1999/787/EC: Commission Decision of 28 July 1999 on state aid granted by the Federal Republic of Germany to Everts Erfurt GmbH (notified under document number C(1999) 3024) (Text with EEA relevance) (Only the German text is authentic)
Date: 1999-07-28
Institutions: European Commission
Subjects: Germany, State aid, aid to undertakings

L 310/56

EN

Official Journal of the European Communities

4. 12. 1999

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 28 July 1999

on state aid granted by the Federal Republic of Germany to Everts Erfurt GmbH

(notified under document number C(1999) 3024)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/787/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having given notice to the parties concerned to submit their
comments in accordance with the aforementioned provisions
and having regard to those comments,

Whereas:

I

(1)

By letter of 23 July 1996, registered as incoming mail
on 25 July, Germany notified the Commission under
Article 88(3) of the EC Treaty of two guarantees to be
granted by the Land of Thuringia to Everts Erfurt GmbH
(Everts). The measure was entered in the Commission's
register of state aid measures under No 593/96. The
Commission asked a number of questions which were
answered by letter of 19 September 1996, registered as
incoming mail on the same day. The Commission put
further questions by letter of 15 October 1996, and
these were answered by letters of 26 November 1996,
registered as incoming on 27 November 1996, and 3

December 1996, registered as incoming on 9 December.
By letter of 12 December 1996, registered as incoming
on the same day, Germany then notified a dormant
equity holding which the Land held in the company. The
Commission sought additional information by letter of
10 January 1997, and a reply was sent by letter of 7
February 1997, registered as incoming on the same day.
At the time of the notifilcation, one guarantee was with-
drawn and the parent company was declared bankrupt.
Further financing aimed at preventing the ensuing insol-
vency of the recipient was notified by letter of 14 May
1997, registered as incoming on 16 May 1997.

On 2 July 1997, on the basis of the information before
it, the Commission decided to initiate the procedure laid
down in Article 88(2) as it doubted whether the aid
measures were compatible with the common market.
the
Attached to the letter informing Germany that
procedure had been initiated were 12 questions which
Germany was asked to answer.

The German authorities were informed of the decision
to initiate proceedings and of the grounds for doing so
by letter of 24 July 1997, ref. D/6183; this letter was
published in the Official Journal of the European Communi-
ties (1). The case was renumbered C 42/97. Interested
parties were asked to submit any observations within a
month of pubtication of the letter.

In response to the initiation of proceedings on 24 July,
Germany submitted comments in two letters both dated
17 November, and both registered as incoming mail on
18 November, under Nos A/39220 and A/39221.
Germany supplied further information by letters of 20
May 1998, registered as incoming on the same day, and
26 June 1998, registered as incoming on 1 July.

(2)

(3)

(4)

(1) OJ C 37, 4.2.1998, p. 8.

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On 14 July 1998, on the basis of the information before
it, the Commission decided to extend the proceedings
initiated under Article 88(2) as it doubted the compati-
bility with the common market of two further aid meas-
ures.

ties in the manufacturing process, which caused London
International
to stop its orders for condoms. This
resulted in a serious loss amounting to DEM 1.5 million
and a compensation claim amounting to DEM 500 000.
In addition, Everts's distribution network proved ill-
adapted to the requirements of the market place.

(5)

(6)

(7)

The German authorities were informed of this decision
and the reasons for it by letter of 17 August, ref. D/
7102; this letter too was published in the Official Journal
of the European Communities (1). Interested parties were
once again asked to submit any observations within a
month of the date of publication.

(11)

Germany commented on the extension of the proceed-
ings by letter of 9 September 1998,
registered as
incoming mail on the same day. Germany submitted
further observations by letters of 11 August 1998, regis-
tered as incoming on 12 August 1998 of 29 January
1999, registered as incoming on 1 February, of 22 April
1999, registered as incoming on 23 April, and of 10
May 1999, registered as incoming on the same day. The
Commission put further questions in a letter of 17 May
1999. Germany replied by letters of 31 May 1999,
registered as incoming on 1 June 1999, of 10 June
1999, registered as incoming on 11 June 1999, and of
23 June 1999, registered as incoming on 8 July 1999.

