1999/663/EC: Commission Decision of 9 December 1998 on State aid granted by Germany to Maschinenfabrik Sangerhausen (Samag) (notified under document number C(1998) 4274) (Text with EEA relevance) (Only the German text is authentic)
Date: 1998-12-09
Institutions: European Commission
Subjects: Germany, State aid, aid to undertakings, control of State aid, iron and steel industry

9. 10. 1999

EN

Official Journal of the European Communities

L 263/19

COMMISSION

COMMISSION DECISION

of 9 December 1998

on State aid granted by Germany to Maschinenfabrik Sangerhausen (Samag)

(notified under document number C(1998) 4274)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/663/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 interested parties notice
comments in accordance with those Articles,

to submit

their

Whereas:

I

Maschinenfabrik Sangerhausen GmbH i.K. (hereinafter referred
to as Samag) was privatised in June 1991. On 1 July 1994
insolvency proceedings (Gesamtvollstreckungsverfahren — insolv-
ency proceedings prior to a takeover or the winding-up of a
company, the procedure in the new Federal Länder equivalent
to the Konkursverfahren in the rest of Germany) were initiated
regarding the company and its assets because it was unable to
pay its creditors and its debts exceeded its assets. On 14 July
1994 Germany notified aid amounting to DEM 2 million that
the Land of Saxony-Anhalt had made available to Samag.

On 1 February 1995 the Commission decided to initiate
proceedings pursuant to Article 93(2) of the EC Treaty in
respect of the aid granted in the form of subsidies intended to
finance the recovery of assets located abroad or subject to
reservation of title and to keep the business as a going concern
for a short time. The Land had originally provided the subsidies
in order to achieve milder terms in the insolvency proceedings
in order to assist employees, suppliers and other creditors while

it tried to identify a new source of capital for the complete or
partial takeover of the business or to satisfy the creditors in a
winding-up since the assets would otherwise be insufficient.
Since the beginning of Samag's insolvency proceedings, the aid
has been used towards the orderly liquidation of the business.

Of
the DEM 2 million, DEM 50 000 was to be used for
paying interest on a bridging loan for redundancy payments on
winding-up that had been taken out by the administrator in the
winding-up. The Commission was uncertain whether this part
of the aid constituted a general measure or aid within the
meaning of Article 92(1).

The Commission decision was published in the Official Journal
of the European Communities (1) and interested parties were given
notice to submit their comments.

II

Germany provided details of the aid by letters of 28 March, 4
May and 23 November 1995 and 12 June and 20 December
1996. It was stated that the aid had been used as follows:
— DEM 50 000 for the payment of interest on a bridging
loan for redundancy payments on winding-up taken out by
the administrator in the winding-up;

— DEM 770 000 for the purchase of materials to complete
outstanding orders and to secure the release of materials
held under reservation of title for Samag's core business
(other than the foundry);

— DEM 230 000 for complete performance of contracts

concerning the foundry;

— DEM 350 000 for payments to public utilities (gas, water
and electricity, of which DEM 91 000 were made in July
and August), mainly concerning the foundry;

— DEM 600 000 for the repatriation of Samag's assets from

abroad.

The aid made it possible to continue the insolvency proceed-
ings in an orderly manner; otherwise the company would have
had to be put into liquidation by reason of its insufficient
assets.

(1) OJ C 262, 7.10.1995, p. 16.

L 263/20

EN

Official Journal of the European Communities

9. 10. 1999

After completing performance of the contracts outstanding at
the time of initiation of the insolvency proceedings, the entire
company (that is to say, including the foundry) ceased trading
on 31 October 1994. No new orders were taken. The business
continued for a further four months and the assets were sold
separately following a public call for offers.

business, it constitutes operating aid and as such is incompat-
ible with the Community competition rules.

Since an exemption under Article 92(3)(a) or (c) is excluded,
the aid of DEM 1,95 million is incompatible with the common
market.

III

The United Kingdom supported the Commission's initiation of
investigatory proceedings on the grounds that Samag did not
appear to be an enterprise that was viable in the long term and
the rescue of the machine-tool and foundry business adversely
affected competition in the industry.

Germany replied that, since the enterprise had completely
ceased trading, no comment was called for.

IV

The sum of DEM 50 000 was paid by the Land to meet interest
on a loan taken out by the administrator in the winding-up for
bridging finance for redundancy payments on winding-up.

