1999/378/EC: Commission Decision of 4 November 1998 on aid granted by France to Nouvelle Filature Lainière de Roubaix (notified under document number C(1998) 3515) (Text with EEA relevance) (Only the French text is authentic)
Date: 1998-11-04
Institutions: European Commission
Subjects: France, State aid, aid to industry, investment aid, regional aid, textile industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 4 November 1998

on aid granted by France to Nouvelle Filature Lainière de Roubaix

(notified under document number C(1998) 3515)

(Only the French text is authentic)

(Text with EEA relevance)

(1999/378/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 interested parties notice, in accordance
with the abovementioned Articles,
their
comments, and having regard to those comments,

to submit

Whereas:

formation to the Commission. By letter dated 19
September 1996, the Commercial Court of Roubaix-Tour-
coing forwarded to the Commission the judgment of 17
judiciaire'
September 1996 under
procedure (administration under supervision of a court)
concerning SA Filature Lainière de Roubaix.

the ‘redressement

By letter dated 18 August 1997,
the Commission
its decision to
informed the French Government of
initiate proceedings under Article 93(2) of the Treaty with
respect to the aid. The Commission’s decision to initiate
proceedings was published in the Official Journal of the
European Communities (1). The Commission called on
the interested parties to submit their comments on the
aid.

I. PROCEDURE

By letters dated 6 May and 16 September 1996,
the
German industrial association ‘Industrieverband Garne
and Gewebe' drew the Commission’s attention to aid
which had been granted or which might have been
granted to Nouvelle Filature Lainière de Roubaix.

the French Government

By letter dated 25 September 1996 and at the express
request of the Commission by letters dated 15 May and 3
July 1996,
informed the
Commission of aid which it had granted or intended to
grant to Nouvelle Filature Lainière de Roubaix. By letters
dated 22 November 1996, 16 January, 2 April and 3 July
1997, the French Government submitted additional in-

this letter,

the Commission sent

By letter dated 24 September 1997, the French Govern-
ment submitted its comments to the Commission. On the
the French
basis of
Government additional
information in letters dated 2
March and 17 June 1998, to which the French Govern-
ment replied by letters dated 8 May, 21 July and 16
October 1998. Additional information was received by
letter dated 30 October 1998.

II. DESCRIPTION OF THE AID

This Decision concerns aid in the form of an equity loan
of FRF 18 million and an investment premium of FRF 22
million which the French Government has granted to
Nouvelle Filature Lainière de Roubaix as part of
the
‘administration procedure' concerning the group SA Fila-
ture Lainière de Roubaix.

(1) OJ C 392, 24.12.1997, p. 6.

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1. The recipient

as

to

(hereinafter

Following the company’s bankruptcy, the Commercial
Court of Roubaix decided on 30 April 1996 to initiate the
‘judicial administration'
(redressement judiciaire) proce-
dure with respect to the group SA Filature Lainière de
Roubaix
SA Filature),
referred
comprising three companies (SA Groupe Lainière, SA
Lainière de Roubaix and SA Proditex). By judgment of 17
September 1996, having ascertained that
the plan for
recovery via the clearing of liabilities in accordance with
Article 18 of Law No 85/98 of 25 January 1985 was not
feasible and having invited bids with a view to selling the
company, the Commercial Court of Roubaix decided that
the company should be sold in accordance with the
abovementioned Law to a newly created public limited
company with a capital base of FRF 510 000 named
(hereinafter
‘Nouvelle Filature Lainière de Roubaix'
referred to as Lainière de Roubaix).

from 1
the above judgment, and with effect
Under
October 1996, the assets of the companies undergoing the
administration procedure and most of the business and
service contracts concluded by those companies were sold
to the shareholders of the new company for FRF 4,8
million. The assets taken over were estimated on 1
September 1996 at FRF 50,956 million and were made up
as follows: intangible assets and financial assets: none;
tangible movable assets: FRF 21,126 million; stock and
work in progress: FRF 20,676 million; debts to be recov-
ered: FRF 3,647 million and liquid assets: FRF 5,507
million. The financial debts of the companies undergoing
the administration procedure, the figures for which were
not communicated to the Commission, were cleared as
then
part of
granted the new company the aid in question described
below. In the grounds for the judgment of sale to the
buyer, the Court took into account the fact that France, in
the person of
the Procureur de la République, had:
‘confirmed State support to the amount of FRF 40 million
according to the arrangements offered by each of the
bidders, and hopes that the Court will adopt the plan
which will ensure rigorous use of public funds restricted
solely to the assets necessary to finance the recovery of
the companies acquired, excluding the possibility of any
equity investment or external expansion and ensure the
continuity of business and employment'.

