1999/380/EC: Commission Decision of 3 February 1999 concerning State aid granted by Germany to Spindelfabrik Hartha GmbH (notified under document number C(1999) 326) (Text with EEA relevance) (Only the German text is authentic)
Date: 1999-02-03
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, aid to undertakings, control of State aid, small and medium-sized enterprises

L 145/32

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Official Journal of the European Communities

10. 6. 1999

COMMISSION DECISION

of 3 February 1999

concerning State aid granted by Germany to Spindelfabrik Hartha GmbH

(notified under document number C(1999) 326)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/380/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

doffing systems, and in the modernisation of ring spin-
ning frames and speed-frames.

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 Euro-
pean Economic Area, and in particular Article 62(1)(a)
thereof,

Having,
parties notice to submit their comments,

in accordance with these Articles, given the

Whereas:

I. PROCEEDINGS

By letter dated 25 November 1996, Germany notified,
pursuant to Article 93(3) of the EC Treaty, the granting of
aid to Spindelfabrik Hartha GmbH (Hartha). By letters
dated 13 December 1996 and 4 March 1997 the Commis-
sion asked for further information, which was provided by
letters dated 29 January, 6 March and 27 March 1997.
Since the aid had been made available before it was
notified, it was registered as non-notified aid under the
reference NN 135/96.

In June 1997 Hartha filed for bankruptcy (Gesamtvoll-
streckungsverfahren).

On 30 July 1997 the Commission initiated proceedings
under Article 93(2) of the EC Treaty and published a
notice to the other Member States
and interested
parties (1).

II. DETAILED DESCRIPTION OF THE AID

A. Description of Hartha

Hartha is engaged in the manufacture of various types of
and
spindle,

spindles, bottom rollers

cotton-picker

(1) OJ C 224, 17.7.1998, p. 6.

Under a purchase agreement dated 6 November 1992
Hartha was sold to Frocatec Elektronik & Konstruktion
Beteiligungsgesellschaft mbH (Frocatec). Frocatec’s shares
are held by four persons, and the company has six
employees. It is an SME within the meaning of Commis-
sion Recommendation 96/280/EC of 3 April 1996
concerning the definition of small and medium-sized
enterprises (2). The total aid granted under the privatisa-
tion (DEM 14,942 million) was covered by the Treuhand
regime and was within the limits laid down therein.

Between 1989 and 1996 the company reduced the
number of employees from 675 to 173. In 1995 it had a
turnover of DEM 18 million. It was an SME within the
meaning of the said Recommendation.

B. Description of the restructuring

In the period 1992 to 1994 Hartha emerged from its
position of weakness
an established
company. In 1995, however, the company again encoun-
tered problems (3). It was forced on more than one occa-
sion to interrupt the manufacture of cotton-picker spin-
dles.

and became

The restructuring plan was accepted by the executive
committee of the Federal Office for Special Unification-
Related Tasks (BvS) on 28 June 1996. The committee
took a positive view of Hartha’s development.

To implement
the following
the restructuring plan,
financing strategy for Hartha was worked out by various
creditors acting in concert.

(2) OJ L 107, 30.4.1996, p. 4.
(3) This was owing to several factors, including liabilities of DEM
1 979 800 when the investors took over
the
collapse of a large contract in 1995, and the need to open up
new markets because of the loss of east European ones.

the company,

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L 145/33

BvS

BvS

Saxony

Dresdner Bank

Grant (18.9.1996)

DEM 1 750 000

Loan
interest: 5,75 % p.a.

(1.7.1996

to

31.12.1999),

DEM 1 000 000

Contribution
Fund

from Consolidation

DEM 3 000 000

Loan Secured by a 50 % deficiency
Sächsische
from the
guarantee
Aufbaubank (SAB)

DEM 1 250 000

Kreissparkasse Döbeln

Loan Secured by a 50 % deficiency
guarantee from the SAB

DEM 1 250 000

Hartha: management

Waiver of salaries

Hartha: employees

Waiver of wages

Hartha: shareholders

Cash contribution

Hartha: staff

Staff loans

DEM 100 000

DEM 450 000

DEM 250 000

DEM 250 000

Total

DEM 9,3 million

Before the concerted financing measure and the restructuring plan were brought into operation,
Hartha received, on 19 June 1996, an interest-free loan of DEM l million from the Sächsische
Aufbaubank as a provisional measure. This was repaid on 1 November.

