1999/589/EC: Commission Decision of 22 December 1998 on aid granted by the Republic of Austria to Ergee Textilwerk GmbH (notified under document number C(1998) 4568) (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-12-22
Institutions: European Commission
Subjects: Austria, State aid, aid for restructuring, aid to industry, restriction on competition, textile industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 22 December 1998

on aid granted by the Republic of Austria to Ergee Textilwerk GmbH

(notified under document number C(1998) 4568)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/589/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 establishing the European
Economic Area, and in particular Article 62(1)(a) thereof,

Having given notice to the parties concerned,
in accordance
with Article 93(2) of the EC Treaty, to submit their comments,
and having regard to those comments,

Whereas:

1. PROCEDURE

17 December 1997, the Commission approved the rescue aid
under number NN 181/97 (ex N 455/97) for the period from
July 1997 to the end of 1997. The Austrian Government was
informed of
the Commission’s decision by letter dated
22 January 1998. A notice to that effect was published in the
Official Journal of the European Communities (1).

By letter dated 19 December 1997, the Austrian authorities
notified restructuring aid. By letter dated 26 January 1998, the
information, which the
Commission requested additional
Austrian authorities provided by letter dated 10 March 1998.
By letter dated 20 April 1998,
the Commission again
requested information, which it should have received within
the usual period of 20 working days. On 9 June 1998,
Commission officials discussed the matter in Brussels with
representatives of
the Austrian authorities. By letter dated
23 June,
the Austrian authorities provided background
information on the GBI. However, the additional information
which was requested on 20 April 1998 has not been received.
Instead, Austria informed the Commission by fax on 3 July
1998 of some changes to the notification.

By letter dated 30 June 1997, the Austrian authorities notified
the Commission of rescue aid for Ergee Textilwerk GmbH,
Schrems, Austria ((cid:145)Ergee(cid:146)). The proposed aid was in the form of
a guarantee from the Federal Government and the Province of
Lower Austria for an operating loan of up to ATS 150 million
(ECU 10,8 million). By letter dated 18 November 1997,
Austria also notified a capital injection by a new shareholder
of ATS 25 million (ECU 1,8 million) which was to be
converted into equity capital. The new shareholder is the
Industriepolitische
State-owned Gesellschaft des Bundes f(cid:252)r
Ma(cid:223)nahmen GmbH, Vienna ((cid:145)GBI(cid:146)). Since GBI carried out the
capital injection before the Commission had taken a decision,
and the Commission first
the capital
injection possibly constituted State aid, since there was no
restructuring plan, the case was classified as unnotified aid. On

took the view that

By letter dated 4 August 1998 the Commission informed
Austria of its decision to initiate proceedings under Article
93(2) of the EC Treaty. It had reached the conclusion that to
date Austria had not proved that all the restructuring measures
were absolutely necessary or that the State aid was limited to
the strict minimum required. The Commission also wanted to
know whether Ergee had already received restructuring aid in
1994. Moreover, it found that the GBI capital injection of ATS
25 million (ECU 1,8 million) during the six months’ duration
of the rescue measures possibly constituted an extension of
rescue aid and that perhaps other GBI measures needed to be
examined more closely.

(1) OJ C 70, 6.3.1998, p. 8.

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In accordance with the judgment of the Court of Justice of the
European Communities of 13 April 1994 in Joined Cases
C-324/90 and C-342/90 (Federal Republic of Germany and Pleuger
Worthington v. Commission) (2),
the Commission issued an
interim decision requiring Austria
such
documentation, information and data as are necessary in order
to examine the compatibility of the aid with the common
market.

to provide

all

The Commission decision was published in the Official Journal
of the European Communities (3). It requested all interested parties
to submit their comments. One comment was received.

2. DETAILED DESCRIPTION OF THE AID MEASURES

The following restructuring measures were notified by the
Austrian authorities:

(1) the Federal Government and the Province of Lower Austria
are planning to provide, from 1998 to the end of the year
2000, a guarantee for an operating loan of up to ATS
90 million (ECU 6,5 million). The Federal Government and
the Provincc of Lower Austria intend to share this
guarantee in the proportion two thirds/one third. The
guarantee is free of charge to Ergee;

(2) the Federal Government and the Province of Lower Austria
are planning to provide a loan of ATS 40 million (ECU
2,9 million), which they are sharing in the proportion of
two thirds/one third. The loan has an interest- and
redemption-free grace period of one year; that is followed
by a period of six years in which the loan is repaid. The
repayment terms and conditions and the interest rate are
in line with the ERP Fund guidelines for 1996/97;

(3) As regards the loan of ATS 42 million (ECU 3,0 million)
granted to Ergee on 30 December 1994, both the Ministry
of Labour, Health and Social Affairs and the Province of
Lower Austria intend to waive interest payments. If the
firm can prove a workforce of at least 370 employees in
the period 1997 to 1999, they will also waive repayment
of one third of the amount of the loan annually, i.e. ATS
14 million (ECU 1,0 million) per annum.

