2000/425/EC: Commission Decision of 16 November 1999 on aid granted by France to Gooding Consumer Electronics Ltd in connection with the purchase of the former Grundig plant at Creutzwald (notified under document number C(1999) 4230) (Text with EEA relevance) (Only the French text is authentic)
Date: 1999-11-16
Institutions: European Commission
Subjects: France, State aid, aid for restructuring, control of State aid, electronics industry, infringement of EU law

6.7.2000

EN

Official Journal of the European Communities

L 165/25

COMMISSION DECISION

of 16 November 1999

on aid granted by France to Gooding Consumer Electronics Ltd in connection with the purchase of
the former Grundig plant at Creutzwald

(notified under document number C(1999) 4230)

(Only the French text is authentic)

(Text with EEA relevance)

(2000/425/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, in accordance with the abovementioned Articles, given
the parties concerned notice to submit their comments,

Whereas:

I. PROCEDURE

(1)

(2)

Following the publication of various articles in the press,
the Commission's attention was drawn to the aid which
the French authorities were planning to grant to the
former Grundig plant in Creutzwald which had recently
been acquired by Gooding Consumer Electronics Ltd
(hereinafter GCE).

The information sent by the French authorities at the
Commission's request between 16 June 1994 and 29
March 1995 and the documents attached to the letter of
5 January 1995 confirmed that some of the aid had
been granted. There are two aid packages: one for
research and development (R&D) and one for restruc-
turing (also referred to as back-up aid):

(a) the first package totalled FRF 10 million (ECU 1,52
the ‘electronics industry’

million), granted under
scheme approved by the Commission (1);

(b) the

second totalled FRF 36 million (ECU 5,5
million), of which FRF 24 million was provided by
the State and FRF 12 million by the regional author-
ities. In both cases, the aid was granted on an ad hoc
basis.

(3)

The purchase of the former Grundig plant by GCE was
part of a takeover plan which was initiated on 30 March
1994 and had two objectives: to restructure the firm,
known as Gooding Electronique SA (hereinafter GESA),
and restore its long-term viability. The guidelines for

(1) The Commission decision was communicated to the French authori-

ties by letter of 1 December 1986.

action put forward by the buyer focused on (i) reor-
ienting production (quality mono television sets and
introduction of satellite receiver technology, a market
with rapid growth potential), (ii) establishing a degree of
production security through orders guaranteed by the
former shareholder Grundig, (iii) reducing output and
employment, (iv) acquiring a very popular brand under
which it could sell a large proportion of its own prod-
ucts and (v) creating a distribution and manufacturing
network — original equipment manufacturing (OEM).

In 1994, GESA employed 350 persons, i.e. 38 % fewer
than the 562 employees of the former Grundig plant.

After restructuring and in order to rationalise the invest-
ment, GESA cut capacity to some 300 000 television
sets a year against
the 578 000 sets produced by
Grundig in 1990/91. GCE/GESA were operating on a
European market with an estimated output, according to
a market study communicated by the French authorities,
of 16,7 million colour television sets in 1993. Thus their
market share at the time was some 1,74 %. In the same
year, demand in the same European market accounted
for 21,5 million sets.

On 3 and 25 July 1995, the French authorities informed
the Commission that GESA had filed for bankruptcy on
22 June 1995. Other data on the position of the firm
and on the compulsory administration and winding-up
proceedings
subsequently reached the Commission,
most recently on 20 October 1997.

On several occasions throughout the examination of this
case, the French authorities asked the Commission to
take account of
in the legal
proceedings before it decided to initiate proceedings
under Article 88(2) of the Treaty as such a decision
‘could make it more difficult for the firm to recover’.

recent developments

GESA was granted an observation period of six months,
renewable several times, by the Metz Regional Court
(Tribunal de grande instance), in accordance with Law
No 85/98 of 25 January 1985 on compulsory adminis-
tration and winding-up proceedings. On 16 April 1997,
France informed the Commission that, on 21 February

(4)

(5)

(6)

(7)

(8)

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1997, the Regional Court had declared GESA bankrupt.
The order was suspended when a buyer, Cofidur, offered
to purchase the company. The Court
then allowed
GESA's assets to be transferred to Cofidur, which set up
a new company, Continental Edison which, according to
is a completely new company
the French authorities,
with no attachments to the past.