The restructuring plan, which was submitted in January 1996, reckoned that the company would
make an operating profit in 1997.

C. Further measures (not directly linked to the restructuring)

BvS

BvS

Redemption of a loan guaranteed by
the BvS, including interest (see point
2.1)

Extension to 30.8.1997 of the dead-
line for paying out the proceeds from
the assignment of debts, with interest
at
four
the discount
percentage points

rate plus

DEM 733 000

DEM 250 000

Shareholders

Conversion of shareholder loan into
equity

DEM 3,5 million

The extension of the deadline for paying out the proceeds
from the assignment of debts (DEM 250 000) does not
constitute State aid. The BvS behaved like a private
investor. As the company had liquidity problems, the
likelihood of repayment in view of the results expected at
the time was increased by extending the deadline. Interest
was charged at four percentage points above the market
rate.
As regards the redemption of the DEM 733 000 loan, the
guarantee was provided at the time of privatisation. The
measure was based on the decisions about the activities of
the Treuhand, which were notified to the Commission
and authorised by it (1). As the company was in difficulty

when the loan was granted, it was feared that the guar-
antee was tantamount
the total
amount; i.e. an aid intensity of 100 % can be assumed.
The repayment cannot be regarded therefore as additional
aid, since the totality of the loan has already been assessed
as aid.

to aid consisting of

D. Products and markets

(1) State aid E 15/92. The thresholds for this arrangement are
1 500 workers and DEM 150 million in financial
liabilities
vis-à-vis the Treuhandanstalt. The guarantee is covered by the
arrangement and does not have to be notified.

After a decline in Community production in 1993, the
textile machinery market in general has started to recover.
The growth in production is expected to last until the
regarded with
year 2000. The upturn should be

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Official Journal of the European Communities

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caution, however, since the market is still very dependent
on exports (1). It seems that, at the beginning of 1997, the
spindle market was weak and sales were declining sharply.
However, this decline is not yet confirmed by any overall
analysis.

The textile machinery industry is dominated by small and
medium-sized enterprises. The sector is faced with inter-
nationalisation and increasing competition. One of the
strategies of SMEs for coping with this situation is to
specialise. The spindle market is a highly specialised one.

On the niche market for cotton-picker spindles, Hartha is
the only supplier in the Community. As mentioned in
the decision to initiate proceedings,
the
spindle market is fairly small. According to the informa-
tion available to the Commission, the company’s produc-
tion capacity for spindles was 930 000 units per annum,
for bottom rollers 240 000 units per annum, and for
cotton-picker spindles 2 900 000 units per annum.

its share of

III. OBSERVATIONS OF THE GERMAN GOVERN-
MENT

The Commission has received no comments from other
interested parties following the initiation of proceedings.

IV. OBSERVATIONS OF THE GERMAN GOVERN-
MENT

The German Government commented on this case by
letter dated 8 October 1997.

V. ASSESSMENT OF THE AID

Germany did not fulfil
its obligation to notify under
Article 93(3) of the EC Treaty. The aid, which does not
come under an aid scheme notified to and authorised by
the Commission, was therefore granted unlawfully. Its
compatibility with the common market
is examined
below.

A. Amount of restructuring aid

The aid planned by the BvS in the form of a grant of
DEM 1,750 million and a loan of DEM 1 million is not
part of any scheme notified to and examined by the
Commission; it has therefore been granted illegally.

The State of Saxony’s contribution is DEM 3 million from
the Consolidation Fund. This is an aid scheme which was
the Commission (2).
notified to and approved by
According to the authorisation decision, the granting of
aid is linked to the condition that a restructuring plan for
restoring the profitability of the firm is carried out. In

(1) See Panorame of EU Industry 1997, Chapter 13, p. 54.
(2) State aid N 117/95, which was authorised by the Commission

by letter dated 5 May 1995.

addition, aid from the Consolidation Fund may not be
combined with other restructuring aid.

