved, however, with the help of a letter sent by
Germany on 19 December 1996, that BVV’s data are to
some extent manifestly wrong, something which was also
conceded by Susat in a letter dated 5 February 1997 (15).

BVV’s statements of 31 January 1996 therefore appear on
the whole to be unusable as proof of the uses to which the
funds were put. The Commission asked Germany on a
number of occasions to take further steps to clarify the
uses to which the aid had been put in BVV’s various areas
of activity between 1993 and 1995. Germany finally
replied in a letter dated 17 July 1997 that:
‘The Federal
Government does not know for certain what use was
made of the funds taken from the yards through the cash
concentration system. Despite extensive inquiries
in
connection with the enforcement of the BvS’s claims,

(15) Letter from Germany to the Commission dated 6 February

1997.

which are being asserted also against members of BVV’s
managing board (16), a precise correlation with specific
financial transactions within BVV cannot at present be
established.' According to the information currently avail-
able, direct proof of the use of the aid intended for the
eastern yards to cover specific expenditure by named
companies elsewhere in the BVV group is therefore not
on hand.

Since for the reasons given above it is not possible to
obtain any direct evidence of
the uses to which the
misused funds were put, Susat concentrated its efforts on
deducing the use made of the funds from the account
balances of the group member companies in the cash
concentration system. This proved possible, however, to
only a limited extent.

(cid:190) The cash concentration system was introduced in
1993/94 to cover the liquidity requirements of the
various group activities and companies as
far as
possible from internal sources and thus to limit
recourse to the more costly alternative of credit lines
from banks. The various group member companies
joined the system by concluding an agreement with
BVV. In some cases, especially in that of MTW, enor-
mous pressure was brought to bear by the group’s top
management. From the beginning of 1995 onwards,
virtually every payment
transaction involving the
group member companies was carried out through the
cash concentration system. The number of accounting
operations is therefore extremely high and it is techni-
cally impossible to determine the proportion of aid in
a given payment. The funds were reshuffled almost
daily and the aid was mixed up inseparably with funds
from other sources.

subsidiary and its

(cid:190) The cash concentration system had a pyramid-like
structure. Credit relationships were always established
immediate parent
between a
company. As a rule this was an intermediate holding
company subordinate to the BVV holding company
itself. The balances held by the intermediate holding
companies were equalised using the target account of
the BVV holding company, which decided on the
granting of credit lines to the various group member
companies. The intermediate holding company for
MTW and Volkswerft was Vulkan Schiffbau Verbund
GmbH (VSV), in which all the shipbuilding and ship-
ping activities of the group were clustered (17). As a
result of this pyramid-like structure, at no time was
there any direct credit relationship between MTW/
Volkswerft and the other operational units of BVV,
such relationships existing solely vis-a-vis VSV. By
virtue, however, of
the applicable provisions of
German law on liability in a de facto group, the
claims of these shipyards are also enforceable against
the umbrella holding company BVV.

(16) The judicial

inquiries did not reveal anything new in this
respect. It must be assumed at present that, within the group
also, the eastern yards’ funds were not kept separate; see judg-
ment of the Bremen Regional Court of 8 October 1997, Case
No 4-O-1073/96.

(17) The shipping company DSR-Senator Lines did not belong to
VSV and did not participate in the cash concentration
system, being an ‘associated company' within the ship-
building division.

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equalised, but

(cid:190) The cash concentration system was brought to an end
between December 1995 and February 1996. By then
BVV’s difficulties had reached the stage where busi-
ness was being conducted normally in only a few areas
of activity. When the system was closed down, the
accounts were not
instead each
company was either in the black or in the red. It
cannot be concluded directly, however, from the fact
that a group member company was in the black that
that company had profited from the misuse of aid.
Although most companies were either permanently in
the black or permanently in the red (18), in a number
of cases the position changed towards the end more or
less by chance owing to in-payments which were in
no way connected with State aid. Bremer Vulkan
Werft GmbH had been in loss for many years and was
accordingly a long-standing debtor towards the cash
concentration system. However, since towards the end
of 1995 the yard received a series of interim payments
for ships under construction, it finished in the black.
By contrast, Geeste Metallbau GmbH, a supplier to
the yard, had for years been in profit. Only when
Bremer Vulkan Werft wrung price concessions out of
it with retroactive effect and refused to pay bills did it
fall into the red. The transfer prices for internal group
services were not actual market prices. Especially
when one analyses the deliveries of ships by group
member yards to shipping companies linked to the
group, the services provided turn out to be overvalued.
Lastly, account must be taken of the fact that in a
number of cases the fact of being in the black was
influenced by a remission of debt by the holding
companies.