the procedure. The French Government

2. Restructuring and investment by the recipient

 Restructuring measures undertaken by the recipient

Under the supervision of the administrator appointed by
the Court of Roubaix to implement the plan, the new
shareholders reduced capacity by closing down one area

turnover,

In terms of

of production, the heavily loss-making manufacture of
basic yarns. Thus around 60 % of the production capacity
of the former SA Filature, i.e. some loss-making produc-
tion units and one entire industrial site (Proditex), was
the
definitively closed down.
projected business of
the new company is FRF 150
million, i.e. 38 % and 26 % of the turnover in 1995 and
1994 respectively. Production is reoriented towards more
specialised products with greater added value. With the
Court’s authorisation, the new company has also made
339 of the 587 employees of the former group redundant.
Under
the Court of
Roubaix decided that Lainière de Roubaix must make a
redundancy payment of FRF 50 000 to each employee
dismissed (i.e. a total of FRF 16,95 million for the 339
jobs cut).

the abovementioned judgment,

However, as the Commission has already noted in its
decision to initiate proceedings, the French Government
did not forward a restructuring plan which would allow
the Commission to assess restoration of the recipient
company’s long-term viability and the need for the aid.
By the letter referred to above of 2 March 1998, the
Commission asked the French Government to forward:
‘the latest financial information available on Lainière de
Roubaix (. . .), i.e. the detailed balance-sheet and financial
statement, including the trading account'.

By letter dated 8 May 1998, the French Government sent
the Commission, in addition to the projected profit and
loss figures for 1996 to 1999, which it had already sent in
the letter of 2 April 1997, the provisional profit-and-loss
the French
account at 31 December 1997. However,
Government did not
information
forward the other
requested.

 Restructuring costs

At the repeated request of the Commission with a view to
obtaining additional information on the exact costs to be
covered by the FRF 18 million loan, the French Govern-
ment sent the following information:

 by letter dated 16 January 1997, the French Govern-
ment calculated the costs of restructuring at FRF 14,5
million,
including FRF 12,5 million for retraining
leave and FRF 2 million for redeployment of the
employees made redundant. The French Government
also stated in the same letter that ‘some 20 people had
taken early retirement, in accordance with the provi-
sions of ordinary law'; however, the French Govern-
ment did not indicate how much this measure might
cost,

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 by letter dated 2 April 1997, the French Government
confirmed that the FRF 18 million loan was to cover
the costs of ‘maintaining activity and rapidly adapting
the wage bill via the social plan implemented
following the judgment of 17 September 1996',

 in its letter of 8 May 1998, the French Government
calculated the costs relating to restructuring as follows:
extra rent for premises not necessary for production
for the period 1996/1997: FRF 2,2 million; cost of
transfer of products (handling)
involving unloading
and reloading detrimental
to the organisation of
production: not quantified: renovation of premises:
FRF 2,5 million; cost relating to the under-produc-
tivity of the company in the first six months: FRF 10
million; training costs: not quantified; costs relating to
the welfare benefits of employees not made redundant
in accordance with French law: not quantified; costs
of setting up a management control system: not quan-
tified,

 by letter dated 21 July 1998, the French Government
maintained that it was ‘in effect impossible to allocate
a resource precisely to specific jobs'. The French
Government also indicated that the loan corresponded
to the period of
restarting activity following the
administration procedure and confirmed the use of
the FRF 18 million loan for costs
relating to
restarting, for financing running costs and for part of
the planned investments. The French Government
also calculated the costs of under-productivity of the
company in the first six months at FRF 10 million,
the costs of renovating premises (letter of 8 May 1998)
at FRF 2,5 million and the costs of the extra rent to be
paid for premises not necessary to production for the
period 1996/1999 at FRF 5 million. It mentioned the
costs of retraining employees (not quantified) and the
extra costs relating to welfare benefits due to the
seniority of most of the employees taken over (FRF
1,6 million a year),

 by letter dated 16 October 1998, in addition to the
information given in the letter of 21 July, the French
Government indicated that additional [ . . . ] (*) could
arise [ . . . ] *. At the time of the letter, however, this
figure was not final.