(b) No evidence had been provided that competition
would not be distorted on the market segment in
which GESA had planned to operate,
i.e. quality
mono television sets with screens in the 37 to
55 cm range, as production was set
to double
before the end of the restructuring plan.

(9)

On 25 June 1997, France informed the Commission that
it planned to grant fresh aid to Cofidur, the firm that
had acquired GESA's assets. Following its examination of
the aid, the Commission decided on 25 February 1998
to initiate proceedings under Article 88(2) of
the
Treaty (1).

(10) On the same day, the Commission decided to initiate
proceedings under the same provision in respect of the
aid to GESA referred to above. France was informed of
this decision by letter of 22 April 1998 (2) published in
the Official Journal of the European Communities on 11
June 1998 (3). The Commission gave interested parties
notice to submit their comments on the aid in question,
but no replies were received either from Member States
or from other parties.

II. OBSERVATIONS UNDER THE ARTICLE 88(2) PROCE-

DURE

(c) The failure to complete the restructuring plan owing
to serious problems with the supply of components
and other difficulties encountered by GESA. The
Commission, unlike France, regarded these difficul-
ties as internally generated, i.e. caused by the firm.
Furthermore, there was still some doubt as to the
shareholder's real intention to carry out the recovery
plan it had devised. The doubt was confirmed by the
fact that the aid of FRF 10 million granted under the
‘electronics industry's’ scheme was not paid because
of the failure to provide the competent authorities
certificates,
with
although the research work had been undertaken.

administrative

necessary

the

(d) The financial position of the CGE group, a GESA
shareholder, appeared not to have been examined in
detail by the French authorities. The fact that GCE
had in fact ceased to exist could also indicate that it
did not have the necessary financial stability. The
cessation of business implied that the conditions
required by the Community guidelines were unlikely
to be satisfied in the future.

Reasons given by the Commission for initiating
proceedings

Comments presented by the French authorities

(11)

The reasons why the Commission decided to initiate
proceedings are as follows:

(12)

By letters of 20 May and 18 June 1998, France
forwarded its comments to the Commission.

(a) There was no indication that

the

transaction
proposed by GCE complied with the Community
guidelines on state aid for rescuing and restructuring
firms in difficulty (4) (hereinafter referred to as the
‘Community guidelines’) as there was no evidence
that the restructuring plan submitted could ensure
the long-term viability of the firm within a reason-
able time. The Commission was doubtful as to the
realistic nature of certain assumptions concerning
future operating conditions and the formation of the
forward accounts, which could call into question the
positive results which the firm was expected to
achieve at the end of the restructuring. In view of the
doubts,
it was not possible to conclude that the
forward accounts for the next three years and the
liquidity forecasts and financing plan communicated
by the French authorities were reliable.

(1) OJ C 198, 24.6.1998, p. 12.
(2) SG(98)D/3213.
(3) OJ C 179, 11.6.1998, p. 9.
(4) OJ C 368, 23.12.1994, p. 12.

(13)

Firstly, it rejected the Commission's doubts concerning
the forecasts on which the firm's return to viability was
based. The forecasts were not unrealistic, as the niche for
small screens was set to expand owing to the gradual
increase in the number of television sets per household.
Furthermore, the strategy was that Asian imports would
be partially replaced by GESA's products in response to
specific demand from large-scale distributors.

(14) According to the French authorities, the increase of over
80 % in turnover between 1994 and 1996 is explained
by the very low initial turnover (1994) in comparison to
Grundig's output. They also pointed out that GESA had
not been handicapped by a lack of orders but by the
difficulty of honouring them owing to external difficul-
ties during that period. The difficulties had been caused
by a shortage of cathode ray tubes following an indus-
trial accident at one of GESA's main suppliers.

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The predicted cuts in production costs at GESA were
based on the development of the new G 1000 chassis
which, as it is highly integrated and flexible, can be
adjusted easily to the various European standards. The
predictions were also based on the existence of an effi-
cient, highly automated production plant capable of
manufacturing a more integrated chassis than those of
its Asian competitors in this segment of the market.

