1999/275/EC: Commission Decision of 25 November 1998 on State aid granted by Germany to Draiswerke GmbH (Text with EEA relevance) (notified under document number C(1998) 3800)
Date: 1998-11-25
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, aid to undertakings, restriction on competition

L 108/44

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Official Journal of the European Communities

27. 4. 1999

COMMISSION DECISION

of 25 November 1998

on State aid granted by Germany to Draiswerke GmbH

(notified under document number C(1998) 3800)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/275/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 called on interested parties
comments pursuant to those provisions,

to submit

their

Whereas:

1. PROCEDURE

By letter dated 30 August 1996, Denmark informed the
Commission of State aid which, according to an article
appearing in the Frankfurter Allgemeine Zeitung of 8
August 1996, was apparently being granted to the firm
Draiswerke GmbH, Mannheim. By letter dated 26
September 1996, the Commission asked Germany for its
comments. Germany replied by letter dated 18 February
1997 and confirmed that several transactions involving
public funds had taken place. The Commission took the
view that these transactions might contain State aid that
was not covered by an approved aid scheme. The matter
was therefore registered on 19 March 1997 as ‘unnotified
aid'. By letter dated 21 March 1997, the Commission
asked Germany to supply the information necessary for
the assessment of restructuring aid. Germany replied to
this request on 2 June 1997. The Commission requested
further information by letter dated 18 July 1997, since
some important details had not been supplied. In its letter
of 8 September 1997, Germany indicated that some of the
information previously submitted had been revised, and

reference was made to a further transaction. By letter
dated 26 January 1998, the Commission asked Germany
to clarify these points. Germany replied to this request by
letter dated 16 February 1998.

By letter dated 25 March 1998, the Commission informed
Germany that it had decided to initiate proceedings under
Article 93(2) of the EC Treaty in respect of the unnotified
measures.

A Commission notice to this effect was published in the
Official Journal of the European Communities (1). The
Commission called on interested parties to submit their
comments. The Commission received no comments from
interested parties.

2. DETAILED DESCRIPTION OF THE MEASURES

The company was in severe liquidity difficulty in 1996.
The Mannheim city authorities arranged negotiations
between banks and the owners to keep the firm in busi-
ness. The parties involved decided to adopt restructuring
measures and thus averted the initiation of bankruptcy
proceedings.
In its decision to initiate Article 93(2)
proceedings, the Commission noted the following meas-
ures:

(a) In August 1996, the Mannheim city authorities put up
a loan of DEM 0,8 million (ECU 0,4 million) for ten
months at an interest rate of 5 %.

(b) On 21 August 1996, the Landeskreditbank Baden(cid:190)
W(cid:129)rttemberg (hereinafter referred to as ‘LAKRA') put
up a 50 % deficiency guarantee in respect of DEM 6
million (ECU 3 million). This was originally sched-
uled to expire on 30 June 1997, but was extended on
27 June 1997 for a further year until 30 June 1998.
The guarantee was subject to a one-off fee of 1 % and
an annual charge of 0,5 % of the outstanding guar-
antee amount.

(c) The public bank Sparkasse Mannheim granted loans
secured by the abovementioned guarantees. These
took the form of an overdraft
facility of DEM 4
million (ECU 2 million) at an initial interest rate of
8 % (currently 8,25 %) and a guarantee loan of DEM

(1) OJ C 207, 3.7.1998, p. 14.

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2 million (ECU 1 million) at an interest rate of 1 %.
These loans were originally scheduled to expire on 30
June 1996, but were subsequently extended until 30
June 1998. Sparkasse Mannheim was not one of the
firm’s previous lenders.

(d) In August 1996,

the Mannheim city authorities
purchased a 5 944 m2 plot of land from the former
shareholders’ private estate. The former shareholders
injected the proceeds from the sale, totalling DEM 1,2
million (ECU 0,6 million), into the firm as a final
contribution to restructuring.