it can therefore be said that

To conclude,
the final
accounting positions in the cash concentration system
represent no more than a snapshot of the financial posi-
tions of the group member companies within the group.
Owing to the system’s pyramid-like structure, MTW and
Volkswerft could not assert any claims against other oper-
it is
ative companies belonging to the group. Overall
quite clear that the substantial sums of money that were
employed by BVV under the cash concentration system
largely originated as aid for MTW and Volkswerft. There
is also a strong likelihood that those companies that were
persistently in the red benefited from the misuse of aid.
But because of the constant mixing with other funds and
for the other reasons given above, the proportion of the

(18) The former category included, for example, STN Atlas Elek-
tronik GmbH, Flender Werft AG and MTW-Schiffswerft
GmbH, while the latter category included D(cid:148)rries Scharmann
AG, Dieselmotorenwerk Vulkan GmbH and
Schichau-
Seebeckwerft AG.

final liabilities of each subsidiary accounted for by aid can
be determined only with the help of various assumptions.
A clear causal link proving beyond a shadow of doubt that
certain amounts held by a subsidiary started out as aid
cannot as a rule be established. Germany accordingly
endorses Susat’s view that a direct connection between the
amounts paid out of the cash concentration system and
the amounts paid in by MTW and Volkswerft cannot be
proved (19). In the case of D(cid:148)rries Scharmann AG, which
according to Germany’s letter of 3 September 1996 with-
drew DEM 304,5 million from the cash concentration
system,
the
company was the recipient of misused aid. The overall net
payments from other sources would not otherwise have
sufficed to cover the company’s liquidity requirements.

it can, however, be said for certain that

6. Steps taken by the German authorities to recover

the misused funds

The misused aid forms part of the funds that accrued to
BVV from MTW and Volkswerft through VSV in the form
of loans under the cash concentration system. Both BVV
and VSV have been insolvent since 1 May 1996. The
repayment claims of MTW and Volkswerft were added to
the schedule of debts in both sets of insolvency proceed-
ings and confirmed down to the smallest amounts (of no
relevance from an aid point of view) by the liquidator.
The aid and the other funds in the cash concentration
system can thus be retraced in so far as BVV and VSV still
have any resources or saleable assets. The sale of assets as
part of the liquidation also includes any shares in subsi-
diaries and any claims by BVV and VSV against subsidia-
ries.

The repayment claims of MTW and Volkswerft will be
met once the liquidation proceedings are terminated up
to the amount of the dividend for non-preferential cred-
itors. BVV’s liquidator stated back in 1996 that it will
probably not be possible to pay any dividend for non-
preferential claims.

When MTW and Volkswerft were taken over, all their
repayment claims against BVV and VSV were assigned to
the BvS, which is now following them up. At the same
time, the BvS renounced all claims for recovery against
the two yards. As stated in the Commission’s proposal for
a regulation on aid to certain shipyards under restruc-
turing (20), this was necessary to allow the restructuring to
go ahead.

(19) Letter from Germany dated 17 July 1997.
(20) OJ C 153, 22.5.1997, p. 3.

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following up the claims

in the liquidation
Besides
proceedings, the BvS has brought actions for damages
against five BVV management board members before the
Bremen Regional Court. On 8 October 1997 the court
dismissed four of these actions, finding that the board
members were not personally liable. The BvS has
appealed against these decisions. The trial court has yet to
deliver judgment in the fifth case.

ance with the decisions of the Council and the Commis-
sion, to have made sure that it did exert sufficient influ-
ence and thus be in a position to ascertain that the aid
was being used properly. The association called lastly for
improved, uniform monitoring of the use of aid by the
Commission. Until this was assured, no further aid deci-
sions should be taken.