Austria confirmed that no other firms within the group have
received any aid.

Austria also informed the Commission that the GBI wished to
increase the payment on account in respect of a subsequent
equity capital increase from ATS 25 million (ECU 1,8 million)
to ATS 50 million (ECU 3,6 million). Austria did not notify
this measure pursuant to Article 93(3) of the EC Treaty, since
in its view the activities of the GBI were not caught by Article
92 of the EC Treaty.

(2)
[1994] ECR I p. 1173.
(3) OJ C 298, 26.9.1998, p. 2.

3. OPINION OF INTERESTED PARTIES

By letter dated 20 October 1998, the British Apparel & Textile
Confederation fully agreed with the Commission’s measures.

4. AUSTRIA’S POSITION

By letter dated 17 September 1998, Austria communicated the
information on the restructuring measures in question which
had been requested in the Commission decision initiating
proceedings.

Austria supplemented the restructuring plan which had already
been sent.

Austria provided information on the equity capital and the
other liabilities in 1997 and the balance sheet forecast for
1998 to 2000. This information was explained in detail.

Austria also provided information on the investment carried
out in 1997 and planned from 1998 to 2000. The individual
investment projects were described in detail and were related
to the development of
the fixed assets and to Ergee’s
production capacity. Austria took the view that the individual
investment projects were necessary to restore the firm’s
viability.

Austria provided an up-to-date list of all restructuring costs,
including the operational and financial restructuring measures,
and an updated list of all restructuring measures.

Austria also presented cash flow calculations which in its view
showed that
the total amount of aid was 1imited to the
amount necessary to restore Ergee’s viability.

Austria provided evidence that the 1994 subsidised loan of
ATS 42 million (ECU 3 million) from the Federal Ministry of
Labour, Health and Social Affairs and the Province of Lower
Austria had been planned as investment aid. The investment
costs were substantiated in detail.

Austria described the measures of the GBI in the present case
and its general approach. It took the view that the GBI was
acting in the same way as a private investor and its activities
therefore did not constitute State aid within the meaning of
Article 92 of the EC Treaty.

Lastly, Austria communicated the calculations on which the
GBI based its decision to take over Ergee. In Austria’s view
these calculations, which took into account the high risk of the
participation concerned, proved that
the GBI could expect
huge advantages from this investment.

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5. ASSESSMENT

The Commission examined the case on the basis of
the
information provided by Austria by letter of 17 September
1998.

5.1. The aid recipient

The Ergee group was established in 1960 by Edwin E. R(cid:246)ssler
KG, Sonthofen, Germany. Ergee is located in the Waldviertel
in accordance with a decision by the EFTA
Region which,
Surveillance Authority (4),
is an assisted area within the
meaning of Article 92(3)(c) of the EC Treaty.

On 1 September 1994, R(cid:246)ssler KG applied for the intiation of
bankruptcy proceedings. Ergee was not
involved in any
insolvency proceedings. Subsequently, the managing director
of Ergee Textilwerk GmbH took over the German parent
company’s shares and part of its assets. The management buy
out, which was largely financed with borrowed funds, was
unsuccessful. In July 1997, the State-owned GBI took over the
Ergee shares for ATS 1.

and

In 1997 Ergee employed on average 417 persons, its turnover
was ATS 495,8 million (ECU 35,8 million)
its
balance-sheet total was ATS 428 million (ECU 30,9 million).
The firm has a 69,7 % stake in Loana a.s., Roznov, Czech
Republic, which operates at
sites with a
workforce of 926 (1997 figures). Ergee also holds 100 % of the
shares in the marketing company Ergee GmbH, Germany
(190 employees) and in Ergee AG, Kronb(cid:252)hl, Switzerland
(seven
Commission
recommendation of 3 April 1996 concerning the definition of
small and medium-sized enterprises (SMEs) (5), Ergee is a large
enterprise which cannot be classified as an SME.

four different

employees).

According

the

to

Government appointed the members of the supervisory board.
There is therefore a clear influence on the part of the State on
the GBI’s decision-making. Furthermore, Ergee operates on a
market which apparently suffers from overcapacity. Lastly, the
GBI participation in Ergee was accompanied by notified rescue
and reconstruction aid. In accordance with its many years of
investigation practice, the Commission must therefore examine
whether the GBI’s activities constitute State aid (6).

The GBI’s main task is to take over ailing firms, restore them
to long-term viability and then sell them. The GBI emphasised
that projects were examined in the greatest detail not only by
its restructuring experts, but also by recognised audit firms and
independent
information
consultancies. According to the
provided by Austria, the GBI only takes over a firm if it can
expect to turn it round within two to three years. Since 1983
the GBI has examined some 90 firms and has
taken a
participation in only nine cases.

It

took

to health.

In 1983 it

restructuring.