(21)

In short, France stresses that the difficulties encountered
by the firm are rooted in the exceptional and unpredict-
able nature of
the shareholders' conduct and that a
combination of unfavourable events (taken separately,
these are ordering errors and shortages of certain elec-
tronic components and cathode ray tubes) multiplied the
effect of each of these unpredictable events and handi-
capped GESA in particular. The failure of the restruc-
turing plan could therefore be attributed to outside
factors.

(15)

(16)

(17)

(18)

Lastly, in order to benefit fully from such automation,
production output must be considerable. This proved
impossible, because of component supply problems and
because the Continental Edison brand could not be used.
The French authorities stated that other consumer elec-
tronics firms had also decided in the same period to
increase their European output of similar products by
cutting their imports from Asia.

France rejected the Commission's arguments that the aid
could have distorted competition between Community
producers. GESA was not aiming for the segment occu-
pied by the leading European brand manufacturers (with
the exception of products made for Grundig); its target
was, on the contrary, the market for bottom-of-the-
range products essentially imported from Asia and
produced only on a small scale in the Community.

France disputed the finding that its authorities had not
sufficiently examined the financial position of the GCE
group, little known in France at the time of the takeover
because of its medium size and its absence from the
It stated that it had on the contrary
French market.
undertaken the necessary investigations to ensure that
GCE was viable. According to those investigations, the
UK company had a good reputation, based in particular
on its position in a cutting-edge market
(satellite
receivers in particular), the personal reputation of the
group's head and principal shareholder and its business
connections with the Grundig group.

(19) On the other hand, France shared the Commission's
doubts concerning the intentions of
the GCE share-
holders to complete the recovery plan they had devised.
The shareholders had failed to honour all their commit-
ments, e.g.
their promise to diversify production at
Creutzwald. The transfer of the production of satellite
receivers was an important part of the plan as it was to
have brought a significant amount of business to the
plant.

(20)

The behaviour of the shareholders also had the effect of
limiting the resources available to the firm as it made it
impossible to pay the R&D aid and the bank loans, thus
depriving the firm of FRF 53 million. Even more seri-
ously, it is suspected that funds may have been misap-
propriated.

III. ASSESSMENT OF THE AID

(22)

(23)

(24)

(25)

(26)

The back-up aid granted to GESA constitutes State aid
within the meaning of Article 87(1) of the Treaty as it
enabled the recipient to undertake restructuring without
bearing the full costs as any other firm in the market
would have had to do.

Furthermore, as stated in the initiation of proceedings,
there is fierce competition in the European television set
industry which is caused by continual price cuts and a
large number of sets imported from third countries.
According to the data in the Commission's possession,
France's share of intra-Community trade in colour televi-
sions averaged 18,7 % in 1992 and 19,05 % in 1993,
before falling to 15,7 % in 1996. The balance of intra-
Community trade in France was in deficit throughout
the period 1992 to 1996, with the exception of 1993
when a slight surplus was recorded.

The Commission regrets that France failed to notify the
restructuring aid in time for it to submit its comments in
accordance with Article 88(3) of the Treaty. By failing to
notify the measure, France did not comply with its
obligations under the Treaty. It again failed to comply
with those obligations when it decided to pay the prom-
ised aid without awaiting the Commission's decision on
compatibility. The aid in question is therefore unlawful.

The aid is not compatible with the common market
under the exceptions provided for in Article 87(2) of the
Treaty as it is not aid having a social character, granted
to individual consumers, and it is not intended to make
good damage caused by natural disasters or exceptional
occurrences. Nor can the aid be exempted under Article
87(2)(c).

The aid cannot be considered compatible under Article
87(3)(a), (b) and (d) as it is not intended to promote the
economic development of areas where the standard of
living is abnormally low or where there is serious unem-
ployment within the meaning of Article 87(3)(a),
in
accordance with the Commission communication on the

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method of application of Article 92(3)(c) to national
regional aid (1). Nor is the aid intended to promote an
important project of common European interest or to
remedy a serious disturbance in the economy of a
Member State or
to promote culture and heritage
conservation.

(27) Assessment of the compatibility of the aid must there-
fore be confined to the exception provided for in Article
87(3)(c), in the light of the relevant Community guide-
lines.