III. COMMENTS FROM THIRD PARTIES ON THE

EXTENSION OF THE PROCEEDINGS

Following the initiation of proceedings the governments
of two Member States sent comments to the Commission.
the notice
These were summarised in Part
concerning the extension of the proceedings (21).

III of

The governments of two Member States, two national
shipbuilding associations and seven companies stated
their positions on the extension of the proceedings.

first,

the aid
One Member State took the view that,
amounts that had not been authorised by the Council or
the Commission should be recovered from the companies
(i.e. MTW and Volkswerft) in accordance with normal
practice. Second, any aid unlawfully received by other
companies belonging to the BVV group should be recov-
ered. The other Member State doubted whether MTW and
Volkswerft needed any fresh restructuring aid. The sale of
BVV’s assets should have sufficed to cover both yards’
new liquidity requirements.

It is not the purpose of these proceedings to assess any
new restructuring aid for MTW and Volkswerft. The
matter was discussed in the Council in connection with
Council Regulation (EC) No 1013/97 of 2 June 1997 on
restructuring (22). The
aid to certain shipyards under
Commission would point out, however, that the proceeds
from the sale of BVV’s assets benefited only preferential
creditors. It was not possible to finance the further
restructuring of MTW and Volkswerft out of
these
resources.

One shipbuilding association likewise objected strongly
in its comments to the granting of any fresh aid to MTW
and Volkswerft. In its view the yards were themselves
responsible for transferring the funds to their parent
company and they themselves ought therefore to see to
their recovery. All aid should, it stated, be paid back to
the State if it could not be proved that it had been used
for the purpose for which it was intended. The argument
to the effect that Germany had no influence over the
misuse was not satisfactory. Germany ought, in accord-

(21) See footnote 2.
(22) OJ L 148, 6.6.1997, p. 1.

The other shipbuilding association took the view that
MTW and Volkswerft had profited from the cash concen-
tration system through their links with BVV. At all events
BVV had, it claimed, gained a competitive advantage over
the yards belonging to the association, and the conduct in
question was partly responsible for the collapse in prices
in the shipbuilding market. In 1996 four out of five east
German yards had exceeded their capacity limits. All
these points should, it argued, be taken into consideration
in the decision on fresh aid to MTW and Volkswerft.

As indicated above, these proceedings are not concerned
with the question of new aid. As regards any exceeding of
capacity limits, as far as the Commission is aware this
occurred only in the case of MTW. The Commission
punished this infringement by reducing the aid in its
decision of 30 July 1997 (23).

seven companies, which were

The
all previously
connected with BVV either as subsidiaries or as associated
companies, all state in their comments that they had no
knowledge of the refinancing of the cash concentration
system or of the misuse of the aid. They had assumed
from statements by the group’s top management that the
banks had granted generous lines of credit and that there
was a large amount of freely disposable liquid assets.
Individual companies belonging to the group also refer to
their limited independence when taking strategic deci-
sions in the financial sphere, when acquiring new subsi-
diaries and when performing large contracts within the
group. They were therefore not commercially responsible
for the losses they had had to cover through obligations
under the cash concentration system. According to Lloyd
Werft Bremerhaven, Schichau Seebeckwerft AG and
Volkswerft, this applied especially to the second half of
1995 when those companies had been compelled to
contract loans on behalf of the group and had had to
provide part of their assets as guarantees.

DSR-Senator Lines pointed out, lastly, that in its case
misuse of aid through the cash concentration system was
impossible. The relevant liquidity inflows had occurred at
a time when the two yards did not yet have the resources,
and DSR-Senator Lines had never been included in the
cash concentration system.

(23) Case C 60/96, see OJ C 344, 14.11.1997, p. 2.

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L 108/41

The German Government stressed in its reply that,
despite extensive inquiries,
it could draw no definite
conclusions as to the uses to which the aid had been put.
Owing to the large number of in-payments and out-
payments by the companies participating in the cash
concentration system, there was no concrete evidence on
the allocation of specific aid resources. In the absence of
proof to the contrary,
it had to be assumed that the
companies which benefited from the cash concentration
system were not, and could not have been, aware of the
outflow of aid from the yards. Especially when BVV was
under a contractual obligation to finance companies (24),
those companies’ managers were entitled to rely on being
able to receive funds under the cash concentration system
for that purpose. Germany reserved the right, however, to
take further steps if new evidence came to light and was
therefore not in a position to comment on the observa-
tions made by individual companies.