 Investment costs

Lainière de Roubaix
implemented an investment
programme amounting to FRF 22,2 million, spread over
three years, aimed at improving the efficiency of produc-

(*) Parts of this text have been edited to ensure that confidential
those parts are enclosed in

information is not disclosed;
square brackets and market with an asterisk.

tion plant at
the sites and minimising related costs
(heating, maintenance, etc.). The programme involves the
modernisation of obsolete machinery from the point of
view of quality and productivity, the acquisition of new
spindles (FRF 9,5 million), the development of differen-
tiated products such as Plyfil Lycra (FRF 7,6 million) and
the installation and retrofitting of a boiler (FRF 5,1
million).

 Other information

(spinning of woollen yarn) and is

At present, Lainière de Roubaix operates in the textiles
sector
in direct
competition with other producers in Europe and Asia. It
is located in the Nord/Pas-de-Calais region, which is
eligible for regional aid under Article 92(3)(c) of
the
Treaty and in accordance with the Commission Decision
of 14 September 1994 on the regional planning grant
scheme for industrial projects (2). According to the letter
of 24 September 1997 and on the date the company was
taken over, Lainière de Roubaix currently has 248
employees, a (projected) turnover of FRF 150 million and
a balance sheet total of FRF 60 million. A total of 85 %
of the capital is held by natural persons.

According to information from the French authorities,
Lainière de Roubaix has a market share of only 0,4 % of
European production and 8 % of French production.
About 50 % of its output is exported, over half of this
figure being accounted for by other Member States.

3. The aid granted

(a) FRF 18 million loan

The French Government communicated the following
conditions governing the equity loan of FRF 18 million:
duration 12 years, comprising an initial two-year grace
period with a fixed interest rate of 4,5 % followed by 10
years with an interest rate of 6,5 %, plus an additional
amount indexed on retained earnings. By letter dated 2
April 1997, the French Government communicated the
consolidated projected profit-and-loss figures for Lainière
de Roubaix showing the interest on the equity loan at
FRF 200 000 for 1996, FRF 800 000 for 1997, FRF
900 000 for 1998 and FRF 1 100 000 for 1999. In its letter
of 2l July 1998, the French Government maintained that
the loan had been granted under market conditions.

(2) OJ C 364, 20.12.1994, p. 6.

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In reply to the Commission’s question in its letter of 17
June 1998, i.e. whether Lainière de Roubaix had, at the
time the State loan was granted, obtained loans from
private banks and, if so, on what terms (interest rate, grace
period, duration, etc.), the French Government told the
Commission that: ‘the company was given (. . .) an author-
ised ceiling for financing of FRF 28 million with a finan-
cial institution at a rate currently of the order of 4,2 %'.

The French Government did not, however, communicate
the terms of the loan at the time the State equity loan was
granted, or the status of the financial institutions involved.

letter dated 11 November 1991, the French Government
accepted the above proposal of individual notification for
cases of aid over FRF 5 million. This amount has clearly
been exceeded in the case in question.

III. COMMENTS UNDER

THE
PROCEEDINGS

ARTICLE

93(2)

By letter dated 2 April 1997, the French Government
confirmed that the equity loan had been granted before
the plan for the takeover by Lainière de Roubaix came
into effect on 1 October 1996.

In its decision to initiate proceedings, the Commission
raised doubts concerning the compatibility of the aid with
the common market. It gave the following reasons.

1. Reasons given by the Commission for initiating
Article 93(2) proceedings

(b) FRF 22 million investment premium

As part of the takeover plan, the French Government also
granted Lainière de Roubaix an investment premium of
FRF 22 million on the basis of
the abovementioned
investments.

This money was deposited in a sequestration account in
the hands of the administrator appointed by the Court of
Roubaix to implement the plan. The funds are being
released as the company implements the plan. The
French Government did not inform the Commission how
much aid had already been released.