(8)

No observations were received from third parties either
when the proceedings were initiated or when they were
extended.

II. THE AID

that

these

amounted

claims, which

In 1996 the parent company, Everts Datteln, filed for
bankruptcy (2). Under the privatisation contract it was
obliged to assume its subsidiary Everts's investment costs
and other expenses from previous years. The bankruptcy
meant
to
DEM 8 312 million, could no longer be collected, so
that Everts itself was now in considerable difficulty. The
Sparkasse Erfurt savings bank, which was the main cred-
itor at that time, and Everts Datteln decided to seek a
new investor for Everts. The parent company sold for
DEM 80 000 shares in Everts with a nominal value of
DEM 3,3 million to the private trustee Dr Zimmermann
& Partner Unternehmensberatungs GmbH (Zimmer-
mann). Zimmermann was to undertake the task of
finding a new investor. According to the information
supplied by Germany Everts had to be hived off from
the parent company as the bankruptcy of Everts Datteln
would have led in turn to the bankruptcy of Everts the
subsidiary. Zimmermann was prepared to take on the
shares because the selling price of DEM 80 000 was far
below the nominal value of DEM 3,3 million. Zimmer-
mann did not receive any state guarantees or any other
state aid towards the purchase. Until such time as a new
investor was found,
the banking liabilities were to
remain with Sparkasse Erfurt.

A. Everts

(9)

Everts manufactures and sells rubber and latex products.
Of its turnover 95 % comes from the sale of condoms,
with the remaining 5 % coming from babies' dummies,
medical protective sheaths and other products. The firm
previously belonged to the Treuhandanstalt privatisation
agency and was taken over on 1 January 1991 by
Wilhelm Everts KG, of Datteln (Everts Datteln). This
privatisation was conducted by an open and uncondi-
tional bidding procedure leading to sale to the highest
bidder. No state aid was granted in connection with the
privatisation. Everts currently has 117 employees.

(10)

following privatisation were difficult

The years
for
Everts. The first state aid was provided in 1994, in the
form of a 90 % deficiency guarantee; the company's
profitability improved thereafter, and it actually made a
small profit in 1995. But 1995 also saw the first difficul-

(1) OJ C 377, 5.12.1998, p. 2.

(12) A long time passed before a new investor appeared, and
the firm's difficulties were not tackled during this period,
so that performance continued to worsen in 1996 and
the first half of 1997.
In 1997 a buyer, Condomi,
declared its willingness to take over Everts on condition
that its old debts were repaid. In a concerted move on
the part of Sparkasse Erfurt and the Land of Thuringia
part of the debt amounting to DEM 7,35 million was
waived (3) and in July 1997 Condomi took over the
company. Everts was now renamed Condomi Erfurt
Produktionsgesellschaft mbH. Immediately afrerwards it
received a loan of DEM 2,5 million from the Recon-
struction Loan Corporation (Kredltanstalt fur Wiederaufbau
— KfW). Condomi proceeded to implement the 1995
restructuring plan. The company's results began to
improve immediately in the second half of 1997. In
1998 it greatly expanded its sales and made a small
profit.

(2) In 1994 the production plant at Everts Datteln was destroyed by
fire, with damage assessed at DEM 30 million. The company was
underinsured and had to file for bankruptcy in 1996.

(3) The waiver of debts owed to Sparkasse Erfurt was not made the
subject of
these proceedings either when the proceedings were
initiated or when they were extended. Section III nevertheless consi-
ders whether this partial waiver constitutes state aid caught by
Article 87(1).

