2000/732/EC: Commission Decision of 23 February 2000 on the State aid implemented by Germany for Korn Fahrzeuge und Technik GmbH (Thuringia) (notified under document number C(2000) 520) (Text with EEA relevance) (Only the German text is authentic)
Date: 2000-02-23
Institutions: European Commission
Subjects: Germany, State aid, agricultural vehicle, control of State aid, industrial restructuring, infringement of EU law

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 23 February 2000

on the State aid implemented by Germany for Korn Fahrzeuge und Technik GmbH (Thuringia)

(notified under document number C(2000) 520)

(Only the German text is authentic)

(Text with EEA relevance)

(2000/732/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) thererof,

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

Having called on interested parties to submit their comments
pursuant to the provision cited above (1),

(3)

Whereas:

I. PROCEDURE

(1)

By letter dated 9 October 1996, the German authorities
notified the Commission, pursuant to Article 88(3) of
the EC Treaty, of restructuring measures to assist Korn
Fahrzeuge und Technik GmbH, Gera (‘Korn’). The meas-
ures were registered under aid number N 746/96.
Further
information was submitted by fax dated 6
November 1996, registered as received on 7 November
1996. The Commission requested further information
on 11 November 1996. The German authorities with-
drew the notification on 18 April 1997, as the Commis-
sion had in the meantime approved the programme
under which the aid measures were granted (2).

(2)

By letter dated 17 March 1998, registered as received on
18 March 1998, the German authorities informed the
Commission of new measures to assist Korn. As these

(1) OJ C 233, 14.8.1999, p. 29.
(2) Thuringian loan guarantee

scheme

for

guarantees

issued by

Thüringer Aufbaubank (Aid N 117/96, OJ C 288, 23.9.1997).

measures had already been implemented, the case was
registered as unnotified aid NN 29/98. By letters dated 7
April 1998 and 8 June 1998, the Commission requested
further information, which it received on 12 March
1998 and 4 September 1998.

By letter dated 22 June 1999, the Commission informed
the German authorities that it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty in
respect of the measures. On 16 July 1999, the German
authorities requested deletions from the text of
the
Commission's letter prior to its publication in the Offi-
Journal. The Commission decision to initiate the
cial
investigation procedure was published in the
formal
Official Journal of the European Communities on 14 August
1999. The Commission invited interested parties to
submit
their comments on the aid measures. The
Commission received no comments from interested
parties.

(4)

Partial replies from Germany were received on 28 July
1999 and 26 August 1999. The case was discussed
during a meeting with the German authorities in Brus-
sels on 22 September 1999. On 16 December 1999, the
German authorities informed the Commission that insol-
vency proceedings had been initiated against
the
company on 8 November 1999. By letter dated 24
January 2000, registered as received on 27 January
2000, the Germany authorities informed the Commis-
sion of the current state of the insolvency proceedings.

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II. DESCRIPTION

A. The aid beneficiary

In 1997, Korn employed 85 people, had a turnover of
DEM 16,53 million and assets of DEM 17,41 million. It
qualifies as an SME within the meaning of
the
Community guidelines on State aid for
small and
medium-sized enterprises (1). Korn is based in Gera,
Thuringia, a German assisted area.

formerly Landtechnik & Baumaschinen GmbH,
Korn,
Gera, was privatised on 1 June 1991 through a manage-
ment buy-out to Mr Reinhard Korn. The purchase price
was DEM 0,19 million. Within the privatisation, the
Treuhandanstalt (THA) paid old debts of the company
amounting to DEM 2,89 million. Remaining debts
amounting to DEM 0,15 million were taken over by
Gera rural district in 1992. These measures were covered
by the THA scheme (2).

Korn pursues three main activities: (1) agricultural tech-
nology (repairs, maintenance, service and distribution of
including equip-
tractors and agricultural equipment,
ment and replacement parts for them, and the develop-
ment of wood grinding machines), (2) the purchase and
sale of commercial vehicles and trucks, including service
and the sale of replacement parts and accessories, and
(3) environmental engineering (metal construction and
the production of waste disposal containers).

B. The restructuring

The company underwent two distinct periods of restruc-
turing. The first restructuring took place between mid-
1991 and mid-1997. No restructuring plan for this
period has been submitted by the German authorities
and no explanations concerning operational measures
taken during this period have been provided.