Up to now, the GBI has been extremely successful in restoring
ailing companies
acquired four
companies.
over Austria Haustechnik GmbH,
Rottenmann, Glanzstoff Austria GmbH, St. P(cid:246)lten, Austria
Antriebstechnik G. Bauknecht GmbH, Spielberg, and IFE
Industrieeinrichtungen Fertigungs AG, Waidhofen/Ybbs. The
GBI sold all these firms at a profit in 1988 and 1989 after
successful
the
In 1993,
Austrian firms Schmid Schrauben Hainfeld GmbH and
Assmann Ladenbau Leibnitz GmbH. In both cases, recipient
companies were established which bought up the stocks of the
ailing companies and leased their fixed assets. The fixed assets
the restructuring
were not bought until
measures was assured. Schmid Schrauben Hainfeld GmbH was
sold at a profit
in 1996. For Assmann Ladenbau Leibnitz
GmbH a stock exchange launch is being considered. In 1997
the GBI acquired Ergee, ATB Austria Antriebstechnik AG,
Spielberg, and ATB Antriebstechnik AG, Weinheim, Germany.

the success of

took over

the GBI

Ergee and its subsidiaries operate in the textile industry.
In
Austria, Ergee produces stockings and knitwear. The Czech
subsidiary produces
rubberised
stockings and children’s clothing.

stockings, medical

socks,

In 1996, Ergee registered a loss on normal business activity of
ATS 214,2 million (ECU 15,5 million) with a turnover of ATS
600,1 million (ECU 43,3 million). At the end of 1996, the
negative equity capital amounted to ATS 168,3 million (ECU
12,2 million). At
time when Austria notified the
restructuring and rescue aid, Ergee was a company in
difficulties.

the

5.2. The activities of GBI

The GBI was established in 1983 by the Federal Government
with public money and therefore operates with State resources.
the Austrian Law on companies with
Under the terms of
limited liability,
the
the GBI’s
acquisition of Ergee,
the Federal
supervisory board. As the owner of

subsidiaries,
requires the agreement of

the acquisition of

the GBI,

e.g.

The Commission has examined the GBI’s financial situation
and established that this is an extremely profitable company.
Its revenue sources include fees for consultancy services for
subsidiaries, dividends paid and profits transferred from such
subsidiaries, returns on investment and proceeds from the sale
of firms. In 1983 the GBI was provided with equity capital of
ATS 44 million (ECU 3,2 million), which it increased to ATS
241 million (ECU 17,4 million) by 1996 from profits and
without any further State participation.

a due diligence

examination that

As regards Ergee, Austria stated that it was not until the GBI
had carried out
the
supervisory board decided to take over the firm in difficulties.
Production at Ergee was continued on the basis of the result of
this examination. According to this, Ergee was an extremely
the Czech
well-known brand in central Europe (Germany,
Republic,
firm
possessed considerable restructuring potential not only in
terms of staff, organisation,
logistics, and reduction in the
number of company locations, but also in terms of an
in the remaining production
optimum division of
plants and of
the reorganisation of the operating network.
According to the information provided by Austria, the GBI

and Austria). The

Switzerland,

Slovakia

labour

(4) OJ C 199, 11.5.1994, p. 7.
(5) OJ L 107, 30.4.1996, p. 4.

(6) Bull. EC 9(cid:150)1984.

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its takeover. Following this,

was also interested in another of Ergee’s Austrian competitors,
the GBI
but decided against
injected capital amounting to ATS 25 million (ECU 1,8 million)
into Ergee and incorporated it into the cash management of
the group,
in order to bridge Ergee’s short-term need for
finance. In 1998 the GBI will provide Ergee with a further
capital injection of ATS 25 million (ECU 1,8 million). It also
sent Ergee two of its marketing and financial control experts to
strengthen its management.

Austria submitted a detailed calculation of
the return on
investment. The GBI wishes to maintain its holding in Ergee
until 2003.[(cid:133)](*).

the facts mentioned above,

Taking into account all
the
Commission reaches the conclusion that the GBI’s activities are
to be equated with those of a private investor and therefore do
not constitute State aid within the meaning of Article 92 of
the EC Treaty.

5.3. The notified State aid measures

The guarantee, the new State loan and the waiving of interest
and possibly of repayment of the earlier loan are measures by
State bodies. The notified measures are therefore granted from
State resources. The purpose of these measures was to enable
the ailing Ergee to continue in business and to restore its
viability.
In this way Ergee was favoured in relation to its
competitors. Furthermore, the company is active in the textiles
sector on which several competitors are present within the
EEA. The firm’s main competitors are the two Austrian
companies, Palmers Textil AG and Wolford AG, and the two
German businesses, Falke Group and Kunert VertriebsgmbH,
all of which operate internationally. The notified measures are
therefore capable of affecting the business position of these
competitors
these
measures distort or threaten to distort trade between Member
States and constitute State aid within the meaning of Article
92(1) of
the EEA
the EC Treaty and Article 61(1) of
Agreement.

in other Member States. Accordingly,

fall under any other
The abovementioned aid does not
approved or already existing system of aid and must therefore
be notified individually under Article 93(3) of the EC Treaty.
Austria complied with this notification requirement.