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B. The restructuring

(13) Germany has submitted a list of the restructuring meas-
ures which were planned and implemented in connec-
tion with the granting of the first state aid in 1993 and
1994. In December 1995 these measures were incor-
porated into a coherent restructuring plan. The 1995
plan provided for the resolution of the quality difficulties
and a comprehensive reorganisation of the sales side.
The new investor Condomi took over this plan in July
1997 and implemented it by the end of the same year.
In the course of restructuring the company received state
aid on several occasions.

(14)

The proceedings were originally initiated in respect of
the following state aid measures (1):

1. the 90 % guarantee given in 1994 on loans totalling

DEM 3,7 million;

2. the dormant equity holding of DEM 2 million
acquired in 1996 by the Thuringia Fund for the
consolidation of firms in difficulty;

3. a liquidity loan of DEM 700 000 granted by the

Thuringia Fund for firms in difficulty (2).

(15)

The proceedings were extended to include the following
measures:

1. a liquidity loan of DEM 900 000 granted in 1996
under the Thuringia small and medium-sized enter-
prises loan scheme;

2. the loan of DEM 2,5 million granted in July 1997 by

the KfW (3).

C. The market

(16) At the beginning of the 1990s there was some overca-
pacity on the market in condoms, but the available
information indicates that the situation improved in the
mid-90s and that in recent years the market has been
expanding. According to a report produced in June
1998 by the consultancy Global Strategic, the condom

(1) The schemes involved are the following:

1. Guidelines for the assumption of guarantees by the Land of
Thuringia (Richtlinie fur die übernahme von Burgschaften and Garan-
tien durch das Land Thüringen; aid measure N 117/96);

2. Thuringia Fund for

in difficulty
the Consolidation of
(Thüringer Fonds zur Konsolidierung von Unternehmen in Schwierig-
keiten; aid measure NN 74/95);

firms

3. Guidelines for the Thuringia Fund for firms in difficulty (Richt-
linie zum Thüringer Fonds fur Unternehmen in Schwierigkeiten; aid
measure N 102/96).

(2) This loan was never granted and is not considered further in this

assessment.
(3) 1. Thuringia

small

and medium-sized enterprises

loan scheme
(Thüringer Darlehensprogramm für kleine and mittlere Unternehmen):
the German Government argued that this scheme was de minimis
and did not need to be notified for approval;

2. aid under

iwo KtW schemes:

the liquidity assistance scheme
(Liguiditätshilfeprogramm; aid measure NN 37/95),
in conjunction
with the eastern small and medium-sized enterprises scheme
(Mittelstandsprogromm-Ost).

market has recently been growing by 4 % a year. Everts
had a production capacity of 66 million condoms a year
in 1994 and 88 million between 1995 and 1997, the
period of the main restructuring operation (4). Total sales
on the European condom market amounted to about
DEM 900 million in 1995. With sales of about
DEM 10 million, Everts had a market share of 1,1 % in
that year; more recent figures for the European market
are not available.

(17)

the market

in condoms

The structure of
in the
Community is clearly oligopolistic: according to the
information supplied by Germany, the London Inter-
national group has a share of 30 % of sales in Germany,
80 % in the United Kingdom, 61 % in Italy, 31 % in
France and 38 % in Spain. Mapa has a market share of
30 % in Germany, and Artsana has a 44 % share in
In Italy two other large manufacturers have
Spain.
market shares of 20 % and 16 %. According to the OTC
News market report of August 1997, the three main
brands account for 56 % of the German market.

(18)

The recipient firm is located in Thuringia, a Land with an
unemployment rate of 18 %. The region qualifies for
state aid under Article 87(3)(a).

III. ASSESSMENT

A. The amount of state aid requiring approval

(19)

restructuring (see Section II.B). After

Evens received aid under several headings in connection
the
with its
proceedings had been initiated and then extended,
it
became clear that these were not measures taken under
schemes that had already been approved, which meant
that
they had to be classified as one-off measures.
Germany has not contested the Commission's under-
standing of this point, except in the case of the loan of
DEM 2,5 million from the KfW. The question whether
that loan is within the terms of an approved scheme is
accordingly considered thoroughly below, in recitals 22,
23 and 24.