The second restructuring plan was made operative in
1997 and extends over a period of six years. It was
worked out by an outside consultancy. The Commission
also received a statement by a second consultant on the

(5)

(6)

(7)

(8)

(9)

(1) OJ C 213, 27.7.1996, p. 4.
(2) SG(92), D/17613, of 8 December 1992, registered under NN 108/
91. Under the THA scheme, the waiving of old debts which stem
from the random allocation of costs in a planned economy and
which arose before 1 July 1990 is not deemed to be State aid.

(10)

(11)

development potential of the plan. The plan contains
two main points:

First, a reorganisation of the company into three new
(1) SEAT Autohaus, selling
business areas. These are:
(2) agricultural engineering and
new and used cars,
commercial vehicles
(3)
(Landtechnik/Nutzfahrzeuge),
environmental engineering (Korn Umwelttechnik). The
first two business areas, SEAT Autohaus and agricultural
engineering and commercial vehicles, were to be created
through a management buy-out (MBO) (3). They were to
be sold to former employees for a total price of
DEM 1,635 million. Mr Korn was to retain 26 % of
each business area. Environmental engineering (Korn
Umwelttechnik) was to become the main business area,
the accounting departments from both
taking over
MBOs.

Secondly, a reorganisation within the business areas. The
company was supposed to set up a central warehouse
and purchase unit to save costs. The business area envir-
onmental engineering (Korn Umwelttechnik) and agri-
cultural engineering and commercial vehicles Land-
technik/Nutzfahrzeuge) were to be reorganised so as to
achieve increased profitability and save up to 7 % of
costs. The production and distribution of wood grinding
machines was to be maintained (4). Regarding the SEAT
Autohaus, the company intended to increase its stocks,
the used-cars flow and the amount of foreign brands it
offers.

C. Earlier financial measures

(12)

The following financial measures were granted to Korn
from mid-1991 to mid-1997 within the context of its
first restructuring:

(a) ERP loans granted in 1992 and 1993 totalling

DEM 1,23 million (5);

(b) EKH loans granted in 1992 and 1994 totalling

DEM 2 million (6);

(c) R&D subsidies granted in 1995 and 1996 totalling

DEM 0,06 million (7);

(d) direct investment aid granted in 1993 and 1994,
which, on the basis of the information available, is
estimated at DEM 0,81 million (8);

(e) investment allowance granted from 1992 to 1997,
which, on the basis of the information available, is
estimated at DEM 0,15 million (9);

(3) In their answers of 4 September 1998,

the German authorities
explained that the business area agricultural engineering & commer-
cial vehicles was difficult to sell due to the unsatisfactory turnover
and profits. The sale of the SEAT Autohaus was suffering delays.
This raised doubts as to the credibility of the MBO.

(4) The company has failed to introduce this new product

in the

market.

(5) ‘European Recovery Programme — start-up scheme’ (NN 31/92, OJ
C 298, 14.11.1992, p. 4 and N 391/93, OJ C 257, 22.9.1993, p.
4).

(6) ‘Start-up equity loan scheme’ (NN 143/91, OJ C 21, 27.11.1991, p.

21 and N 213/93, OJ C 302. 9.11.1993, p. 6).

(7) ‘Innovation programme’ (N 236/96, OJ C 25, 25.1.1997, p. 7).
(8) Gemeinschaftsaufgabe- (GA)-Mittel

from Thuringia for the promo-
tion of
law
the EC
qualify as regional
Treaty and have been approved by the Commission under deroga-
tion provided for in Article 87(3)(a) of the EC Treaty.

regional economic structures. Measures under

investment aid under Article 87(1) of

this

(9) Investment Allowance Act. Measures under

this Act qualify as
regional
investment aid under Article 87(1) of the EC Treaty and
have been approved by the Commission under derogation provided
for in Article 87(3)(a) of the EC Treaty.

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(f) consolidation loans from the Land of Thuringia
amounting to DEM 3 million granted in 1995 on
the basis of an approved aid scheme for restruc-
turing of firms in difficulty (1). These loans are up to
80 % covered by a gurantee from the Deutsche
Ausgleichsbank, amounting to DEM 2,4 million,
also based on an approved aid scheme (2);

(g) loans granted by the Sparkasse-Gera-Greiz,

from
mid-1991 to 1997, which, on the basis of the infor-
mation available, are estimated to amount of DEM 6
million (3);

(h) grants for publicity/advertising granted in 1995 and
1996 and amounting to DEM 0,01 million.