In its decision to initiate proceedings, the Commis-
sion took the view that, on the basis of the informa-
tion provided, Germany had not demonstrated that
the restructuring measures fulfilled the conditions laid
down in the Community guidelines on State aid for
rescuing and restructuring firms in difficulty (2) (here-
inafter referred to as the ‘guidelines'). The Commis-
sion took the preliminary view that the loan granted
by the Mannheim city authorities and the guarantee
granted by LAKRA constituted State aid within the
meaning of Article 92 of the EC Treaty and that these
transactions were unlawful since Germany failed to
notify them in accordance with Article 93(3) of the
EC Treaty. Furthermore, the Commission considered
that the loan granted by the Sparkasse Mannheim and
the transfer price for sale of land might contain State
aid elements.

3. COMMENTS FROM GERMANY

Germany submitted its comments on the Commission’s
decision to initiate proceedings by letter dated 17 July
1998.

successful

restructuring.

Germany pointed out that it had already submitted a
report by Deutsche Gesellschaft f(cid:129)r Mittelstandsberatung
mbH (‘DGM'), which had been drawn up in August 1996.
Germany explained that the restructuring programme was
designed to demonstrate the company’s ability to achieve
a
Furthermore, Germany
provided details on a more comprehensive restructuring
plan drawn up on 16 December 1996, a comprehensive
business plan drawn up by Draiswerke on 20 May 1998,
the 1997 annual statement of accounts of Draiswerke,
monthly cash-flow forecasts, profit-and-loss-account fore-
casts and balance-sheet forecasts for the years 1998 to
2001. Germany takes the view that the restructuring plan
is now realistic and coherent.

their letters,
Draiswerke’s prospects.

the banks gave a favourable opinion on

Germany pointed out that the loan of DEM 0,8 million
(ECU 0,4 million) granted by the Mannheim city author-
ities, which had a maturity of 10 months, had been repaid
with interest on schedule at
the end of May 1997.
Germany argued that, although the company was in diffi-
culty, the amount of the loan could not be regarded as
State aid. Any benefit by way of interest savings were
covered by the de minimis rule.

Germany stated that the granting of the guarantee by
LAKRA was covered by the guidelines on the grant of
guarantees to business by the Land of Baden-W(cid:129)rttem-
berg (Richtlinien fur die (cid:154)bernahme von B(cid:129)rgschaften
des Landes Baden-W(cid:129)rttemberg f(cid:129)r die gewerbliche
Wirtschaft). Germany submitted the detailed workforce
figures for the years 1996 to 1998 and showed that, at the
time the guarantee was extended, Draiswerke GmbH had
279 employees, which is below the 300 threshold above
which Germany had undertaken to notify guarantees
individually.

Germany explained that Draiswerke had engaged the
to find investors. Germany
M & A firm B. Metzler
forwarded a report which had been drawn up by B.
Metzler on 23 June 1998. Germany pointed out that a
new investor would be beneficial
to the company’s
restructuring, but stressed that this was not a condition
sine qua non.

Germany provided a letter from Sparkasse Mannheim,
dated 16 June 1998, in which the bank stated that it had
acted in accordance with the ‘market economy investor
principle' in providing loans to Draiswerke.

Germany took the view that the transfer price for the sale
the land did not contain State aid elements and
of
provided as evidence an estimate of
the Mannheim
District Land Valuation Committee (Gutachterausschuss
fur die Ermittlung von Grundst(cid:129)ckswerten des Stadtk-
reises Mannheim).

Germany also submitted, as part of its comments, a state-
ment made by Draiswerke on 30 June 1998 to the effect
that it was convinced that the restructuring would be
successful.

Germany forwarded letters
from Draiswerke’s banks,
namely Deutsche Bank (4 June 1998), Dresdner Bank (12
June 1998) and Sparkasse Mannheim (19 June 1998). In

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

The Commission assessed the case in the light of the
information sent to it by Germany by letter dated 17 July
1998.

4. ASSESSMENT

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4.1. The recipient

The firm Draiswerke GmbH is situated in the Land of
Baden-W(cid:129)rttemberg, outside an assisted area. In 1996,
Draiswerke employed an average of 334 workers and had
a turnover of DEM 55 million (ECU 27,5 million) and an
end-of year balance sheet total of DEM 41 million (ECU
20,5 million). According to the definition set out in the
1996
Commission
concerning the definition of small and medium-sized
enterprises (3), the company was a large enterprise due to
the fact that its workforce exceeded the threshold of 250
employees. The former shareholders, all members of the
same
company’s
family,
employees in 1996.

recommendation

sold their

3 April

to the

shares

of

special machinery in two
Draiswerke manufactures
product areas: dispersion and micro-wet-milling and
machinery for mixing and reaction purposes. The firm
supplies the chemical, coating, food, paper, pharmaceut-
ical, detergent and ceramic industries.