(20) As regards the liquidity loan of DEM 900 000 from the
SMEs
initiated
proceedings in respect of the scheme as a whole (5). The
present decision therefore does not consider whether the

the Commission has

loan scheme,

(4) For a time Everts used a fifth machine with a capacity of 25
million condoms. This machine could not be operated at profit and
was taken out of production in 1997.

(5) Case C 87/98 (letter ref. SG(99) D/760, 1 february 1999).

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loan was within the terms of the scheme: since it may be
that the Commission will at a later stage find that the
SMEs loan scheme is incompatible with the common
market, the loan is here examined along with the other
state aid measures in order to establish whether it itself
qualifies for exemption (1).

(21)

It has also to be considered whether the waiver of debts
owed to Sparkasse Erfurt in 1997 constituted aid within
the meaning of Article 87(1).

(25)

(26)

a) The KtW loan

(22) At the time the proceedings were extended, it appeared
that the loan of DEM 2,5 million from the KfW did not
comply with the terms of the liquidity assistance scheme
(aid measure NN 37/95) because, at the time the loan
was granted, Everts was very probably a firm in diffi-
culty. The scheme is intended to provide firms which do
not possess sufficient liquidity with the resources they
need to expand their business. By letter of 4 December
1995, however, Germany confirmed that aid would not
be given under this scheme to ‘firms in difficulty’ within
the meaning of the Community guidelines on state aid
for rescuing and restructuring firms in difficulty (the
guidelines) (2).

(23)

(24)

In response to the extension of proceedings Germany
submitted that, at the time the KfW loan was granted,
Everts was not a firm in difficulty as it had shortly
before been taken over by the new investor, Condomi.
In Germany's view, the fact that the firm had been taken
over by a new investor meant that its status as a firm in
difficulty had changed.

But there are several grounds for questioning this argu-
ment. On 30 June 1997 the old Evens showed a first-
half loss of DEM 3 million. A month later it was taken
over by the new investor, and the KfW loan was granted
immediately afterwards. Everts's difficulties were due not
only to heavy debts but also to unprofitable operation
since in the first six months of 1997 it had operating
losses of about DEM 2 million on sales of only DEM 3
million. In view of the takeover it was fair to assume
that prospects for the future were brighter, but to say
that the firm's difficulties were resolved simply by the
presence of a new investor is not convincing. In the
circumstances it has to be concluded that the KfW loan

(1) Everts has since repaid the liquidity loan with interest. But as Everts
it does

enjoyed a temporary advantage as a result of
constitute state aid and must be considered in this decision.

this loan,

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

served to help a firm in difficulty rather than to facilitate
the expansion of
its business by providing fresh
liquidity. Thus the KfW loan was not granted under an
approved aid scheme and must be assessed as a one-off
like all the other measures to assist Everts.
measure,

b) The waiver of debts owed to Sparkasse Erfurt

It has to be asked whether the waiver of debts owed to
Sparkasse Erfurt in connection with the takeover of the
firm by Condomi constituted state aid within the
meaning of Article 87(1).