(28) According

to

those

guidelines,

the Commission
considers that the aid can contribute to the development
of economic activity without affecting trade to an extent
contrary to the general interest, provided certain condi-
tions are met. If the Commission is to approve aid, the
restructuring plan must satisfy all the general conditions,
in particular the return to long-term viability, there must
be no undue distortions of competition, the aid must be
proportionate to the costs and benefits of restructuring
and the plan must be implemented in full.

reference figure, i.e. a very low initial production level
compared with that of the former Grundig plant.

(32) GESA's

initial production capacity was

reduced to
300 000 sets a year,
the orders placed by Grundig
accounting for all GESA's output in 1994, i.e. 160 000
sets and various sub-assemblies. Because production was
being redirected towards smaller sets, the plan provided
for an increase in volume in the following years in order
to meet demand in that segment.

(33)

The Commission notes that this production increase was
a key factor in the viability of the project, as the automa-
tion of the production process required high output
levels in order to be profitable. Furthermore, even if it
had been possible to double production in two years, it
would have reached the same level as Grundig before it
left the site, i.e. some 500 000 sets in 1992 to 1993
(and nearly 600 000 the previous year); furthermore, the
small screens' sector is a far more promising sector than
that in which Grundig was operating (large screens).

(29)

Proceedings were initiated because, on the basis of the
information supplied to the Commission, certain condi-
tions laid down in the Community guidelines had not
apparently been satisfied.

(34)

(30) As a preliminary comment, the three-year restructuring
plan, initiated when CGE acquired the Grundig plant on
30 March 1994, was never completed, as is clear from
the bankruptcy petition lodged on 22 June 1995.
However, according to the French authorities, the fact
that GESA became bankrupt a little more than one year
after launching the restructuring plan is not proof that
the operating forecasts and forward accounts were
unrealistic at the time the aid was granted. The Commis-
sion must therefore examine the relevance of the plan in
the light of the requirements of the guidelines at the
moment when the decision to invest
in the former
Grundig plant was presented to the French authorities
by the purchaser.

The reasons given by the French authorities for the
strategy of penetrating the small-screen market, still in
the middle of a price war between the leading manufac-
turers that had started in the early 1990s, was the
general tendency for households to have more than one
set. This market trend for the period 1993 to 1995 was
confirmed by the 1997 Panorama of European Union
Industry, which found that a majority of sales consisted
of replacement sets or second sets.

(35)

The strategy adopted by GESA was based on specific
seeking local
demand from large-scale distributors
sources with flexible production facilities
for good
quality, competitive televisions, whether own-brand or
not, to take the place of bottom-of-the-range sets from
Asia. According to the information supplied by France,
the distributors were anxious to find substitutes for the
products in question, which were not always reliable and
hence entailed high after-sales costs, and with lead times
no longer suited to the fluctuations in demand.

The existence of a restructuring plan based on real-
istic assumptions of a return to viability

(31) According to the authorities, GESA's return to long-term
viability within a reasonable time was based on realistic
forecasts. Turnover, according to the Commission when
it initiated proceedings, was expected to rise by over
80 % between 1994 and 1996. That trend, according to
the French authorities, was based on a very modest

(36) As this demand came specifically from the major distrib-
utors and hence constituted a significant outlet (one
third of the market in 1993), it was reasonable to antici-
pate a surge in sales. It should also be noted that, in
1993, the production of small television sets accounted
for only half of European demand in this market (4,1
million sets produced, compared with demand in the
region of 8,3 million) (2), as most European imports fell
into this segment.

(1) OJ C 282, 26.10.1995, p. 11.

(2) Source: Grundig.

(37)

(38)

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The same strategy was adopted by several medium-sized
European producers, for instance Kasui in France, Mivar,
Formenti or Imperial in Italy and Elbe in Spain. It must
therefore be concluded that the choice made by GESA
does not appear to be unusual as it is shared by other
similar-sized producers in other Member States.

relation to turnover, continued investment in research
and development) to be feasible and ensure viability.
Thus the operating result should have improved to
5,2 % of turnover before tax at the end of the restruc-
turing and 1.4 % net of tax.