(c) Legal basis of the aid

The equity loan was granted by the government on an ad
hoc legal basis. It is not part of an aid scheme approved by
the Commission.

The FRF 22 million investment premium was granted on
the basis of the ‘Crédits de politique industrielle (funds
for industrial restructuring) scheme administered by the
Ministry of Industry (CIRI, budget
line 64-96)'. This
scheme has never been notified to the Commission in
accordance with Article 93(3) of the Treaty. However, by
letter dated 3 July 1991 to the French Government, the
Commission proposed, as an appropriate measure under
Article 93(1), that all cases of restructuring aid granted on
the basis of the scheme should be notified in advance. By

The Commission considers State aid for rescuing and
restructuring firms in difficulty on the basis of the Guide-
lines published in 1994 (3). On the basis of the informa-
tion available to the Commission at the time it initiated
proceedings, it was not able to determine whether the aid
granted could be considered compatible in accordance
with the criteria set out in the Guidelines. Furthermore,
since no restructuring plan had been submitted giving all
the information necessary to assess the compatibility of
the aid, the Commission was unable to ascertain the
company’s long-term viability or to check that the aid was
limited to the strict minimum needed to enable restruc-
turing to be undertaken. It nevertheless indicated that,
under certain conditions and up to a certain limit, the
company might be eligible for regional aid under Article
92(3)(c) of the Treaty.

2. Comments of the French Government under the
proceedings

The French Government insists that, in its view, the aid
granted to Lainière de Roubaix must be considered
compatible with the common market. It maintains that
the State measures to support
the company must be
considered as a whole, i.e. the investment aid and the
equity loan. These two measures, the abandonment of
structurally loss-making activities and investment
in
expanding market niches would be necessary to ensure
the company’s return to long-term viability.

Overall, by assuming a grant equivalent of FRF 22
million for the investment premium and FRF –0,4
million for the loan (based on the reference rate of
5,55 % as communicated by the Commission in its letter
of 18 August 1997), the French Government calculates
the grant equivalent of aid for restructuring at FRF 21,6
million or 55 % in terms of aid intensity (letters dated 24
September 1997 and 8 May 1998).

(3) OJ C 368, 23.12.1994, p. 12.

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the period generally set

The French Government also insists that the FRF 18
million loan must be regarded as rescue aid within the
meaning of the Guidelines, even though it is of over six
months’ duration,
the
maximum in the Guidelines. The aid should therefore be
considered compatible with the common market (letter of
24 September 1997). It also disagrees that
the aid is
illegal, while refusing to discuss the point (letter of 8 May
1998). It challenges the view taken by the Commission in
the French
its decision to initiate proceedings
Government did not submit sufficient information for the
Commission to ascertain the company’s long-term viabi-
lity (letter of 24 September 1997).

that

as

The French Government also maintains that
the aid
granted to Lainière de Roubaix cannot be regarded as
distorting competition. First, the new company had made
a considerable reduction in capacity and closed certain
production sites and, secondly, its share of the European
market was trifling (letter of 24 September 1997). In the
French Government’s view,
the company should be
regarded as an SME under the Community definition,
located in a region eligible for regional aid under Article
92(3)(c) of the Treaty with an admissible aid intensity of
up to 33 % for an SME (letter of 24 September 1997).
Finally, the French Government submitted information
showing that the market on which Lainière de Roubaix
currently operates does not suffer from overcapacity but,
on the contrary, is growing (letter of 8 May 1998).

3. Comments from interested third parties

As part of the proceedings, the company ‘Leuze Textil
GmbH & Co.', Owen-Teck, Germany (by letters dated 11
November and 17 December 1996 and 11 February
the company ‘Kammspinnerei Stöhr GmbH',
1998),
Mönchengladbach, Germany (by letter dated 23 January
1998) and the textile federation Febeltex (by letter dated
22 January 1998) submitted their comments to the
Commission. They essentially pointed to the difficulties
confronting the relevant market as such and called on the
Commission to examine the compatibility of
the aid
granted to Lainière de Roubaix. In a letter dated 2 March
1998, the Commission forwarded a copy of the letters to
the French Government and gave it the opportunity to
comment on them.