On two occasions the Sächsische Aufbaubank guaranteed
50 % of a loan for DEM 1,25 million. This aid was
granted under a scheme notified to the Commission and
authorised by it on 7 June 1993 (3). According to the
authorisation decision, the granting of aid is linked to the
condition that a restructuring plan for restoring the prof-
itability of the firm is carried out.

With regard to these two Saxony schemes, the Commis-
sion, in its decision initiating the proceedings,-expressed
considerable
condition
concerning the implementation of the restructuring plan
had been fulfilled.

about whether

doubt

the

On 19 June 1996 Hartha received from the Sächsische
Aufbaubank an interest-free loan of DEM l million. The
loan (capital plus interest) can be regarded as aid within
the meaning of Article 92 of the EC Treaty. It is not
based on any scheme notified to and authorised by the
Commission, and is therefore unlawful. As the loan was
repaid on 1 November 1996, the company saved about
DEM 28 000 in interest. This amount should be taken
into account in any recovery of the aid.

to

or

threatens

Pursuant to Article 92(1) of the EC Treaty and Article
61(1) of the EEA Agreement, aid granted through State
distort
resources which distorts
competition by favouring certain undertakings or the
production of certain goods is incompatible with the
common market. The aid granted by Germany, in so far
as it is provided for activities other than the manufacture
of cotton-picker spindles, favours Hartha. It can therefore
be assumed that as a result of the aid the market condi-
tions for competitors are changed and trade is affected.
Consequently, the aid is in principle incompatible with
the common market.

B. Exemptions

The Commission must also determine whether the aid
qualifies for one of the exemptions in Article 92(2) and (3)
of the EC Treaty.

In Hartha’s case, the Commission has taken into account
that the company is situated in an area which comes
under Article 92(3)(a) of the EC Treaty.

In any event, however, the aid must be examined in the
light of the exemption in Article 92(3)(c), since it has the
hallmarks of aid for the rescue and restructuring of firms
in difficulty.

(3) N 73/93, E 16/94.

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The exemption in Article 92(3)(c), aid to facilitate the
development of certain economic activities or of certain
economic areas, where such aid does not adversely affect
trading conditions to an extent contrary to the common
interest, is applied in conjunction with the Community
guidelines on state aid for rescuing and restructuring
firms in difficulty (1) (‘the guidelines'). Since Hartha has
repeatedly made substantial losses in the past, it can be
regarded as a firm in difficulty within the meaning of the
guidelines.

C. Restructuring plan

Under section 3.2 of the guidelines, restructuring aid may
be granted only if there is a restructuring plan which
meets the following conditions:

(a) the restructuring must restore the long-term viability

of the company in question;

(b) undue distortions of competition should be avoided;

(c) the amount and intensity of the aid must be limited to
the strict minimum needed, and the costs of
the
restructuring may not exceed the expected benefit;

(d) the granting of the aid is linked to the full imple-
mentation of the restructuring plan and the obser-
vance of the conditions;

(e) the implementation, progress and success of

the
restructuring plan will be monitored by requiring the
submission of detailed annual reports to the Commis-
sion.

The tests of the guidelines are not satisfied, in particular
where the restoration of profitability is concerned.
Germany submitted to the Commission a restructuring
plan which was accepted by the BvS in January 1996 and
which was intended to restore Hartha to long-term viabi-
lity. The Commission doubts whether the plan was based
on realistic assumptions. In particular, the plan seems
over optimistic as regards market developments and
expected sales. It
turnover will double
between 1995 and 1998 and that a profit will be achieved
as early as 1997.

forecasts that

1995
(balance sheet)

1996
(projected)

1997
(projected)

1998
(projected)

Turnover

Labour costs

Cost of materials

18 074

8 358

10 344

23 004

9 085

11 751

Operating profit (after tax)

– 7 775

– 3 667

Annual profit

– 7 775

– 607

33 090

8 045

16 707

1 376

2 702

35 713

8 538

18 436

1 788

1 788

trend is based on the expansion of

The forecast
the
market and the marketing of high-technology products.
The Commission takes the view that the sales prospects
are overstated and that, in the circumstances, the profit-
ability of
the company cannot be restored within an
appropriate period.