The merits of the strategy became rapidly apparent as
GESA won over the major European distributors with,
on the one hand, its G 100 range with a highly inte-
grated, reliable chassis which could be adapted to the
European standards and, on the other, by its ability to
that had
respond rapidly to demand on a market
become very seasonal. Thus it was not a lack of orders
which handicapped the firm but
the difficulty of
honouring the orders owing to supply problems.

(39) When it initiated proceedings, the Commission noted
that GESA had planned to produce sets at particularly
competitive prices, comparable to those from Asian
imports. The Commission expressed doubts about the
firm's ability to achieve a level of prices, especially as
regards labour costs, comparable to those of imports.

(40)

(41)

(42)

The French authorities' reply was that the aim of the
firm was not to achieve production costs identical to
those of Asian producers as major distributors, which
traditionally seek low prices, specifically accept a relative
surcharge for European products whose higher quality
and ease of supply give them the same margins as those
obtained on imports. The reduction in the number of
sets returned for after-sales servicing and the ability to
respond to a highly cyclical pattern of demand whilst at
the same time cutting safety stocks help to offset a
slightly higher purchase price.

In addition, the reduction in GESA's production costs
was based on the development of the new G 1000
chassis and on the existence of a highly automated
production line which would therefore be capable of
producing a more integrated chassis than the Asian
competitors in this market. Naturally, in order to benefit
fully from such automation and thus cut labour costs, it
was desirable to achieve a high output. This proved
impossible owing to the supply difficulties referred to
above.

In view of the foregoing, the Commission considers that
the assumptions underlying the forward accounts were
indeed realistic estimates based on the exploitation of a
new and growing niche in the market concerned.
Furthermore, the anticipated recovery of the firm over
three financial years was coherent and sufficiently
progressive and based on structural
improvements
(diversification into growth sectors, installation of new
technology by the buyer, reduction in labour costs in

(43)

Furthermore, the financial account predicted that, by the
end of restructuring in 1996,
the liquidity position
would be healthy and cashflow distinctly positive. The
debt/net worth ratio would level out after rising, due to
the investments, in the first years of the restructuring.
The return on own funds would be in the region of
15 % by the end of the restructuring.

(44)

It should also be added that the 1994 financial year
closed with a positive net result, whereas the restruc-
turing plan had forecast a negative result. This was
achieved solely as a result of the orders Grundig had
undertaken to place with GESA.

(45)

Thus the criterion of a return to viability contained in
the Community guidelines
satisfied by the plan
presented by the buyer of the former Grundig plant.

is

Prevention of undue distortions of competition

(46) As the Commission noted when it initiated the proce-
dure,
it was possible, especially in view of the cost-
cutting objectives, that GESA's output would replace
that of
the other Community producers rather than
imports from third countries. It could thus not be ruled
out that the aid might distort competition.

(47)

(48)

The Commission concludes, however, that, rather than
targeting the market niche held by the European manu-
facturers of premium brand products, with the exception
of the products made for Grundig, GESA was targeting
the market
for bottom-of-the-range products mainly
imported from Asia. Furthermore, the work subcon-
tracted by Grundig was to remain relatively stable over
time. Rather than seeking to achieve the same produc-
tion costs as those of Asian producers, GESA was
hoping for comparable costs, given the difference in
quality of its products.

The demand for GESA's products from the major
distributors is explained by quality and not by the
possible influence of aid on the final selling price. As the
major distributors were clearly prepared to pay more for
better quality products, it is reasonable to conclude that
GESA's output would have replaced imported goods
than those of other European competitors.
rather
complained to the
Indeed, no competitors have
Commission during the proceedings that
the aid to
GESA was financing a strategy which could injure them.

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(49)

(50)

(51)

It would have been logical for that trend to continue in
view of the gap of over 4 million small sets between
European demand and European production. According
to the
information sent by France, other major
consumer electronics manufacturers such as Sanyo or
Sharp decided during the same period to increase Euro-
pean output of similar products by reducing their
imports from low-wage Asian countries in order to
benefit from the competitive advantage of highly auto-
mated production tools, better quality, as well as to
avoid customs duties and anti-dumping charges.