IV. ASSESSMENT OF THE AID

1. State aid within the meaning of Article 92(1)

(a) The FRF 22 million investment premium

The investment premium constitutes State aid within the
meaning of Article 92(1). It was granted by the State in
the form of a non-repayable grant to a specific company

and therefore gives that company a financial benefit of
FRF 22 million. Furthermore,
threatens to distort
competition, since it constitutes an economic advantage
which other producers were unable to benefit from. It
affects trade between Member States in so far as the
recipient company exports a large proportion of its prod-
ucts to other Member States.

it

The fact that the company made considerable reductions
in its production capacity does not in itself mean that the
measures in question do not constitute State aid within
the meaning of Article 92(1) of the Treaty. Similarly, the
recipient company’s relatively small share of the Euro-
pean market does not in itself mean there is no distortion
of competition. Without the aid in question, the recipient
company would not have been able to make the invest-
ments it has made; some of the recipient’s market share
could therefore have been won by its competitors.

(b) The FRF 18 million equity loan

An equity loan granted by the State confers an economic
advantage on the recipient in so far as it allows the
company to obtain capital on better terms than those
prevailing on the market. The market conditions and the
terms of the loan in question must be compared with
reference to the time the loan was granted, i.e., in the
absence of a precise date communicated by the French
authorities, the date of effective takeover on 1 October
1996, which was carried out with the loan under exam-
ination.

The method of calculating the rate applicable to the
equity loan chosen by the French Government includes
an additional amount for the final 10 years of the loan
depending on the company’s performance rather than on
the market rate. This method therefore makes it difficult
to conclude that
the equity loan was granted under
market conditions.

In the absence of precise information that would allow
the conditions of the loan granted by the State to be
the Commission
compared with market conditions,
applies a reference rate to calculate the aid component of
a loan. This is supposed to reflect the average level of
market interest rates in the Member States for medium-
and long-term loans with normal security. In this case,
the State granted an equity loan which gives it the option
of acquiring a holding in the company in question. This
measure is therefore similar to a capital injection by the
State. The Commission has published a notice setting out

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the conditions for assessing whether a capital injection by
the State constitutes State aid (4). In that notice,
the
Commission states that where fresh capital is injected into
a company, this does not involve State aid if the capital is
contributed in circumstances that would be acceptable to
a private
investor operating under normal market
economy conditions.

in so far as it

as an economic advantage granted by the State to the
recipient company. As with the investment premium, this
loan,
involves a financial advantage,
threatens to distort competition and affects trade between
the Member States. The loan therefore involves aid within
the meaning of Article 92(1) of the Treaty.

In the present case the Commission cannot conclude that
the equity loan from the French Government as part of
the takeover of the assets of SA Filature by Lainière de
Roubaix was granted on terms which would be acceptable
to a private investor operating under normal market
economy conditions. In its decision to initiate proceed-
ings, the Commission had already demonstrated that the
takeover of assets by the new company was based almost
exclusively on State aid, particularly in view of the low
capital base in comparison with the amount of aid
granted. Despite the Commission’s request, the French
Government did not demonstrate that Lainière de
Roubaix had received or could have received, at the time
the equity loan was granted by the State, loans or capital
injections on terms comparable to the terms of the loan
in question. Under these circumstances, in order to calcu-
late the aid component of the loan in question, the refer-
ence rate mentioned above must be applied as an indi-
cator of the market rate.

At the time the loan was granted, the method for setting
the interest rate used by the Commission with the agree-
ment of the Member States, meeting at the multilateral
meetings of 24 and 25 June 1993 and 15 December 1993,
was that which the Commission communicated to the
Member States by letter of 17 January 1994. On the basis
of this method, the Commission communicates the refer-
ence rate to the Member States at the beginning of each
year. By letter of 2 August 1996 to the French Govern-
ment,
the Commission notified the reference rate of
8,28 % applicable with effect from 1 August 1996 and
thus also applicable at
the time the equity loan was
granted by the State. In the absence of more precise
information on the return on a market equity loan
equivalent to that granted to Lainière de Roubaix, this
reference rate must be applied, for the period the loan has
already run, as a minimum market rate for the equity loan
granted in 1996.

The grant equivalent of the equity loan therefore consists
of the difference between the rate applied by the State
and the reference rate. This difference must be regarded

(4) Bull. EC 9-1984.