5.4. Derogations

Article 92(1) of the EC Treaty and Article 61(1) of the EEA
Agreement established the principle that aid having the
characteristics
therein are incompatible with the
common market. Article 92(2) and (3) of the EC Treaty and
Article 61(2) and (3) of the EEA Agreement specify which

set out

types of aid may exceptionally be considered to be compatible
with the common market.

The Commission has examined whether the measures notified
fall within one of these derogations from the aid prohibition.

The derogations provided for in Article 92(2) of the EC Treaty
and Article 61(2) of the EEA Agreement are not applicable
here, because the aid in question is neither aid having a social
character, aid granted to individual consumers, nor aid to
make good the damage caused by natural disasters nor aid
granted to the economy of certain areas of
the Federal
Republic of Germany affected by the division of Germany.

The derogations provided for in Article 92(3)(a) of the EC
Treaty and Article 61 (3)(a) of the EEA Agreement as well as
the regional aspect of the derogation in Article 92(3)(c) of the
EC Treaty and Article 61(3)(c) of the EEA Agreement are not
relevant, since the aid is not granted to promote the economic
development of
living is
abnormally low or to facilitate the development of certain
economic areas.

areas where

standard of

the

As regards the derogations provided for in Article 92(3)(b) of
the EC Treaty and Article 61(3)(b) of the EEA Agreement, the
the project
Commission was compelled to etablish that
concerned did not fulfil the criteria which usually apply for
(cid:145)projects of common European interest(cid:146), nor does it serve to
remedy a serious disturbance in the economy of a Member
State.

The derogations provided for in Article 92(3)(d) of the EC
Treaty and Article 61(3)(d) of the EEA Agreement are not
applicable either, because the aid is not intended to promote
culture or heritage conservation.

Accordingly, only the first part of the derogation provided for
in Article 92(3)(c) of the EC Treaty and Article 61(3)(c) of the
EEA Agreement could be applicable, if the aid facilitates the
development of certain economic activities and at the same
time does not adversely affect trading conditions to an extent
contrary to the common interest.

5.5. Community guidelines

Ergee is a firm in difficulties. The notified measures represent
restructuring aid. The Community guidelines on State aid for
rescuing and restructuring firms in difficulty (7)
(hereinafter
referred to as (cid:145)the guidelines(cid:146)) set out the conditions in which
restructuring aid may be considered to be compatible with the
common market.

According to the guidelines, restructuring must form part of a
realistic, coherent and far-reaching plan that will restore the

(*) Parts of this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

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

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the

circumstances which led to the

long-term viability and health of the firm within a reasonable
time scale and on the basis of realistic assumptions as to its
future operating conditions. The restructuring plan must take
account of
firm’s
difficulties, the supply and demand situation on the relevant
product markets and the way it is likely to develop, and the
specific strengths and weaknesses of the firm. The plan should
enable the firm to make a smooth transition to a new
structure that is viable in the long term and will enable it to
remain in existence on its own merits without any further
State support.

Restructuring is normally accompanied by reorganisation and
rationalisation of the firm’s activities so as to create a more
efficient base. This usually means giving up activities that are
no longer profitable or
the
are
restructuring of activities that can be made competitive again
and possibly the development of, or diversification into, new
profitable activities. Such physical restructuring must normally
be paralleled by financial restructuring.

loss-making,

already

Under section 3 of the guidelines, the Commission must in
particular examine whether
the
following conditions:
restore the
first,
viability of the firm within a reasonable time scale; secondly,
the aid must avoid undue distortion of competition; and
thirdly, the aid must be in proportion to the restructuring
costs and benefits.

the restructuring satisfies
restructuring must

The Community guidelines also require the Commission to
the
monitor
restructuring plan.

the implementation, progress and success of

5.6. Restoration of long-term viability

Austria has submitted a realistic, coherent and far-reaching
restructuring plan. To begin with, the Commission establishes
that the firm is obliged to implement the restructuring plan.

The restructuring plan takes account of
the circumstances
which led to the firm’s difficulties. These difficulties can be
attributed to three main areas.

First, Ergee suffered from a bad financial structure. At the end
of 1996, the group showed negative equity capital of ATS
122 million (ECU 8,8 million).

Secondly, it is clear that insufficient control was exercised over
the group’s manufacturing plants in Austria and in the Czech
Republic,
there was no proper cost management and the
group had clearly not adapted its production process to the
changing market conditions.
the firm did not
In addition,
pursue a proper brand and product strategy.

The
third problem area
investment in recent years.

arises

from Ergee’s

inadequate

The guidelines also provide that the firm must fully implement
the restructuring plan that was submitted to and accepted by
the Commission and must discharge any other obligations laid
down by the Commission decision.

Accordingly the Ergee restructuring measures, which are
summarised in the following table, concentrate on these three
main areas.