In the middle of 1997 Sparkasse Erfurt had claims on
Everts amounting to DEM 15 135 325. When a new
investor had been found, some of these claims were
waived as part of a concerted operation: Sparkasse Erfurt
waived claims of DEM 7,351 million, the Land guar-
antee was released, providing a sum of DEM 3,116
million, and repayment of the dormant equity holding
of DEM 2 million was forgone. Sparkasse Erfurt is an
institution governed by public law, so that this debt
waiver might constitute state aid. Germany has expressly
assured the Commission that forgoing a part of the loan
represented a smaller loss to Sparkasse Erfurt than the
bankruptcy of Everts would have done. By waiving part
of its claim, Sparkasse Erfurt was able to secure repay-
ment of a sum of DEM 7,784 million. In the event of
bankruptcy the only realisable items would have been
land charges with a value of between DEM 2 million
and DEM 2,5 million (3) and the guarantee given by the
Land of Thuringia, which amounted to DEM 3,116
million. The dormant equity holding of DEM 2 million
belonging to the Thuringia Consolidation Fund was not
available to repay the debt owed to Sparkasse Erfurt: the
Consolidation Fund was willing to forgo this claim only
as part of a concerted exercise in which all the other
creditors also wrote off part of their claims in order to
keep the firm alive. Between the time when the search
for a new investor began in 1996 and the takeover by
Condomi in mid-1997, Sparkasse Erfurt did not provide
Everts with any further loans. It can be concluded that
Sparkasse Erfurt acted as a private provider of capital
would have done and that the debt waiver does not
constitute state aid.

c) The one-off aid measures to be considered in this decision

(27)

The following measures constitute one-off aid measures
which have to be considered in this decision;
they
amount to a total of DEM 9,1 million:

(a) the 90 % guarantee given in 1994 on loans totalling

DEM 3,7 million;

(b) the dormant equity holding of DEM 2 million
acquired in 1996 by the Thuringia Fund for the
consolidation of firms in difficulty;

(3) The charges on land owned by Everts and Everts Datteln which
were held as security (Grundschuldsicherheit) by Sparkasse Erfurt origi-
nally amounted to DEM 11,1605 million. But after
the parent
company's bankruptcy it emerged that the sites were worth less and
that their value was not sufficient to satisfy all creditors. This meant
that the securities held by Sparkasse Erfurt were worth less than
originally believed and that Sparkasse Erfurt would have received
only DEM 2.0 to 2.5 million.

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(c) the loan of DEM 2,5 million granted in July 1997

by the KfW;

(d) the DEM 900 000 liquidity loan under the SMEs

loan scheme.

(28)

The liquidity loan of DEM 700 000 which was to have
been provided by the Thuringia Fund for firms in diffi-
culty was not in fact granted;
it therefore does not
constitute state aid and is not considered further here.

B. The possible grounds for exemption

(29)

The fresh aid given by the BvS and the Land of Thuringia
was notified as restructuring aid and, since the main
purpose of the aid is to restructure a firm in difficulty,
Article 87(3)(c) of the EC Treaty may apply: that provi-
sion states that aid may be considered compatible with
the common market if it is intended ‘to facilitate the
development of certain economic activities or certain
economic areas, where such aid does not adversely affect
trading conditions to an extent contrary to the common
interest’. Restructuring aid may be considered compat-
ible with the common market where it satisfies the tests
laid down in the guidelines.

(30)

If the Commission is to approve an aid measure under
the guidelines, the restructuring plan must meet the
following requirements.

Restoration of viability

(31)

(32)

The sine qua non of all restructuring plans is that they
must restore the long-term viability and health of the
firm within a reasonable timescale and on the basis of
realistic assumptions as to its future operating condi-
tions… aid for restructuring should therefore normally
only need to be granted once.

its

The negative performance of the firm in the past was
due mainly to the unforeseeable bankruptcy of its parent
company. At present
financial position is very
encouraging, as its sales have increased constantly and
its profitability has improved (see table). These positive
developments result in large part from the new invest-
or's know-how on the distribution side and from
improved product quality. In 1999 the firm once again
expects a substantial
increase in sales. In the circum-
stances this requirement of the guidelines can be consid-
ered satisfied.

4. 12. 1999

(DEM)

Year

1991

1992

1993

Sales

Annual results

3 806 000

– 4 996 000

5 130 000

– 2 648 000

8 013 000

– 3 257 000

1994

10 196 000

– 2 066 000

1995

10 208 000

+ 50 000

1996

1997

8 678 557

– 8 312 389

7 049 303

+ 11 268 729
– 1 409 816
(operating result) (1)

1998

11 700 000

+ 200 500

1999 (2)

13 750 000

+ 897 000

(1) The high profit shown here is the result of the waiver of debts owed to

Sparkasse Erfurt and the release of the Land guarantee.