Thus, by applying the abovementioned reference rate and
assuming, in the absence of information provided by the
French Government, linear repayment of the loan, the
Commission calculates the gross grant equivalent of the
FRF 18 million equity loan at FRF 1 461 067 for the full
term of the loan (or, as an indicative figure should the rate
be raised to the same level as the reference rate at 31
December 1998, FRF 1 164 980).

The French Government also used the above method to
calculate the aid intensity as communicated in the letters
referred to above. However, the result of the calculation is
wrong,
in so far as the French Government used the
reference rate of 5,5 % in force at 1 August 1997,
communicated by the Commission to the French
Government by letter of 18 August 1997, and not that
applicable at the time the loan was granted.

2. Illegal nature of the aid

As demonstrated above, the aid was not granted on the
basis of a scheme approved by the Commission. Thus, in
breach of Article 93(3), the aid was granted before the
Commission had decided on its compatibility with the
common market. The same is true of the FRF 22 million
investment premium, even though it has not yet been
paid in full to the recipient, since the decision to grant it
has been taken and payment now depends only on
completion of the various stages of the investment. The
aid must therefore be regarded as illegal.

3. Compatibility of

the aid with the common
market

The aid is not compatible with the common market on
the basis of the derogations provided for in Article 92(2),
since it is not aid having a social character granted to
individual consumers and is not intended to make good
the damage caused by natural disasters or exceptional
occurrences. Nor does the derogation provided for in
Article 92(2)(c) apply. Similarly, the aid cannot be consid-
ered compatible on the basis of Article 92(3)(a), (b) or (d).
It does not promote the economic development of areas
where the standard of living is abnormally low or where

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10. 6. 1999

there is serious underemployment, pursuant to Article
92(3)(a), the Commission communication on the method
for the application of Article 92(3)(a) and (c) to regional
aid (5) and the Commission Decision on the regional
planning grant scheme for industrial projects (6). Nor is
the aid intended to promote the execution of an impor-
tant project of common European interest or to remedy a
serious disturbance in the economy of a Member State,
and it is not intended to promote culture and heritage
conservation.

Assessment of compatibility of the aid must therefore be
confined to the derogation provided for in Article 92(3)(c).
In this context, application of the derogation must be
examined on the basis of the Guidelines clearly setting
out the Commission’s interpretation of the derogation.

 Rescue and restructuring aid

cated above, the costs communicated to the Commission
contain significant disparities in the various letters sent by
the French authorities.

With regard to the company’s long-term viability, as the
projected accounts submitted to the Commission before
the proceedings were initiated appear to demonstrate
(letters of 22 November 1996 and 2 April 1997), the first
operating account provided includes errors in the calcula-
tion of the operating profit. The second indicates that the
company’s net profit for 1996 (some FRF 20 million) is
exclusively due to the investment aid. The net profit for
1999, when the restructuring is supposed to be complete,
is put at FRF 848 000, which would mean a steady drop
of 60 % to 70 % per year since 1996. Such figures could
be taken to reflect a certain lack of competitiveness in the
company.

For the following reasons, the Commission does not find
the aid may be considered compatible with the
that
common market.

It follows from the above that, even in the absence of a
restructuring plan within the meaning of the Guidelines,
the information provided by the French authorities does
not demonstrate the company’s long-term viability.

First, in line with the Commission’s consistent practice,
based on the Guidelines on aid for rescuing and restruc-
turing firms in difficulty (7), one condition for the compa-
tibility of restructuring aid is the submission of a restruc-
turing plan which would allow the Commission to assess
restoration of the recipient company’s long-term viability
within a reasonable timescale. The plan must be based on
realistic assumptions as to the company’s future operating
conditions. In this case, as stated in point II.2 of this
Decision and as the Commission already pointed out in
its decision to initiate proceedings, the French Govern-
ment did not submit a credible restructuring plan to the
Commission. Nor has any such plan been submitted to
the Commission by the French authorities since the
proceedings were initiated. The Commission cannot
therefore alter the position it took when it initiated the
proceedings.