In the first half of 1996, it recorded heavy losses. Its main
lender lost confidence in the firm and, on 31 July 1996,
called in its loan. As a consequence, another credit insti-
tution also called in its loan, and Draiswerke became
insolvent. Accordingly, at that time, Draiswerke was a
company in difficulty.

4.2. State aid

the company’s total

the special
Draiswerke operates in two sub-sectors of
machinery industry,
in which there are a number of
competitors within the EEA. In the product area of
dispersion and micro-wet-milling, which accounts for
approximately 60 % of
turnover,
Draiswerke’s main competitors are the Swiss company
B(cid:129)hler AG and the German company Erich Netzsch
GmbH & Holding KG. Both competitors have subsidia-
ries in several Member States. The second product area,
machinery for mixing and reaction purposes, accounts for
40 % of
the company’s turnover. Draiswerke’s main
competitor in this product area is the German company
Gebr(cid:129)der Lodige Maschinenbau GmbH, which has also
subsidiaries in several Member States.

The loan granted by the Mannheim city authorities and
the guarantee granted by LAKRA were provided by
government bodies. Both measures were
therefore
financed through State resources. The loan and the guar-
antee were provided with the intention of enabling the
ailing firm to remain in business. These measures there-
fore placed Draiswerke in a more favourable position than

its competitors. Both State measures are therefore liable to
affect the economic position of its competitors in other
Member States. Accordingly,
the loan granted by the
Mannheim city authorities and the guarantee granted by
LAKRA distort or threaten to distort trade between the
Member States and constitute State aid within the
meaning of Article 92(1) of the EC Treaty and Article
61(1) of the EEA Agreement.

The Mannheim city authorities did not grant
their
restructuring loan to Draiswerke under an approved
scheme. The Commission cannot agree with Germany’s
view that the amount of the loan does not constitute State
aid and that any benefit by way of interest saving is
covered by the de minimis rule. In line with long-
standing Commission practice, the loan’s face amount of
DEM 0,8 million (ECU 0,4 million) must be regarded as
State aid since the company is in difficulty and would not
have been able to raise the loan on financial markets. In
accordance with the Commission notice on the de
minimis rule for State aid (4), the amount of DEM 0,8
million (ECU 0,4 million) exceeds
the de minimis
threshold of ECU 100 000 over a three-year period. More-
over, the Commission would remind Germany that the
loan must be cumulated with other restructuring meas-
ures, notably the guarantee granted by LAKRA. Accord-
ingly, Germany should have notified the loan to the
Commission pursuant to Article 93(3) of the EC Treaty.
Germany failed to comply with this requirement. The
measure was accordingly unlawful.

The State-owned bank LAKRA provided the guarantee
under the Guidelines on the grant of guarantees to busi-
ness by the Land of Baden-W(cid:129)rttemberg. That scheme
was approved by the Commission by letter of 5 June
1984. In the context of proceedings in Case C 57/86,
Germany undertook, by letter dated 6 February 1987, to
notify individually any guarantee granted under
this
scheme to firms
in difficulty with more than 300
employees. According to the company’s annual report,
Draiswerke had 334 employees in 1996. The Commission
should therefore have been informed of the guarantee
pursuant to Article 93(3) of the EC Treaty. When LAKRA
granted an extension of the guarantee in June 1997, the
number of employees was 279 (cid:190) below the threshold of
300. However, the extension of the duration of the guar-
antee is linked to the initial granting of the guarantee in
1996, when Draiswerke had more than 300 employees.
The Commission cannot therefore share Germany’s view
the guarantee by LAKRA was
that

the extension of

(3) OJ L 107, 30.4.1996, p. 4.

(4) OJ C 68, 6.3.1996, p. 9.