Restructuring costs

ATS
(million)

ECU
(million)

Making good negative equity capital

Injection of sufficient equity capital

Operating losses 1997 and 1998

Extraordinary depreciation of stocks and receivables

Total financial restructuring costs

Redundancy programme

Transfer of storage facilities and offices

Organisational changes

Consultants

Extraordinary marketing measures

Total operational restructuring costs

Investment 1997 to 1999

121,0

165,0

148,0

56,0

491,0

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

84,1

76,0

8,8

12,0

10,7

4,1

35,6

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

6,1

5,5

%

18,7

25,3

22,7

8,9

75,4

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

12,9

11,7

Total restructuring costs

651,1

47,2

100,0

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5.6.1. Financial restructuring measures

total

cost of

financial

restructuring is

The
some ATS
491 million (ECU 35,6 million). In order to restore the group’s
finances, it was necessary to offset its negative capital of ATS
to provide the group with
121 million (ECU 8,8 million)
some ATS 165 million (ECU
sufficient equity capital of
12,0 million), equivalent
the group’s
balance-sheet total, to cover the losses of ATS 148 million
(ECU 10,7 million) forecast for 1997 and 1998 and to make
good an extraordinary depreciation of stocks and receivables of
ATS 56 million (ECU 4,1 million).

to around 25 % of

The Commission takes the view that the financial restructuring
measures are necessary in order to restore Ergee’s financial
situation.

the Raiffeisenbank Oberes Waldviertel

The main element in bringing the group’s financial situation
back to health was the waiver by Ergee’s house banks of
unsecured loans of ATS 338 million (ECU 24,5 million)
in
1997. The following Austrian banks were involved: Bank
Austria AG, the Erste Bank der (cid:246)sterreichischen Sparkassen AG
registrierte
and
Genossenschaft mit beschr(cid:228)nkter Haftung. By letters dated
28 May 1998 and 8 June 1998, these banks confirmed that
they had agreed to the waiver, since their losses would be far
higher if Ergee were to go bankrupt. The Commission takes
the view that Bank Austria AG is a public enterprise, although
more than 50 % of the shares are held by private investors,
since it
individual
shareholder. The other two banks are private banks. By far, the
largest contribution was made by the private Erste Bank der
(cid:246)sterreichischen Sparkassen AG. The banks established a
consortium and took decisions unanimously. The Commission
concludes from this that the public Bank Austria AG acted as a
private investor.

is controlled by the State as

largest

The GBI provided funds amounting to ATS 25 million (ECU
1,8 million) to increase the capital and undertook to make
available a further ATS 25 million, as soon as the Commission
adopted a decision on the case.

The State wishes to waive the existing unsecured loan of ATS
42 million (ECU 3,0 million) if the Commission approves this
and Ergee satisfies the conditions regarding the number of
persons employed in production plants in Austria. In addition,
the firm itself intends to make a contribution with the sale of
assets[(cid:133)] (*) and with profits [(cid:133)] (*) expected for 1999 and
2000.

Altogether, funds total ATS 494 million (ECU 35,8 million)
and so ensure that the firm will return to a healthy financial
situation.

numbers employed had already been cut from 1 966 in 1996
to 1 397 in 1998. This is equivalent to a 29 % reduction. The
necessary redundancy programme (mainly for Germany) will
cost ATS 55,5 million (ECU 4,0 million).

The following table gives the employment figures.

Reduction in numbers employed

1996

1997

1998

Austria

Czech Republic

Germany

Switzerland

521

1 215

225

5

417

926

197

8

390

921

78

8

Total

1 966

1 548

1 397

Total percentage compared with 1996

100,0

78,7

71,1

Labour shedding is chiefly the result of organisational changes
within the group. The group will exercise better control over
its production plants in Austria and the Czech Republic. It will
also relinquish its storage facilities in Germany and concentrate
its storage activity on the Austrian location. The German
subsidiary will be converted into a marketing company.
[(cid:133)] (*)The organisational changes at the Austrian location will
cost ATS 1 million (ECU 0,1 million).

replaced

experienced

After GBI’s takeover of Ergee, the Ergee and Loana a.s., board
members were
reorganisation
by
managers. The GBI also sent Ergee two of its marketing and
financial control experts to strengthen the firm’s management
capacity. The Ergee supervisory board was also replaced by
experienced reorganisation managers and textile experts. The
changes at management
level were necessary in order to
achieve cost-cutting measures so as to make production more
efficient and shorten product throughput times in the factories
in Austria and the Czech Republic. Consultants are also
responsible
restructuring
implementing
measures.[(cid:133)] (*).

the

for

In order to guarantee long-term profitability, the group must
also redefine its market position and improve its brand and
product strategy.[(cid:133)] (*).

The operational restructuring measures are to be financed
mainly by a State-guaranteed operating loan of up to ATS
90 million (ECU 6,5 million).

5.6.2. Operational restructuring measures

The total cost of the operational restructuring measures is ATS
84,1 million (ECU 6,1 million). The group’s main task is to
shed labour, in order to improve its cost structure. This is why

5.6.3. Restructuring measures associated with investment

Austria has indicated that the group must invest in order to
return to long-term profitability. The group is planning
investment of ATS 76 million (ECU 5,5 million) for the period
1997 to 1999, which an average is equivalent to [(cid:133)] (*) of
turnover.