(i) grants for the participation in fairs granted in 1996

amounting to DEM 0,01 million;

(j) grants for the promotion of employment granted in
1993 and 1997 totalling DEM 0,07 million.

(13) Measures

(a)

to (e) were allegedly granted under
the
approved aid schemes. As concerns measure (f),
Commission had initiated the formal
investigation
procedure against the programme under which the loans
were granted, because it thought the programme was
being misused. Loans awarded under this aid scheme
should not be for longer than 10 years. However, the
loans actually granted were for more than 12 years.
Measures (g) to (j) were not granted under approved aid
schemes.

(14)

The German authorities informed the Commission that
investment grants made in 1994 and amounting to
DEM 0,403 million (measure (d)) were being included in
the insolvency table. In addition, Sparkasse Gera-Greiz
had reclaimed loans amounting to DEM 4,142 million
(measure g)). The same bank had also reclaimed consoli-
dation loans amounting to DEM 3 million (measure (f)).

D. RECENT FINANCIAL MEASURES

(15) On 18 March 1998, the German authorities informed
the Commission of new measures in the form of consol-
idation loans amounting to DEM 3,8 million, which had
been granted on 15 October 1997 to Korn in the
context of a second restructuring. These were granted
under the Thuringia consolidation fund for firms in
difficulty. This scheme was meant for rescue and restruc-

(1) The Commission has opened the formal

against
this scheme ‘Incorrect application of
under the Thuringia SME loans programme’
17.4.1999).

investigation procedure
the de minimis rules
(C 87/98, OJ C 108,

(2) Thuringian loan guarantee

scheme

for

guarantees

issued by

Thüringer Aufbautbank (N 117/96, OJ C 288, 23.9.1997).

(3) The most

recent

information provided by Germany shows that
these loans were secured by several assignments of company claims
and by a specific-risk life assurance policy held by Mr and Mrs
these loans were
Korn (of unknown value). Although some of
included in the insolvency table, none of the collateral
items were
utilised.

turing and was approved by the Commission on the
basis of Article 87(3)(c) (4).

(16)

The terms of this scheme require observation of the
following requirements:

If aid in excees of DEM 5 million has been granted for
the purpose of restructuring, regardless of whether the
aid was granted under another approved aid scheme, it
should be notified individually to the Commission. The
earlier aid measures in support of Korn appear to have
been for the purpose of restructuring and they did
exceed DEM 5 million.

If rescue or restructuring aid exceeding DEM 2 million
has been granted previously, it must also be notified to
the Commission. In the event that the earlier measures
prove to fall outside approved aid programmes, they are
in general considered to be rescue or restructuring aid.

(17) According to the latest information from the German
authorities, these loans were secured by a personal guar-
antee by Mr Korn amounting to DEM 1,5 million and
by the assignment of the rights from Mr Korn's personal
insurance policy up to an amount of DEM 1,5 million,
and also by assignment of company claims (5).

(18)

(19)

(20)

(21)

The German authorities informed the Commission that
these loans were included in the insolvency table and
that Mr Korn's personal guarantee was taken up.

In addition to the amount of DEM 3,8 million, the
second restructuring plan included a committment by
the Sparkasse Gera-Greiz to defer interest and repayment
rates of loans already granted by it (measure (a) above).
The Thüringer Aufbaubank also agreed to grant a three-
year deferral of the repayment of instalments concerning
the consolidation loans granted during the first restruc-
turing (measure (f)).

E. Market-analysis

1. Agricultural machines and tractors (6)

Korn is active in repairs, maintenance, service and
distribution of tractors and agricultural machinery as
well as equipment for them and replacement parts. It is
also developing wood grinding machines.

The situation of the European agricultural machinery
industry has substantially improved since 1993, but this
favourable situation masks the slow deterioration of
certain important indicators for this industrial sector,

(4) Aid No NN 74/95, SG (96) D/1946, 6 February 1996.
(5) The amount of these commitments is not known, nor is it known

whether they were taken up.

(6) Panorama of EU Industry 1997, Vol, 2, 13-32; NACE (Revision 1)

29.31, 29.32.

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such as reduced working population in agriculture and
an increase in imports from outside the EU.
In the
medium term this leads to a slow erosion of the turn-
over in the sector (down 19 % in constant prices over
10 years), while, due to sustained productivity increases,
fewer persons are employed.