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covered by the guidelines on the grant of guarantees to
business by the Land of Baden-W(cid:129)rttemberg. Con-
sequently, the extension also required individual noti-
fication pursuant
the EC Treaty.
to Article 93(3) of
Germany failed to comply with these requirements. The
initial provision of the guarantee and the extension were
accordingly unlawful.

Germany stated that Sparkasse Mannheim and Drais-
werke’s two other banks, Deutsche Bank and Dresdner
Bank, formed a banking consortium. The provision of
loans was made under the condition that all three banks
act unanimously. Thus, Sparkasse Mannheim provided
the loans only on condition that the other two banks
agreed to re-open their credit lines. Furthermore, Spar-
kasse Mannheim continued to provide loans only if the
other banks extended their credit lines and Draiswerke’s
prospects justified the provision of further funds to Drais-
werke (5). Moreover, Sparkasse Mannheim and the other
two banks based the granting of
their loans on the
restructuring plan drawn up by Draiswerke and the busi-
firm DGM (6). Furthermore, Sparkasse
ness consultant
Mannheim has a representative on the supervisory board
of Draiswerke, which allows it to have a sound knowledge
of the company’s financial and strategic position. Finally,
the loans provided by Sparkasse Mannheim were secured
by the guarantee granted by LAKRA. In the light of the
the financing
above,
activities of Sparkasse Mannheim were consistent with the
market economy investor principle and did not constitute
State aid within the meaning of Article 92 of the EC
Treaty.

the Commission concluded that

Germany provided evidence that the transfer price of
DEM 1,2 million (ECU 0.6 million), which the
Mannheim city authorities paid for the 5 944 m2 plot of
land to the former shareholders, was based on an estimate
of the Mannheim District Land Valuation Committee.
The Commission reviewed their estimate and verified that
it was carried out in line with the rules generally applic-
able for land valuation. Moreover, the valuer took the
lower and more prudent gross rental value (Ertragswert)
instead of the asset value (Sachwert). Taking into account
these aspects, the Commission concluded that the price
corresponds to the market price and does not contain
State aid elements within the meaning of Article 92 of the
EC Treaty.

(5) In their letters, Draiswerke’s banks gave a favourable opinion

on the firm’s prospects.
is explained later,

(6) As

the
restructuring plan is a feasible, coherent and far-reaching plan
and that it is designed to restore the firm’s long-term viability
within a reasonable time scale.

the Commission considers

that

4.3. Exemptions

Article 92(1) of the EC Treaty and Article 61(1) of the
EEA Agreement lay down the principle that aid having
the characteristics specified therein is incompatible with
the common market. Article 92(2) and (3) of the EC
Treaty and Article 61(2) and (3) of the EEA Agreement list
exemptions under which aid may be found compatible
with the common market. The Commission examined
whether State aid of DEM 3,8 million (ECU 1,9 million),
namely the DEM 0,8 million (ECU 0,4 million) loan of
the Mannheim city authorities and the 50 % guarantee of
LAKRA for DEM 6,0 million (ECU 3,0 million), could be
deemed compatible with the common market under one
of these exemptions.

The exemptions set out in Articles 92(2) of the EC Treaty
and Article 61(2) of the EEA Agreement do not apply,
since the aid is not aid having a social character granted
to individual consumers, nor does it serve to make good
the damage caused by natural disasters, nor is it granted to
the economy of certain areas of the Federal Republic of
Germany affected by the division of Germany.

The exemptions set out in Article 92(3)(a) of the EC
Treaty and Article 61(3)(a) of the EEA Agreement and the
regional aspect of the exemptions provided for in Article
92(3)(c) of the EC Treaty and Article 61(3)(c) of the EEA
Agreement are not relevant, since the firm is located
outside an assisted area.

As far as the exemptions provided for in Article 92(3)(b) of
the EC Treaty and Article 61(3)(b) of the EEA Agreement
are concerned, the Commission found that the measure
in question does not fulfil the criteria which the Commis-
sion usually applies to projects of common European
interest and that the aid was also not intended to remedy
a serious disturbance in the economy of a Member State.

The exemptions provide for in Article 92(3)(d) of the EC
Treaty and Article 61(3)(d) of the EEA Agreement sim-
ilarly do apply, since the aid is not designed to promote
culture and heritage conservation.