Under Article 141a of the Law on the promotion of labour (the
ArbfG), every employee is entitled to redundancy payments up
to a maximum of three months' wages which he has not
received by reason of the winding-up of the enterprise. The
party responsible for payment is the Federal Labour Office (the
BfA). Provided the conditions in Articles 141a et seq., of the
ArbfG are fulfilled, the BfA does not enjoy any discretion in
making redundancy payments on winding-up. Under Article
141m of the ArbfG, when such payment is made, the em-
ployee's claims concerning the payment are against the BfA.

However, the assistance of DEM 1,95 million constitutes State
aid within the meaning of Article 92(1) since it was paid to a
specific enterprise in an industry where there is considerable
trade between Member States.

The BfA generally does not make redundancy payments on
winding-up until three or four months after the initiation of
the winding-up. To secure the employee's subsistence,
it is
recognised practice (2) for a private bank to provide an appro-
priate loan for the employee.

It must therefore be ascertained whether this aid can be consid-
ered compatible with the common market under Article 92(3).

Although Saxony-Anhalt is indeed an assisted area for the
purposes of Article 92(3)(a), the assistance cannot be classified
as aid to promote regional development since keeping the
enterprise as a going concern for such a short time (four
months) does not contribute to the development of the area.
The exemption from the prohibition of aid under Article
92(3)(a) is therefore precluded.

Moreover, since the assistance does not facilitate the develop-
ment of certain economic activities it does not meet the condi-
tions in the Community Guidelines on State aid for rescuing
and restructuring firms in difficulty (1) (hereinafter referred to
as ‘the Guidelines’) for the reasons set out below.

The assistance cannot be considered rescue aid since it has not
been provided in forms that are permitted under the Guide-
lines; only liquidity help in the form of loan guarantees or
rates can be
loans bearing normal commercial
approved.

interest

Likewise, the assistance cannot be classified as restructuring aid
for the purposes of the guidelines because it is not conditional
on a restructuring plan or the creation of new jobs. Since it
was solely intended to permit outstanding contracts to be
performed and to identify persons interested in taking over the

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

The BfA has a right of recourse under the general provisions of
the law applicable to winding-up. Under Article 13(2) of the
Regulations on insolvency proceedings, read in conjunction
with Article 17(3) thereof, the BfA's claim ranks as a preferen-
tial debt in the winding-up.

This means that such redundancy payments are to be classified
as general social measures in the context of a winding-up, over
which the BfA does not enjoy any discretion.

In this case, the Land of Saxony-Anhalt has provided assistance
amounting to DEM 50 000 for the payment of interest on a
loan, which was agreed on behalf of the employees between
the administrator in the winding-up and a private bank as a
bridging loan for redundancy payments on winding-up. The
Land has not to date presented its claim to the DEM 50 000
against the assets in the winding-up. The interest is regularly
paid from the assets being wound up. Since the Land has not
put forward its claim, the assets in the winding-up have been
increased by that amount, which constitutes an economic
advantage for the insolvent enterprise. In this particular case, it
therefore constitutes aid for the purposes of Article 92(1). On
the same grounds as those relating to the other grants of aid of
DEM 1,95 million, this aid cannot be exempted under Article
92(3). It is therefore to be considered incompatible with the
common market and must be recovered,

(2) Implementing Order of the BfA of 11 October 1989, which has
been upheld by the Federal Social Court in its settled case-law.

9. 10. 1999

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Official Journal of the European Communities

L 263/21

HAS ADOPTED THIS DECISION:

Article 1

Under Article 92(1) of the EC Treaty and Article 61(1) of the
EEA Agreement, the State aid paid by Germany to Maschinen-
fabrik Sangerhausen GmbH i.K. (Samag) in the form of grants
amounting in all to over DEM 2,0 million is not compatible
with the common market or the functioning of the EEA Agree-
ment.

Article 2

1.
Germany shall take the necessary steps to recover from
the recipient enterprise the State aid specified in Article 1.

2.
The recovery shall be carried out in accordance with the
procedures and provisions of German law. Interest shall be
to the date of actual
payable from the date of payment

recovery, at a rate equal to the reference rate used to calculate
the net grant equivalent of regional aid.

Article 3

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

This Decision is addressed to the Federal Republic of Germany.

Article 4

Done at Brussels, 9 December 1998.

For the Commission

Karel VAN MIERT

Member of the Commission