In view of the fact that the planned increase in output of
this type of product was not likely to be at the expense
of Community production but would instead partially
replace
Commission
considers that the condition requiring the avoidance of
undue distortion of competition has been met.

third-country

imports,

the

The Commission also notes that the plant's production
capacity was reduced very significantly after it was sold.
Given the planned increase in output, it could not be
ruled out that production capacity would also increase.
However, in accordance with the Community guidelines,
the Commission considers that the available data do not
justify imposing a capacity cut at the end of the restruc-
turing because, when the restructuring plan was drawn
up, there was no structural overcapacity on the market
targeted by GESA, according to a market study provided
by the French authorities.

(54)

(55)

entire restructuring plan to be carried out, it is necessary
to consider why GESA was unable to complete the plan.

The Commission notes that several factors hampered the
execution of the plan, namely, the impossibility of filling
orders owing on the one hand to a shortage of elec-
tronic components and cathode ray tubes and, on the
other, to difficulties relating to the marketing of the
Continental Edison brand.

following explanations
The Commission considers,
provided by the French authorities,
that component
supply problems arising less than a year after the
purchase of the plant can to some extent be regarded as
external to the firm and unforeseeable as they result
from the supply problems encountered by one of its
main suppliers, Thomson, which suddenly interrupted
its supplies of cathode ray tubes. Because of the impor-
tance of the component, which accounts for one third of
the total cost, and its technical link with the electronic
chassis which means the supplier cannot be changed
rapidly, the break in supply caused a sharp fall in GESA's
that
output. The French authorities also point out
competitors were no better able to cover the risk of
shortages, notably Daewoo, which set up a television set
plant in the Moselle at the same time as GESA.

Aid in proportion to costs

(52) Under the Community guidelines,

the aid must be
proportionate to the costs and benefits of restructuring.
In particular, the aid recipients should make a consider-
able contribution to the restructuring plan from their
own resources or through outside finance obtained at
market rates. In the present case, the aid totals FRF 46
million, of which FRF 10 million is granted under the
‘electronics industry’ scheme approved by the Commis-
sion. In addition, the financing of the acquisition was
based on capital of FRF 80 million provided by GCE
and FRF 75 million for the financing of the earlier social
plans. The total financing for the transaction was thus
FRF 201 million. The restructuring aid amounts to 18 %
of that total. The public contribution appears to be
proportionate to the total financing of the acquisition, to
which private firms made a substantial contribution.

Full implementation of the restructuring plan

(53) According to the French authorities, the fact that GESA
was wound up on 22 June 1995 does not affect the
assessment of the compatibility of the State aid granted
in 1994. As the Community guidelines also require the

(56) On the other hand,

the Commission regards,

the
‘ordering errors’ made by the firm as being endogenous,
i.e. as being the responsibility of the shareholders, as
acknowledged by the French authorities when the aid in
question was examined. The errors had a multiplier
effect on the abovementioned shortage.

the name. When it

(57) GESA was unable to use the Continental Edison brand, a
very well-known brand name which would have allowed
a large proportion of its output to be sold. This was due
to the length of the negotiations between GESA and the
former owner of the brand, Thomson SA. The disagree-
ment concerned the number of sets that GESA would
have marketed under
initiated
proceedings the Commission pointed out that the nego-
tiation of this type of clause was standard practice and
was therefore predictable. Whilst France acknowledged
this, it considered it was most unusual for the difficulty
of the negotiations in question to have constituted a
pretext
for the former owner to delay signing the
contract for several months. Furthermore, the misuse of
the clause by another party was not foreseeable. The
negotiations started only after GESA was wound up in
August 1995, i.e. when its position was already compro-
mised. However, the Commission considers that GCE
did not make a real effort to conclude the negotiations
on the use of the Continental Edison brand name in
time.