Consequently, only the first part of
the exemptions
provided for in Article 92(3)(c) of the EC Treaty and
Article 61(3)(c) of the EEA Agreement might apply, if the
aid contributes to the development of certain economic
activities without adversely affecting trading conditions to
an extent contrary to the common interest.

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4.4. Community guidelines

Draiswerke is a company in difficulty. The loan granted
by the Mannheim city authorities and the guarantee
provided by LAKRA constitute restructuring aid. The
Community guidelines on State aid for rescuing and
restructuring firms in difficulty (7) set out the conditions
under which restructuring aid may be considered compat-
ible with the common market.

Under the guidelines, restructuring must take place in the
context of a feasible, coherent and far-reaching plan
designed to restore a firm’s long-term viability within a
reasonable time scale and on the basis of realistic assump-
tions as to its future operating conditions. Restructuring
plans must take account of, inter alia, the circumstances
giving rise to the firm’s difficulties, market supply and
demand for the relevant products as well as their expected
development and the specific strengths and weaknesses of
the firm. They should allow an orderly transition of the
firm to a new structure that gives it viable long-term
prospects and will enable it to operate on the strength of
its own resources without requiring further State as-
sistance.

Restructuring usually involves the reorganisation and
rationalisation of the firm’s activities on to a more effi-
cient basis typically involving the withdrawal from activi-
ties that are no longer viable or are already loss-making,
the restructuring of those existing activities that can be
made competitive again and, possibly, the development of
or diversification into new viable activities. Financial
restructuring usually has
to accompany the physical
restructuring.

According to Section 3 of the Community guidelines, the
Commission has to examine whether the restructuring
satisfies the following conditions in particular: first,
it
must restore the long-term viability of
the company
within a reasonable timescale; secondly, undue distortions
of competition through the aid must be avoided; thirdly,
the aid must be in proportion to the restructuring costs
and benefits.

4.5. Long-term viability

By letter dated 17 July 1998, Germany submitted a real-
istic, coherent and far-reaching restructuring plan, drawn
up by Draiswerke and the business consultant firm DGM.
The restructuring programme takes account of
the
circumstances giving rise to the firm’s difficulties, notably
an unfavourable cost-structure, insufficient cost-transpar-
ency and an unsound financial position.

In order to improve its cost-structure, Draiswerke had
primarily to reduce staff costs, which were almost 50 % of
turnover in 1996. As provided for in the restructuring

(7) See footnote 2.

plan, Draiswerke’s employees agreed to a significant
reduction in wages per hour. Draiswerke also reduced its
workforce by 62 persons. As a result, wage costs were
DEM 5,2 million (ECU 2,6 million) lower in 1998 than in
1996, a reduction of 18 %. In addition, Draiswerke took a
number of measures to improve the efficiency of
its
production process.

In order to improve its cost-transparency, Draiswerke
significantly upgraded its cost accounting and cost control
methods. As a result, Draiswerke also gave up producing
turn-key plants,
reduced the range of products and
decided to concentrate more on the company’s core busi-
ness.

shareholders,

The restoration of the company’s financial position was
the
primarily financed by the former
employees and measures taken by the company. The
former shareholders issued a letter of subordination for a
shareholders’ loan of DEM 7,2 million (ECU 3,6 million)
at the beginning of August 1996. At the same time,
Gustav Eirich KG, which is owned by the former share-
holders, issued a letter of subordination for a loan of DEM
2 million (ECU 1 million). Finally, the former share-
holders, issued a letter of subordination for a Loan of
DEM 2 million (ECU 1 million). Finally, the former
shareholders injected the proceeds from the sale of land,
totalling DEM 1,2 million (ECU 0,6 million), into the
firm as a final contribution to restructuring. In November
1996, the employees provided the company with a subor-
dinated and interest-free loan of DEM 746 000 (ECU
373 000). Draiswerke was also able to reduce its accounts
receivable from sales and services from DEM 17,8 million
(ECU 8,9 million) at the end of 1996 to DEM 9,3 million
(ECU 4,6 million) at the end of 1997. The value of stocks
was reduced from DEM 6,5 million (ECU 3,2 million) to
DEM 3,5 million (ECU 1,7 million) in the same period.
Finally, the Mannheim city authorities provided a loan of
DEM 0,8 million (ECU 0,4 million) and LAKRA provided
the 50 % guarantee for DEM 6,0 million (ECU 3,0
million).