This is further borne out by the latest information sent by
the French Government in its fax of 16 October 1998.
According to this information, the profits of a large part
of the new company’s business were in fact considerably
lower than the projected figures given by the buyer in his
restructuring plan. [ . . . ] *. Besides the fact that the various
pieces of information sent by the French Government
and described in points II.1 and II.2 of this Decision
cannot be regarded as a restructuring plan within the
meaning of the Guidelines, these facts show that the
granting of the aid was not accompanied by a credible
restructuring plan.

Furthermore, the condition laid down in the Guidelines,
whereby the restructuring aid must be submitted to the
Commission in all relevant detail, is not met. Some infor-
mation explicitly requested by the Commission was never
sent, as stated in point II.2 of this Decision. Also, figures
were not put on some elements of the cost of restruc-
turing (point II.2 of this Decision). Furthermore, as indi-

(5) OJ C 212, 12.8.1988, p. 2.
(6) See footnote 2.
(7) See footnote 3; point 3.2.

In addition, the Guidelines state that the aid must be in
proportion to the restructuring costs and benefits. This
means that aid recipients will normally be expected to
make a significant contribution to the restructuring plan
from their own resources or from external commercial
financing. In this case, the buyer is putting up capital of
some FRF 500 000 in addition to the money to buy up
the assets, i.e. FRF 4,8 million. This contrasts with the
FRF 40 million of public money. The disproportion is
clear, since the buyer is contributing only 12 % of these
funds. The condition that the aid must be proportional is
therefore not met.

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Official Journal of the European Communities

L 145/25

The disproportion between the public funding and the
buyer’s contribution is significant in several ways. First, it
is clear that the company would not be viable without
State support. Secondly, the steady and very considerable
drop in profits over the supposed duration of the restruc-
turing is a particularly optimistic assumption given that
the buyer is having to consider closures of units in 1998.
Finally, the fact that, according to the information given
by the French authorities, the company’s average price is
higher than the average price on the relevant market and
that the prices on this particular market (Lycra Wool) are
also among the highest in Europe (letter of 8 May 1998)
shows that the company is one of the least competitive on
the market, even though it has been relieved of a large
part of its costs through State support.

The French authorities’ claim that the aid in the form of
an equity loan is rescue aid cannot be accepted either.
According to the definition given in the Guidelines, a
rescue: ‘temporarily maintains the position of a firm that
is facing a substantial deterioration in its financial posi-
tion reflected in an acute liquidity crisis or technical
insolvency, while an analysis of the circumstances giving
rise to the company’s difficulties can be performed and an
appropriate plan to remedy the situation devised'.

However, the aid was granted in order to allow the assets
to be bought and a new company created. Quite obviously
it was not granted in order temporarily to maintain the
company until a restructuring plan was drawn up; as the
Commission has found above, there is no such plan.

concerned, that initial investment, within the meaning of
point 18(i) of the Annex to the Commission communi-
cation on regional aid systems (8), carried out in the region
in which Lainière de Roubaix is located may be eligible
for regional aid with an aid intensity of 25 % gross for
large companies, with a possible 10 % bonus for SMEs
(making 35 % gross). Lainière de Roubaix must be
considered an SME under the Community definition.

With regard to the FRF 22 million investment premium
granted to Lainière de Roubaix, the Commission finds as
follows: the investment of FRF 22,2 million described
above carried out by Lainière de Roubaix may be consid-
ered to be initial investment within the meaning of the
1979 communication. Therefore, and in view of the fore-
going, investment aid of 35 % gross of the investment
costs of FRF 22,2 million, i.e. FRF 7,77 million gross,
may be considered to be compatible with the common
market on the basis of
the derogation under Article
92(3)(c). However, the remaining aid of FRF 14,23 million
cannot be considered to be compatible with the common
market under that provision.

The

abovementioned Communication.

However, with regard to the equity loan of FRF 18
million the eligible costs, as communicated by the French
Government in its letter of 21 July 1998, cannot be
considered to be initial investment within the,meaning of
costs
the
concerned are in fact ongoing costs which a company is
normally expected to bear. The aid must therefore be
deemed to be operating aid which, according to the
Commission’s consistent practice in accordance with its
Communication on the method for the application of
to regional aid (9), cannot be
Article 92(3)(a) and (c)
granted outside a region eligible for regional aid under
Article 92(3)(a). The equity loan cannot,
therefore, be
considered to be compatible with the common market on
the basis of this derogation.