(2) On 1 January 1999 orders had already been placed worth DEM 4,5

million.

Avoidance of undue distortion of competition

(33) A further condition of aid for restructuring is that meas-
ures are taken to offset as far as possible adverse effects
on competitors. Otherwise aid would be ‘contrary to the
common interest’ and ineligible for exemption under
Article 87(3)(c).

(34)

(35)

Everts is an SME with a small market share, and there is
no excess capacity on the market. Accordingly, there is
no reason to suppose that
the aid will be used to
conduct an aggressive market policy or that it distorts
competition unduly. The market structure is rather prob-
lematic, and the presence of an additional competitor
may have positive effects on competition. This require-
ment of the guidelines is thus satisfied too.

Aid in proportion to the restructuring costs and benefits

The amount and intensity of the aid must be limited to
the strict minimum needed to enable restructuring to be
undertaken and must be related to the benefits antici-
pated from the Community's point of view. Therefore,
aid beneficiaries will normally be expected to make a
significant contribution to the restructuring plan from
their own resources or
from external commercial
financing.

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(36)

Since 1993 the two new investors have injected a total
of DEM 5,2 million, of which DEM 1,5 million was
provided by Condomi (1). Sparkasse Erfurt provided
loans amounting to DEM 15 135 325.
It has been
determined above that the waiver of DEM 7,35 million
does not constitute state aid. The investors' contribution
therefore amounts to 69 %, which is by no means insig-
nificant. But even if the whole of the loan granted by
Sparkasse Erfurt or
the waiver of DEM 7,351
million were to be classified as state aid, the investors'
contribution would still amount to 17,6 % or 42,6 %
respectively. If it is borne in mind that Evens is an SME,
both of these figures can be considered ‘significant’.

just

(37)

The Commission concludes that this requirement of the
guidelines is satisfied too.

granting of state aid is therefore justified by external
factors.

(39)

This requirement of the guidelines is accordingly satis-
fied too.

IV. CONCLUSION

(40)

The Commission finds that Germany granted state aid of
DEM 9,1 million, in violation of Article 88(3) of the EC
Treaty. However, given that the restructuring plan led to
the restoration of the recipient firm's long-term profit-
ability and that Everts is an SME, and in view of the
competitive circumstances on this market, the aid is to
be considered compatible with the common market,

Aid to be granted once only

HAS ADOPTED THIS DECISION:

(38) Aid was granted on three occasions, in 1994, 1996 and
1997: aid has here been granted repeatedly. But it must
be borne in mind that the restructuring of Everts took
place gradually and that
the restructuring measures
undertaken in 1994 were incorporated into the 1995
restructuring plan. On the basis of that plan, Everts
would have been able to achieve profitability, something
which is clear from the fact
the new investor
Condomi carried out the main part of the same plan in
1997. The bankruptcy of Everts' then parent company
Everts Datteln, a development outside Everts' own
control, prevented the plan from being implemented
immediately. Since the parent company could not meet
its obligations to Evens, the whole restructuring plan
was placed in jeopardy. With the dormant equity
holding of 1996 and the KfW loan of 1997, the new
investor Condomi was prepared to take over Everts and
the restructuring plan. The repeated
to carry out

that

Article 1

The state aid granted by Germany to Everts Erfurt GmbH,
which amounted to EUR 4 652 756,12 (DEM 9,1 million), is
compatible with the common market within the meaning of
Article 87(1) of the EC Treaty.

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 28 July 1999.

For the Commission

Mario MONTI

Member of the Commission

(1) There are no coherent restructuring plans comprising the measures
taken by both investors, which makes it difficult to establish their
respective financial contributions, consisting of
the investments
financed by Everts Datteln and by Condomi respectively.