The restructuring was also accompanied by a shareholder
change. Draiswerke’s employees took over the firm for
DEM 1 from the former shareholders. Two new executive
directors with experience in restructuring measures were
appointed. The management board and the new share-
holders of Draiswerke decided to find a strategic investor.
Draiswerke entrusted the task of finding an investor to
the company B. Metzler GmbH. The Commission takes
that, according to Germany, a new
note of
investor would help the company’s strategic position, but
is not a condition sine qua non for a successful restruc-
turing.

the fact

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The Commission examined the forecasts for the balance
sheets, profit-and-loss accounts and cash flow figures,
which were drawn up for the period until the year 2001,
to assess whether the restructuring measures would result
in the restoration of Draiswerke’s viability. The Commis-
sion notes that the forecasts are presented in detail with
statements on the underlying assumptions. In line with its
strategy of abandoning loss-making activities and concen-
trating on the company’s core business, Draiswerke
reduced its output in 1997 by more than 10 % compared
with the previous year. The Commission notes that,
despite the reduction in output, the operating result was
already positive in 1997. The net result in that year was
negative because of physical
restructuring measures
amounting to DEM 4,7 million (ECU 2,4 million).
According to the plan, Draiswerke will turn around its
profitability in 1998. In 1998, Draiswerke is expected to
achieve a DEM 1,2 million (ECU 0,6 million) positive
turnover).
activities
result
According to the forecasts, Draiswerke will increase its
profits to DEM 8,8 million (ECU 4,4 million) in the year
2001 (12,8 % of turnover). This figure implies that the
company will be highly profitable and competitive in the
year 2001.

on ordinary

(2,2 % of

Draiswerke’s forecasts expect an increase in turnover of
on average 9 % a year until the year 2001 and a con-
tinuous reduction of staff expenditures to 35 % of turn-
over in the year 2001, with all other cost items remaining
stable. Accordingly,
the restructuring will be effected
mainly by a reduction in staff expenditures, already under
way, and improvements in the production process. The

Commission considers these assumptions optimistic but
achievable. The Commission also notes that Draiswerke
provided a detailed geographical breakdown of turnover
for both business areas and showed that it has signi-
ficantly reduced its turnover expectations in Asia as a
result
to the prevailing economic crisis and currency
depreciations.

The company will still have negative equity capital in
1998. However, according to Germany, from a going-
concern perspective,
the company has considerable
hidden reserves of DEM 16,8 million (ECU 8,4 million),
as confirmed by the accountancy firm Schitag Ernst &
Young. Draiswerke did not
therefore have to initiate
bankruptcy proceedings. Moreover, according to the plan,
Draiswerke will retain its future profits. This policy will
to DEM 15,4
result
million (ECU 7,7 million) (37,7 % of the balance-sheet
total) by the year 2001. The forecasts indicate that Drais-
werke does not plan significant investments until the year
2001. Draiswerke would therefore be able to reduce its
liabilities and to achieve a sound financial position in the
year 2001.

in an increase in equity capital

The Commission takes the view that the forecasts indicate
that Draiswerke has viable long-term prospects and is able
to operate on the strength of its own resources without
requiring further state assistance.

The following tables summarise the main factors in the
Commission’s analysis:

Profit and loss account
(in DEM thousands)

1996

1997

1998

1999

2000

2001

Total operating income

56 476

50 557

52 900

59 250

62 750

68 750

Operating result

–2 417

412

Result from ordinary activities

–3 204 –4 260

2 048

1 208

4 007

3 107

7 152

6 352

9 516

8 816

Balance sheet
(in DEM thousands)

1996

1997

1998

1999

2000

2001

Capital stock

Liabilities

Balance sheet total

2 931 –1 392

38 176

41 107

29 441

28 049

–350

34 750

34 400

1 150

31 050

32 200

6 700

28 700

35 400

15 400

25 500

40 900

The Commission notes that Draiswerke has committed itself to implementing the restructuring
plan.