 Aid to promote regional development

 Other bases for derogation

Under the derogation set out in Article 92(3)(c) of the
Treaty, the Commission may consider compatible with
the common market aid to facilitate the development of
certain economic areas, where such aid does not adversely
affect trading conditions to an extent contrary to the
common interest. Under the decision referred to above of
14 September 1994 on the regional planning grant
scheme for industrial projects, the Commission decided,
the regions
on the basis of socioeconomic data for

Finally, Lainière de Roubaix could in principle be eligible
for employment aid under the Guidelines on aid to
employment (10). However, despite repeated requests from
the Commission, the French Government has not clearly
demonstrated or put any figures on the social costs which
might be eligible for the aid in question. In its most
recent letters of 8 May, 21 July and 16 October 1998, the
French Government communicated costs which cannot
be eligible for employment aid on the basis of the Guide-
lines.

(8) OJ C 31, 3.2.1979, p. 9.
(9) See footnote 5; point 6.
(10) OJ C 334, 12.12.1995, p. 4.

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Official Journal of the European Communities

10. 6. 1999

V. CONCLUSIONS

FRF 14,23 million is incompatible with the common
market.

The Commission finds that the French Government has
illegally granted an investment premium of FRF 22
million and an equity loan of FRF 18 million in breach
of Article 93(3) of the Treaty.

The Commission considers that investment aid of 35 %
gross of the investment costs of FRF 22,2 million, i.e. FRF
7,77 million, may be considered to be compatible with
the common market under Article 92(3)(c). However, aid
amounting to FRF 14,23 million must be considered to
be incompatible with the common market. Therefore, in
order to restore the company to the financial situation in
which it would have found itself without the incompat-
ible aid, the French Government must take all necessary
steps to recover the incompatible aid of FRF 14,23
million from the recipient.

The Commission also finds that the equity loan of FRF
18 million includes an aid component, namely the differ-
ence between the rate applied by the French Government
and the reference rate in force at the time the loan was
granted. The Commission calculates this sum at FRF
1 461 067 for the full term of the loan (or, as an indicative
figure should the rate be raised to the same level as the
reference rate at 31 December 1998, FRF 1 164 980). Aid
of this amount must be considered to be incompatible
to restore the
with the common market.
company to the financial situation in which it would have
found itself without the incompatible aid, the French
Government must without delay abolish the aid in ques-
tion by applying normal market conditions corresponding
at least to the reference rate of 8,28 % applicable at the
time the loan was granted,

In order

HAS ADOPTED THIS DECISION:

Article 1

The aid in the form of an investment premium granted
by France to Nouvelle Filature de Roubaix amounting to
FRF 7,77 million may be considered to be compatible
with the common market on the basis of Article 92(3)(c)
of the Treaty.

Article 2

The aid in the form of an investment premium granted
by France to Nouvelle Filature de Roubaix amounting to

Article 3

1.
The equity loan of FRF 18 million constitutes aid in
so far as the rate applied by France is lower than the
reference rate of 8,28 % applicable at the time the loan
was granted.

2.
The aid referred to in paragraph 1 granted by France
to Nouvelle Filature de Roubaix is incompatible with the
common market.

Article 4

1.
France shall take all necessary measures to recover
from the recipient, Nouvelle Filature de Roubaix, the aid
referred to in Article 2 which has already been illegally
paid.

2.
Repayment shall be made in accordance with the
procedures and provisions of French law. The amounts to
be repaid shall bear interest from the date on which the
aid was paid to the recipient until the date on which it is
effectively recovered. The interest shall be calculated on
the basis of the reference rate used to calculate the net
grant equivalent of regional aid.

France shall without delay abolish the aid referred to
3.
in Article 3 by applying normal market conditions corre-
sponding at least to the reference rate of 8,28 % applic-
able at the time the loan was granted.

Article 5

France shall inform the Commission within two months
of the date of notification of this Decision of the meas-
ures it has taken to comply with it.

Article 6

This Decision is addressed to the French Republic.

Done at Brussels, 4 November 1998.

For the Commission

Karel VAN MIERT

Member of the Commission