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The bulk of the investment will be devoted to the expansion
and technical modernisation of the central storage facilities at
the Austrian location (cid:151) since the central storage facilities in
Germany are to be closed (cid:151) and the provision of software
and hardware or its adaptation to the state of the art.

A smaller proportion of investment will be devoted to the
stock of machinery: old, written-off machines are to be
replaced so that a high standard of quality can be maintained,

new fibres and more ambitious designs can be processed and
material costs can be cut substantially. Austria has stated that
in recent years the group had reduced its tangible assets.

The following figures show that the value of the machinery
newly acquired (cid:151) either by purchase or by leasing (cid:151) was
lower than the depreciation and leasing costs of the machinery
used by the group, although much of
it had already been
completely written off.

Changes in the value of machinery

1996

1997

1998

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

Acquisition of new machines (purchase and leasing)

24,0

1,7

19,3

1,4

15,6

1,1

Depreciation and leasing costs

ﬂ 30,7

ﬂ 2,2

ﬂ 31,6

ﬂ 2,3

ﬂ 21,4

ﬂ 1,6

New acquisitions as percentage of depreciation and
leasing costs

78 %

61 %

73 %

The investment is to be financed by the new ATS 40 million
(ECU 2,9 million) State loan and further bank loans.

The Commission takes the view that the investment is limited
to the minimum necessary to permit the restructuring of the
group.

5.6.4. Estimated accounts

The Commission has examined the estimated balance sheets,
profit and loss accounts and cash flow figures up to the year
restructuring
2000 in order
to determine whether
measures will restore the firm’s viability.
the
estimated accounts were presented in full and the underlying
assumptions were explained in detail.

finds that

the
It

As a result of the strategy of reducing the product range,
shedding labour and trimming production capacity, the group
will reduce its output. In the year 2000 this will still be below
the l997 figures.

improvement will be achieved mainly by a substantial cut in
employee expenditure as a proportion of output from 41,7 %
in 1997 to 34,0 % in 1998. Because of the continuing high
expenditure on interest the result for usual business activity
will, however, remain in the negative area. According to the
plan the group will make a profit
[(cid:133)] (*). The
improvement is based on further cost-cutting measures and a
more efficient production process. According to the estimated
accounts, in the year 2000, the group will increase its profits
to [(cid:133)] (*), i.e. [(cid:133)] (*) % of output. This figure makes it clear
that although the group must continue to manage its costs, it
is quite capable of being restored to viability.

in 1999.

Mainly as a result of the waived repayment of the bank loan
and the capital injection from the GBI, the group registered
positive capital of l5,2 % of the balance-sheet total as early as
1997. With the help of a further capital injection from GBI
and retained profits for 1999 and 2000, equity capital will
amount to 27,8 % of the balance-sheet total in the year 2000.
In the Commission’s judgment, the group will be in a healthy
financial situation in the year 2000.

The Commission notes that (cid:151) despite a considerable decrease
in output in 1998 as compared with the previous year ((cid:150) 6 %)
(cid:151) the operating result will be positive as early as 1998. This

the Commission feels that

the projections prove
Therefore,
that the group has the prospect of long-term viability and is in
a position to operate on its own merits and without further
State support.

L 227/8

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Official Journal of the European Communities

28.8.1999

The following table summarises the most important figures of the Commission’s analysis:

Profit and loss account (Group)

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

1997

1998

1999

2000

Output

Operating result

Financial result

949,8

68,8

893,7

64,8

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

ﬂ 97,2

ﬂ 7,0

6,2

0,4

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

ﬂ 37,4

ﬂ 2,7

ﬂ 19,7

ﬂ 1,4

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

Result for usual business activity

ﬂ 134,6

ﬂ 9,8

ﬂ 13,5

ﬂ 1,0

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

Balance sheet (Group)

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

ATS
(million)

ECU
(million)

1997

1998

1999

2000

Equity capital

Liabilities

113,0

8,2

117,3

8,5

149,9

10,9

185,0

13,4

550,8

39,9

506,0

36,7

476,2

34,5

440,5

31,9

Balance-sheet total

663,8

48,1

623,3

45,2

624,1

45,2

625,5

45,3

5.7. Avoidance of undue distortions of competition

through the aid

The Commission has examined whether measures have been
taken to offset adverse effects of
the restructuring aid on
competitors.

the amount of aid received, to the restructuring of the industry
serving the relevant market in the Community by irreversibly
reducing or closing capacity. A reduction or closure is
irreversible when the relevant assets are scrapped, rendered
permanently incapable of producing at the previous rate, or
permanently converted to another use.