The Commission also notes that Draiswerke’s banks, namely Deutsche Bank, Dresdner Bank and
Sparkasse Mannheim, have given a favourable opinion as to Draiswerke’s prospects and expressed
their readiness to provide loans to it.

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4.6. Avoidance of undue distortions of competition
through the aid

financial expenditures is still small (DEM 21 000 or ECU
10 500).

The Commission has examined whether measures have to
be taken to off-set adverse effects of the restructuring aid
on competitors.

The restructuring aid in the form of a loan granted by the
Mannheim city authorities and the guarantee granted by
LAKRA may generate two different distortive effects.
First, the aid affects the market, since Draiswerke is still
in business. Secondly, the restructuring aid may reduce
Draiswerke’s financial expenditure.

As to the first effect, the Commission has reviewed the
market data available to it and the market report provided
by Germany. As regards the first product area dispersion
and micro-wet-milling (cid:190) market demand is expected to
expand over the coming years. As regards the second
product area (cid:190) machinery for mixing and reaction
purposes (cid:190) market demand is highly dependent on
investment by the chemical industry, and there are there-
fore good growth prospects here as well. No excess
capacity was evident in either of the two product areas.
This view is also underlined by the fact that the Commis-
sion has not received any comments from third parties.
As was stated in point 3.2.2(ii) of the Community guide-
lines, where there is no structural excess of production
capacity in a relevant market in the Community served by
the recipient, the Commission will normally not require a
reduction of capacity in return for the aid.

As to the 50 % guarantee provided by LAKRA,
the
Commission notes that Draiswerke paid a one-off fee of
1 % and an annual charge of 0,5 % of the outstanding
guarantee amount. The 0,5 % fee can be compared with
the l % interest rate on the DEM 2 million (ECU 1
million) guarantee loan which Sparkasse Mannheim
provided to Draiswerke. Since LAKRA and Sparkasse
Mannheim share the risk equally,
the Commission
assumes that the LAKRA fee is 0,5 % below the market
rate. This results in an advantage to Draiswerke of DEM
50 000 (ECU 25 000) over the guarantee’s duration of 22
months.

The amount of the loan of DEM 0,8 million (ECU 0,4
million) and the guarantee amount of DEM 3 million
(ECU 1,5 million)
(50 % of DEM 6 million) constitute
State aid, since the company is in difficulty and would not
have received the loan and the guarantee on the financial
market. However, the Commission takes the view that the
advantages conferred by the loan and the guarantee in the
form of reduced financial charges are small (0,1 % of
turnover) and will not noticeably affect the company’s
operating costs or its profitability. Moreover, there is no
evidence of excess capacity, the company’s market share
is small, and it has abandoned some of its activities. The
Commission therefore considers that no measures are
necessary to offset adverse effects of the aid on competi-
tors.

the Commission notes that Draiswerke has
Moreover,
abandoned some activities and reduced its product range.
Account must also be taken of the fact that Draiswerke,
which is at present an SME, holds a small market share in
the relevant market and that its main competitors, namely
B(cid:129)hler AG, Erich Netzsch GmbH & Holding KG and
Gebr(cid:129)der L(cid:148)dige Maschinenbau GmbH, are far larger
than Draiswerke in terms of turnover and staff.

4.7. Aid in proportion to the restructuring costs
and benefits

The Commission has examined whether the aid was
limited to the minimum needed for
the company’s
restructuring.

As to the second possible effect, the Commission notes
that Draiswerke paid 5 % interest on the 10-month DEM
loan granted by the
0,8 million (ECU 0,4 million)
Mannheim city authorities. This interest rate was below
the 6,7 % reference rate for Germany in 1996. The
advantage to Draiswerke from the lower interest rate on
the loan granted by the Mannheim city authorities would
thus amount to DEM 11 000 (ECU 5 500). Even if the
Commission were to compare the interest rate on the
loan with the higher 8,25 % interest rate charged by
Sparkasse Mannheim, the advantage in terms of reduced

The restructuring aid helped to ease Draiswerke’s shortage
of liquidity, triggered by heavy losses in previous years. In
1995, Draiswerke recorded a loss on its ordinary activities
of DEM 8,9 million (ECU 4,4 million) (18 % of turnover).
In 1996, it recorded a loss of DEM 1,9 million (ECU 1,0
million) (3,3 % of turnover). In 1997, it disclosed a loss of
DEM 4,3 million (ECU 2,2 million), mainly because of
physical restructuring costs of a similar amount. The
losses reduced Draiswerke’s liquidity by approximately
DEM 14 million (DEM 7,0 million) over the period from
1995 to 1997.