IV. ASSESSMENT

The notifications of the restructuring programmes for
MTW and Volkswerft were from the outset incomplete
and, in part, factually incorrect inasmuch as Germany did
not inform the Commission of the agreements it had
reached with BVV on the payment of the lump-sum cash
subsidy. The reasons given, namely that if other payment
conditions had been imposed there was a risk that BVV
might have refused to take over the yards, and that
Germany assumed that authorisation would be forth-
coming for payment of the entire aid amount in one
instalment, cannot justify this behaviour. If only because
of the agreement to the effect that the interest on the as
yet unauthorised amounts would be waived with retroac-
tive effect once the aid was authorised by the Commis-
the advance payments
sion, Germany’s argument
took the form of loans at normal commercial rates is
incorrect. Member States are required pursuant to Article
11(2) of Directive 90/684/EEC to notify to the Commis-
sion in advance any new aid scheme covered by the
Directive and they may not put it into effect without the
Commission’s authorisation. Germany has disregarded
this provision. The infringement took place throughout
the period from October 1992 until the time of BVV’s
collapse, as even when it applied for the release of further
instalments Germany omitted to inform the Commission
of the earlier payments.

that

It follows both from the provisions of Articles 6 and 7 of
Directive 90/684/EEC and above all from the exception
provided for by Article l0a as inserted by Directive 92/
68/EEC that all restructuring aid payments had to be

(24) Such obligations existed above all in respect of businesses in
the new L(cid:132)nder which had been taken over by the Treu-
handanstalt.

strictly limited to the activities of yards situated in the
new L(cid:132)nder. When Directive 92/68/EEC was adopted,
the Commission undertook to ensure that the yards in the
new L(cid:132)nder received only such aid as was needed for
restructuring. The Commission referred to these provi-
sions in each of its decisions releasing instalments of the
aid. The decisions also contained a statement of
the
reasons for the size of the relevant aid instalment. In
assessing the scale of operating aid the Commission took
into account both the need for the aid and the deadline
referred to in Article l0a(2)(a). In assessing the instalments
of investment and closure aid to be authorised pursuant to
Articles 6 and 7, it was guided in conformity with those
provisions by the need for funds in the light of the
investment and redundancy plans submitted by Germany.
In the course of the proceedings Germany did not furnish
any information which might have objectively justified
the advance payment of aid the release of which had not
the deadline
yet been authorised. On the contrary,
referred to in Article 10a led in the case of operating aid
to payments being authorised well before the need for
funds actually arose. As a result of repeated delays in the
implementation of
the
amount of investment aid authorised for release almost
always exceeded the need for funds at that particular
moment. The payment of aid without the Commission’s
prior authorisation and in excess of the amounts author-
ised was therefore not only expressly unlawful, but it was
objectively unjustified and incompatible with the provi-
sions of Articles 6 and 10a of Directive 90/684/EEC (as
amended).

the investment programme,

loan'

This holds true especially for the DEM 112,4 million
‘investment
to MTW-Schiffswerft, which was
granted on 22 March 1993 but never used for investment
purposes, and for the DEM 70,5 million of investment aid
for Volkswerft, which was paid in January 1994 despite
the fact that up until the time of BVV’s collapse there was
no need for it.

The regional aid totalling DEM 44,1 million (DEM 16,0
million for MTW and DEM 28,1 million for Volkswerft)
which found its way into the cash concentration system is
likewise to be considered incompatible. These amounts
can be traced back to the joint financing of the restruc-
turing drive, being funds from the Treuhandanstalt and
the joint Federal/L(cid:132)nder development programme. It was
never intended by the providers of the aid that it should
be retained by the recipient companies, being instead
repayable under the privatisation agreements to the Treu-
handanstalt/BvS. Ultimately, however, additional aid was
channelled through the chosen handling mechanism to
the companies and the needs-based amount authorised in
each case by the Commission was exceeded.