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(58)

(59)

(60)

(61)

Lastly, the failure by the prospective buyer to keep the
promises made at the time of the restructuring proposal
limited the resources available to the firm. The share-
holders did not diversify business in the plant or transfer
production of satellite receivers to Creutzwald. More-
the failure to provide documentary evidence
over,
prevented payment of the R&D aid (FRF 10 million)
authorised under a scheme approved by the Commis-
sion, although the investment had been made. There is
also the fact that the shareholders, by refusing to present
the group's consolidated financial positions, caused the
banks
totalling FRF 53 million
provided for in the financing plan. In the opinion of the
Commission, it is not the alleged insolvency of GCE Ltd
which caused GESA to file for bankruptcy but the parent
company's failure to present its consolidated financial
position.

to withhold loans

The financing plan and the restructuring thus depended
on the shareholders fulfilling their commitments. The
French authorities also suspect that fraud has taken place
and have opened a judicial inquiry. According to press
reports at the time, considerable financial resources were
moved from GESA to companies in the GCE group.
According to the same sources, the judicial authorities
are also examining the use of public money received by
GESA.

forward. The conduct of

France confirms the doubts expressed by the Commis-
sion when initiating the proceedings concerning the real
intention of GCE shareholders to carry out the plan they
had put
the shareholders,
whether due to internal or external factors or not, was
completely unpredictable and ruined any possibility that
the plant would survive, in spite of the wishes of the
French authorities themselves. The shareholders' conduct
is thus the key factor which explains why the restruc-
turing plan was not carried out in full.

IV. CONCLUSIONS

(63)

(64)

(65)

(66)

In view of the foregoing, the Commission concludes that
the plan to restructure GESA was credible, based on
realistic assumptions as to future operating conditions
and capable of restoring long-term viability. On the
other hand, the implementation of the restructuring plan
was a failure which forced the firm to file for bank-
ruptcy. The causes of this can to some extent be found
in external factors such as accidental
interruptions of
supply, but chiefly in the failure of the new owner to
fulfil undertakings given on financing and diversification
of production. This constitutes a failure to satisfy one of
the general conditions of the Community guidelines on
restructuring aid, namely full
implementation by the
firm of the restructuring plan.

Consequently, for the reasons given above, the aid of
FRF 36 million granted by the French authorities to
GESA does not qualify for exemption under Article
87(3)(c) of
to the Community
guidelines.

the Treaty, pursuant

If aid proves incompatible with the common market, the
Commission is required, under the judgments given by
the Court of Justice in Case 70/72 (1), upheld in Case
310/85 (2) and in Case C-5/89 (3),
to require the
Member State to recover from the recipient all aid
granted unlawfully. This measure is necessary in order to
revert to the previous situation by removing all the
financial benefits which the firm receiving the unlawful
aid has improperly enjoyed since the date on which the
aid was paid.

The aid must be repaid in accordance with the proce-
dure laid down by French law. The aid includes interest
calculated from the date on which it was granted to the
date on which it is actually recovered. Interest is calcu-
lated on the basis of the commercial rate, with reference
to the rate used to calculate the grant equivalent of
regional aid,

to determine

In that context,
the French authorities assured the
Commission that they conducted the necessary investi-
gations
true position of GCE.
the
According to those investigations, there had been no
signs in business circles, especially among firms specia-
lising in this area, that GCE was in difficulty. It seems
that GCE had a good reputation, based chiefly on its
position in a developing market, the personal reputation
of its managing director and principal shareholder and
its business connections with the Grundig group.

HAS ADOPTED THIS DECISION:

Article 1

(62) However, the doubts already expressed by the Commis-
sion when initiating the proceedings as to whether there
was any real
intention of completing the plan put
forward have been confirmed by the irregular conduct of
GESA's main shareholder, the GCE group.

The state aid totalling FRF 36 million granted by France to
Gooding Electronique SA is incompatible with the common
market.

(1) Commission v Germany [1973] ECR 813.
(2) Deufil v Commission [1987] ECR 901.
(3) Commission v Germany [1990] ECR I-3437.

L 165/32

EN

Official Journal of the European Communities

6.7.2000

Article 2

Article 3

1.
France shall take the necessary steps to recover from the
recipient the aid referred to in Article 1 which has already been
unlawfully paid.

The aid shall be recovered forthwith in accordance with
2.
insofar as they permit the
law,
the procedures of national
immediate and effective enforcement of this Decision. The aid
to be recovered shall include interest calculated from the date
on which the aid was granted to the date on which it is
recovered. The interest shall be calculated on the basis of the
reference rate used to calculate the grant equivalent of regional
aid.

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

This Decision is addressed to the French Republic.

Article 4

Done at Brussels, 16 November 1999.

For the Commission

Mario MONTI

Member of the Commission