27. 4. 1999

EN

Official Journal of the European Communities

L 108/51

forecasts shows that

The Commission’s assessment of cash-flow calculations
and balance-sheet
the DEM 0,8
million (ECU 0,4 million) loan granted by the Mannheim
city authorities and the 50 % guarantee provided by
LAKRA for the DEM 6 million (ECU 3 million) credit
line made available by Sparkasse Mannheim did not lead
to a cash surplus, but were limited to the amount needed
to keep Draiswerke in business and enable it to finance
the necessary restructuring measures. The Commission
notes that Draiswerke benefited from the DEM 0,8
million (ECU 0,4 million) for only ten months and reim-
bursed the loan in June 1997 at a time when the compa-
ny’s financial position was still very weak; for instance,
the company had still a negative equity capital. The guar-
antee, which was provided until June 1998, was necessary
to obtain interim finance for its ordinary activities on the
financial markets. This was a precondition for remaining
in business.

The Commission takes into account the fact that the
restructuring aid was accompanied by significant contri-
butions by the former shareholders (DEM 10,4 million, or
ECU 5,2 million) and the new shareholders
(DEM
746 000, or ECU 373 000). It notes that, at the beginning
of August 1996, the former shareholders issued a letter of
subordination for a shareholders’ loan of DEM 7,2 million
(ECU 3,6 million) and that Gustav Eirich KG, which is
also owned by the former shareholders, issued a letter of
subordination for a loan of DEM 2 million (ECU 1
million). Furthermore, the former shareholders injected
the proceeds from the sale of land, totalling DEM 1,2
million (ECU 0,6 million), into the firm as a final contri-
bution to
the
employees, who are the new shareholders, provided the
company with a subordinated and interest-free loan of
DEM 746 000 (ECU 373 000). The employees also agreed
to significant wage reductions and to staff cutbacks that
resulted in staff costs being DEM 5,2 million (ECU 2,6
million) lower in 1998 than in 1996.

In November

restructuring.

1996,

the

Mannheim city authorities and the guarantee provided by
LAKRA meet
laid down in the
conditions
Community guidelines for firms in difficulty, namely that
the restructuring aid will restore the long-term viability of
the company within a reasonable timescale, avoids undue
distortions of competition and is in proportion to the
restructuring costs and benefits.

The Commission therefore concludes that the State aid
contributed to the development of economic activities
without adversely affecting trading conditions to an extent
contrary to the common interest. The Commission has
therefore decided that
the State aid can be deemed
compatible with the common market under the first part
of the exemptions provided for in Article 92(3)(c) of the
EC Treaty and Article 61(3)(c) of the EEA Agreement.

The Commission requests Germany to provide detailed
annual reports in order to demonstrate that the restruc-
turing plan is being implemented properly,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany granted to Draiswerke in
the form of a DEM 0,8 million (ECU 0,4 million) loan
provided by the Mannheim city authorities and the 50 %
guarantee provided by LAKRA is compatible with the
common market.

Article 2

Germany shall submit detailed annual reports to the
Commission in order to demonstrate that the restruc-
turing plan is being implemented properly.

Article 3

Accordingly, the Commission considers that the State aid
measures were in proportion to the restructuring costs
and to the contributions of the shareholders.

This Decision is addressed to the Federal Republic of
Germany.

5. CONCLUSIONS

Done at Brussels, 25 November 1998.

The Commission considers that the loan and the guar-
antee were granted unlawfully in breach of Article 93(3) of
the EC Treaty. However, the Commission takes account
of the fact that Draiswerke was receiving restructuring aid
the loan granted by the
for the first

time and that

For the Commission

Karel VAN MIERT

Member of the Commission