5.7.1. Reduction of production capacity

that

external

factors have

The Commission notes
also
contributed to the group’s difficulties. According to the results
of a survey (8), 40 % of consumers wishing to cut back on their
expenditure do so by reducing their expenditure on purchases
of clothing. In addition, textile demand is declining by 5 % to
7 % annually in Europe. At the same time, imports from the
Far East are increasing. These factors resulted in downward
pressure on prices, predatory competition and structural
overcapacity. The Commission also notes that Austria does not
dispute the existence of structural overcapacity on the relevant
market.

that

the firm must

The Commission notes
replace old
written-off machines as part of the restructuring measures, in
order to be able to maintain a high standard of quality, to
process new fibres and more ambitious designs and to
improve its efficiency, so that the group’s long-term viability is
secured. The replacement of machines does not, however, lead
to any increase in total machinery or in capacity. Austria has
proved that at group level and taking into account not only its
own machines, but those which have been leased, not only is
the number of machines diminished, but also potential
production capacity, expressed in units per day, is irrevocably
reduced. Thus, the group will reduce knitting capacity by 11 %,
the toe-closing capacity by 23,9 % and flat-knitting capacity by
51,2 %. These are the relevant capacities for the manufacture
of the group’s products. The proportion of leased machines in
relation to own machines is small.

In accordance with point 3.2.2 (ii) of
the
restructuring plan must make a contribution, proportionate to

the guidelines,

(8) Carried out by the magazine (cid:145)TV H(cid:246)ren und Sehen(cid:146), March 1995.

(cid:133) (*)

The following table gives an overview of changes in the
group’s production capacities.

28.8.1999

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Official Journal of the European Communities

L 227/9

The Commission also notes that the reduction of production
capacities was accompanied by a 28,9 % cut in the workforce,
together with a reduction in the group’s storage area from
24 000 m2 to 13 000 m2 and a 15 % reduction in the product
range. In addition the Commission again points out that the
group will not have increased its output above the 1997 level
by the year 2000.

the loan is necessary to guarantee the financing of
the
necessary investment. The Commission has also taken into
account the fact that in accordance with the EFTA Surveillance
Authority decision of 11 May 1994, the firm is situated in an
assisted area under Article 92(3)(c) of the EC Treaty with a
permissible maximum aid intensity of 20 % net.

According to the information provided by Austria, Ergee has a
market share of 10,9 % and 6 % in the largest markets, Austria
and Germany. Ergee’s market shares are not significant in the
other EEA countries. Ergee is therefore a comparatively small
competitor on the EEA market.

5.7.2. The competition-distorting effect of State aid measures

As regards the planned waiver of the existing, unsecured State
loan of ATS 42 million (ECU 3,0 million), the Commission
takes the view that this contribution is necessary to ensure that
the group has sufficient liquid funds. The Commission has also
borne in mind that, according to the information provided by
Austria, the State would lose the entire amount if Ergee were
to go bankrupt. Furthermore, the State is acting in the same
way as Ergee’s banks, which are also waiving 100 % of their
unsecured loans. Also, the waiver of the loan is conditional on
the number of employees which are employed by Ergee by the
year 2000.

With the help of
the guarantee of ATS 90 million (ECU
6,5 million), Ergee can procure enough liquid funds to finance
its restructuring measures.

it

the prospect of

long-term viability and its

The Commission points out, however,
that Ergee does not
have to make any payment for this guarantee. Since the group
financial
has
position has already been corrected,
is not necessary to
waive the guarantee charge in order to restore the firm’s
viability. In addition the group’s financial expenditure is only
some 2 % of output. So it can be shown that a free-of-charge
justified. Failure to make a charge would
guarantee is not
reduce the firm’s financial burden up to the year 2000 to an
unjustified extent. The Commission consequently takes the
view that the guarantee constitutes State aid, since Ergee does
not have to pay for it on normal market terms, and as such is
not compatible with the common market.

5.8. Aid in proportion to the restructuring costs and

benefits

As regards the new State loan of ATS 40 million (ECU
2,9 million), the Commission has reached the conclusion that

The Commission has examined whether the aid is limited to
the strict minimum needed for the restructuring of the firm.

In the following table the contributions to the group’s restructuring are again summarised.

Contributions to restructuring

ATS
(million)

ECU
(million)

Waiving of State loan

New loan

State-guaranteed loans

42,0

40,0

90,0

Total State aid

172,0

Contribution by parent company

50,0

3,0

2,9

6,5

12,5

3,6

%

6,5

6,1

13,8

26,4

7,7

Retained profits in 1999 and 2000

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

Sale of capital assets

[(cid:133)] (*)

[(cid:133)] (*)

[(cid:133)] (*)

Waiving of bank loans

Further necessary bank financing

Total company contribution

63,5

338,0

23,8

Total bank contribution

365,6

4,6

24,5

1,7

26,5

9,8

51,9

4,2

56,2

Total of all contributions

651,1

47,2

100,0

L 227/10

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Official Journal of the European Communities

28.8.1999

The table shows that the restructuring of the firm is mainly
contribution
financed by the banks
amounts
firm’s
the
to 26,4 % of
contribution to 9,8 % and that of the parent company, GBI, to
7,7 %.

(56,2 %). The State
costs,
restructuring

The above percentages show that State aid is in an appropriate
proportion to the restructuring costs and to the contributions
of the other parties involved. The Commission, however, again
points out that provision of the guarantee without charge is
not necessary to restore the viability of
the firm. This
guarantee is
therefore not compatible with the common
market.