In 1997 the firm actually made a loss of DEM 4,880
million (2). It was not capable therefore of returning to
viability and making a profit in that year.

This was why the bankruptcy proceedings were started.
There are two reasons for Hartha’s poor results and the
commencement
firstly,
contrary to the optimistic forecasts in the restructuring
plan, the market weakened considerably at the start of

of bankruptcy proceedings:

(1) OJ C 368, 23.12.1994, p. 12.
(2) This figure is taken from a statement of the assets and liabili-
ties of the company at 1 August 1997, which was submitted
by the receiver. There is no complete set of books for 1997.

fell by some 20 %. Secondly,

1997 and prices
the
company had to withdraw from the US market because of
liability problems. The products supplied by
product
Hartha were of insufficient quality or were defective. They
caused considerable problems
some American
customers. The restructuring plan submitted was based on
the marketing of high-technology products and the
favourable development of the market. The plan exag-
gerated both the firm’s capability and the market and
estimated overall company results too highly. These facts
confirm the Commission’s view that the plan was not
based on realistic assumptions.

for

The effects on competition on the spindle market as a
whole must be examined. The overall market for spindles
has clearly declined since 1997. While the deterioration
the market
of,

and possible

capacity on,

excess

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10. 6. 1999

cannot be disregarded, Hartha, which has a small market
share and is an SME operating in an Article 92(3)(a) area,
cannot be required to reduce capacity. In the circum-
stances, no undue distortion of competition can be estab-
lished. According to the information available to the
Commission concerning
spindle
market, the aid granted has not caused an undue distor-
tion of competition.

cotton-picker

the

To summarise, therefore, one of the conditions in the
guidelines is not met, and consequently the restructuring
aid to Hartha cannot be authorised.

VI. CONCLUSION

The Commission has taken account, in its assessment, of
the fact that Hartha has not been able to return to profit-
ability.

As regards the arrangements concerning the State of
Saxony’s Consolidation Fund and the guarantees from the
Sächsische Aufbaubank, it is true that a restructuring plan
for restoring the viability of the firm in question was
submitted, but this has turned out to be based on unrea-
listic assumptions. The condition that the restructuring
plan should restore profitability cannot be regarded as
met. Therefore the aid granted to Hartha cannot be
authorised. The condition that the aid should not be
combined with other restructuring aid has not been met
either.

The exemption in Article 92(3)(c) of the EC Treaty is not
applicable to the aid to Hartha, since the authorisation
conditions in the guidelines are not met.

The contribution of DEM 3 million from the Consolida-
tion Fund, the BvS loan of DEM l million, the BvS grant
of DEM 1,750 million, the saving of DEM 28 000 in
interest and the two 50 % guarantees from the Sächsische
Aufbaubank for loans of DEM 1,25 million therefore
constitute State aid which is incompatible with the
common market.

The Commission finds that
the Federal Republic of
Germany has granted this aid unlawfully in breach of
Article 93(3) of the EC Treaty and is therefore obliged to

recover it in accordance with the rules and procedures of
German law,

HAS ADOPTED THIS DECISION:

Article 1

The aid of DEM 7 028 000 granted by Germany to Spin-
incompatible with the
delfabrik Hartha GmbH is
common market. The aid consists of a grant of DEM
1 750 000 from the Federal Office for Special Unification-
Related Tasks (BvS), a loan of DEM 1 000 000 from the
BvS, a contribution of DEM 3 000 000 from the State of
Saxony, a total guarantee of DEM 1 250 000 from the
Sächsische Aufbaubank and a saving of DEM 28 000 in
interest.

Article 2

1.
Germany shall take all necessary measures to recover
from the firm in question the aid referred to in Article 1,
which has already been granted.

The aid shall be recovered in accordance with the
2.
procedures of German law. Interest shall be charged from
the date the aid was granted to the beneficiary until the
date of recovery, at the rate used for calculating the net
grant equivalent of regional aid.

Article 3

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

Article 4

This Decision is addressed to the Federal Republic of
Germany.

Done at Brussels, 3 February 1999.

For the Commission

Karel VAN MIERT

Member of the Commission