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Official Journal of the European Communities

27. 4. 1999

the advance payments produced considerable
Lastly,
benefits in terms of interest earned. According to the
Susat report’s calculations, this may be put at some DEM
100 million for the period between 1992 and the begin-
ning of 1996. On the basis of the assumptions made in
that report, which though simplistic are basically plau-
sible, during that period a total of DEM 139,7 million
accrued as interest,
including approximately DEM 39
million attributable to authorised aid from the time of its
authorisation.

Of the DEM 788,7 million of aid which according to the
analyses submitted by Germany was to be found on 31
December 1995 in the cash concentration system,
approximately DEM 327 million consisted of amounts
whose disbursement had not been authorised by the
Commission and which must be considered incompatible
with the Treaty.

Commission that the BvS has taken the steps required by
German law to recover the aid as part of the BVV and
VSV insolvency proceedings,

HAS ADOPTED THIS DECISION:

Article 1

for

The aid which was granted to MTW-Schiffswerft GmbH,
Wismar, and Volkswerft GmbH, Stralsund,
their
restructuring was disbursed without being notified fully to
the Commission in advance. It was therefore granted
unlawfully in infringement of Article 11 of Directive 90/
684/EEC and Article 93(3) of the EC Treaty. Including
interest accruing up until
the two
companies received approximately DEM 327 million
more in the way of aid than had been authorised by the
Commission. The granting of this additional amount of
DEM 327 million infringes Articles 6 and 10a of
Directive 90/684/EEC. This aid amount is accordingly
incompatible with the common market.

the end of 1995,

It has not been clearly ascertained so far, however, for
what purposes the aid which, though disbursed, has not
been used, was applied in each case. There are basically
two reasons for this. Contrary to normal commercial prac-
tice, the Treuhandanstalt did not ensure that provision
was made in the privatisation agreements
for any
earmarking of the lump-sum cash subsidy or for any
suitable monitoring procedures. With the exception of
the sums placed in a blocked account at the end of 1993,
the aid became mixed up with the group’s other funds.
From 1995 at the latest this state of affairs became irrever-
sible owing to the multitude of transactions in the cash
concentration system. According to the available docu-
ments, in particular the expert’s report of the auditors
Susat, it is however very likely that at least the main
debtors under the cash concentration systems received
parts of the misused aid. In the case of D(cid:148)rries Schar-
mann AG (which went into bankruptcy in the meantime)
this is to be regarded as certain, even if the exact amount
cannot be established until now. When the system was
wound up, all the claims of MTW and Volkswerft were
offset by liabilities of other parts of the BVV group. These
claims,
included aid
amounting to DEM 788,7 million. It is certain, therefore,
that this aid has not, as required by Article l0a(2)(d) of
Directive 92/68/EEC, benefited only yards in the former
German Democratic Republic, and that the aid for MTW
and Volkswerft has been misused within the meaning of
Article 93(2) of the EC Treaty. According to that provi-
sion, misused aid must be abolished or altered. Alteration
of the aid in the sense of restitution of the misused
amounts to MTW and Volkswerft is out of the question as
when they were hived off from BVV both yards assigned
their claims to the BvS. All the misused aid, totalling
DEM 788,7 million, must therefore be abolished and
recovered. The German Government has informed the

totalling DEM 854 million,

Article 2

The aid referred to in Article l and part of the aid which
was authorised by the Commission for the restructuring
of the two yards was misused elsewhere in the Bremer
Vulkan Verbund AG group. On the basis of the analyses
submitted by Germany, the-total amount of funds thus
misused may be put at DEM 788,7 million. This misuse
constitutes a misuse of aid within the meaning of Article
93(2) of the EC Treaty.

Article 3

Germany shall recover the misused aid from Bremer
Vulkan Verbund AG as part of the insolvency proceed-
ings concerning that company and shall take all steps
required by German law to recover any partial amounts
from companies previously belonging to the Bremer
Vulkan group should suitable opportunities arise in the
course of subsequent inquiries. In the recovery of the aid
according to the procedures and rules under German law,
accrued interest is to be taken into account.

Article 4

The German Government shall inform the Commission
within one month from the date of notification of this
Decision of the measures taken to comply therewith and
of their outcome.

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L 108/43

This Decision is addressed to the Federal Republic of Germany.

Article 5

Done at Brussels, 22 July 1998.

For the Commission

Franz FISCHLER

Member of the Commission