5.9. The nature of the existing State loan

Austria has established that the existing loan of ATS 42 million
(ECU 3,0 million) was
investment of ATS
92,7 million (ECU 6,7 million) in 1994 and 1995. A detailed
breakdown of the investment costs was provided.

intended for

the Law to promote the labour market;

The existing loan was provided in accordance with Article 35a
of
this Law was
entered by the EFTA Surveillance Authority as number 93-359
in the list of existing regional aid schemes. The Commission
therefore takes the view that this aid is covered by an existing
aid scheme.

The Commission also finds that according to the information
provided by Austria, Ergee was not involved in the bankruptcy
proceedings of the German parent company and was not in
difficulties when the loan was granted.

The Commission has therefore reached the conclusion that this
loan is an investment aid.

The Commission finds that Ergee is applying for restructuring
aid for the first time.

5.10. No extension of rescue aid

On 17 December 1997 the Commission approved rescue aid
in the form of a guarantee and a payment on account by GBI
in respect of a subsequent increase in equity capital for the
period July 1997 to the end of 1997. According to the
information provided by Austria, the guarantee was granted
only until the end of 1997. However, Ergee still has the funds
of ATS 25 million (ECU 1,8 million) made available by the
GBI.

In its decision on the rescue aid, the Commission ruled that
without a soundly based restructuring plan it could be neither
proved nor expected that a normal return on investment could
time. The
be achieved within an appropriate period of

conclusion that

Commission therefore
the
reached the
measures of the GBI, at the time when the rescue measures
were carried out, may have comprised State aid. But since the
Commission has already found that the measures of the GBI
since the restructuring phase are based on business principles
and do not constitute State aid within the meaning of
Article 92 of the EC Treaty, there is in fact no reason to regard
the capital injection from GBI as an extension of rescue aid.

6. CONCLUSIONS

The Commission concludes that the activities of the GBI are to
be equated with those of a private investor and do not
constitute State aid within the meaning of Article 92 of the EC
Treaty.

The Commission takes the view that Austria has submitted a
realistic, coherent and far-ranging restructuring plan and has
shown that the group has the potential for long-term viability
and is in a position to operate on its own merits without
further State support. The reduction in production capacity is
considerable and is sufficient
to prevent unjustified market
distortions. The State aid is in an appropriate proportion to
the other
the restructuring costs and the contributions of
parties involved. The Commission also takes the view that
Ergee has applied for restructuring aid for the first time. Lastly,
there is in fact no longer any reason to regard the capital
rescue aid. The
injection from GBI as an extension of
Commission does, however, take the view that the provision of
the guarantee without charge is not necessary to restore the
firm’s viability. This would give the group an unjustified
advantage.

The Commission therefore approves only the provision of a
new State loan of ATS 40 million (ECU 2,9 million) and the
waiving of the interest on and repayment of the existing State
loan of ATS 42 million (ECU 3,0 million).

The Commission, however, takes the view that State aid in the
form of a guarantee of ATS 90 million (ECU 6,5 million) to
Ergee free of charge is not compatible with the common
market.

The Commission has therefore reached the conclusion that the
provision of a new State loan of ATS 40 million (ECU
2,9 million) and the waiving of the interest on and repayment
of the existing State loan of ATS 42 million (ECU 3,0 million)
contributes to the development of certain economic activities
without adversely affecting trading conditions to an extent
contrary to the common interest. The Commission therefore
decides that the State aid measures can be considered to be
compatible with the common market in accordance with the
the EC Treaty and Article
first part of Article 92(3)(c) of
61(3)(c) of the EEA Agreement. However, the State aid in the
form of a guarantee of ATS 90 million (ECU 6,5 million), free
of charge, does adversely affect trading conditions to an extent
contrary to the
therefore not
compatible with the common market.

common interest and is

28.8.1999

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Official Journal of the European Communities

L 227/11

The Commission requests Austria to inform it within two
months of publication of this decision of the measures it has
taken to comply with it.

Article 2

In accordance with section 3 of the Commission guidelines,
the Commission requests Austria to submit detailed annual
reports in order to prove that the restructuring plan is being
properly implemented,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Austria wishes
the Ergee
Textilwerk GmbH, Schrems, in the form of a waiver of interest
on and repayment of a State loan of ATS 42 million (ECU
3,0 million) and of a new State loan of ATS 40 million (ECU
2,9 million), is compatible with the common market.

to grant

the Ergee
The State aid which Austria wishes
Textilwerk GmbH, Schrems, in the form of a guarantee of up
to ATS 90 million (ECU 6,5 million), free of charge,
is not
compatible with the common market. This aid must not
therefore be granted.

to grant

Austria shall submit detailed annual reports in order to prove
that the restructuring plan is being properly implemented.

Article 3

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

Article 4

This Decision is addressed to the Republic of Austria.

Done at Brussels, 22 December 1998.

For the Commission

Karel VAN MIERT

Member of the Commission