(28)

the
In the course of 1995 it became evident
demand from major downstream industries is stag-
nating. Especially the German industry is performing
poorly. The discovery that metal tanks corrode not only
on the outside but on the inside as well stimulated the
use of plastic.

that

(22)

SMEs constitute the bulk of the thousand companies of
the sector in Europe. Usually,
they specialise in the
tools intended for
production of particular types of
specialised uses. Their specialisation makes them less
dependent on the fluctuations of the general economy
but more vulnerable to local crises.

2. Motor vehicles (1)

(23)

Korn is also active in the purchase and sale of commer-
cial vehicles and trucks, including service and the sale of
replacement parts and accessories.

(24) Demand for cars is determiend by a number of factors
that led to the cyclical nature of sales over the past two
decades, with economic downturns generally triggering
slumps in new car registrations.

(25)

Regarding trucks, demand is highly correlated with
trends in industrial output and investments in plants and
machinery. The EU truck fleet is expected to recover
from the past turndowns, but truck replacement patterns
will be a dominating factor in determining the overall
levels of demand of new trucks.

(26) As regards motor vehicle parts and accessories (2), the
cyclical
business
climate
performance of
the motor vehicle sector and the
demand for improved durability and life expectancy of
all vehicle components has a significant effect on
demand for replacement.

strongly tied to the

is

3. Metal products (3)

(27)

Korn also produces metal containers for waste disposal
(environmental engineering). The economic recession
resulted in weak intra-EU demand for metal containers.
At the same time the industry is experiencing increased
competition from non-EU countries. In response, the EU
manufacturers have started to diversify into related
segments and increased their efforts to meet
their
customers' requirements for more efficient and environ-
mentally friendly products.

(1) Panorama of EU Industry 1997, Vol. 2, 17-8; NACE (Revision 1)

34.1, 34.2.

(2) Panorama of EU Industry 1997, Vol. 2, 17-19; NACE (Revision 1)

34.3.

(29)

(30)

(31)

III. INITIATION OF THE FORMAL INVESTIGATION

PROCEDURE

In its initiation of the formal
investigation procedure,
the Commission found that all the measures in support
of Korn constituted aid within the meaning of Article
87(1) of the EC Treaty. In view of the extremely vague
information provided, the Commission was not able to
assess the compliance of several of the measures with
the schemes, the basis upon which they had purportedly
been granted. However, it was already clear that several
aid measures had to be assessed as ad hoc aid. Since the
aid was intended to be restructuring aid, the Commis-
sion started to assess its compatibility under Article
87(3)(c) of the EC Treaty and the Community guidelines
on State aid for rescuing and restructuring firms in
difficulty (4) (‘the guidelines’).

The Commission had serious doubts as to the compati-
bility of the aid measures with the common market and
took the view that the repeated granting of aid did not
seem justified on the basis of the reasons invoked by the
German authorities. Besides, doubts were expressed
regarding the coherence of the restructuring plan and
the realism of the assumptions it was based upon. The
Commission was concerned whether undue distortions
of competition could be avoided given the lack of infor-
mation on Korn's capacity developments. The lack of
information regarding the overall restructuring costs and
the doubts on the substantial private investor's contribu-
tion precluded the Commission from taking a view on
proportionality.

investigation procedure,

In initiating the formal
the
Commission sent an information injunction on 22 June
1999, pursuant to Article 10(3) of Council Regulation
No 659/1999 of 22 March 1999 laying down detailed
rules
the EC
the application of Article 93 of
Treaty (5), asking for detailed information for each indi-
It also required Germany to provide
vidual measure.
information about any other as yet unknown aid
granted in support of the company.

for

(3) Panorama of EU Industry 1997, Vol. 2, 12-15; NACE (Revision 1)

28.21.

(4) OJ C 368, 23.12.1994, p. 12.
(5) OJ L 83, 27.3.1999, p. 1.

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IV. ASSESSMENT

(32)

In the injunction, the Commission required Germany to
provide the Commission within one month with suffi-
cient information to allow it to assess the measures
under investigation. Upon request
from the German
authorities, this deadline was extended to 30 October
1999. However, the information subsequently submitted
remained incomplete. Pursuant to Article 13(1) of Regu-
lation (EC) No 659/1999,
the Commission therefore
bases its assessment on the information available.

A. Aid within the meaning of Article 87(1) of the

EC Treaty

(33)

The financial measures in support of Korn constitute aid
within the meaning of Article 87(1) of the EC Treaty,
since they derive from State resources and have
conferred advantages on Korn which a company in diffi-
culty would not have received from a private investor.
As Korn has competitors on the relevant product
markets in Europe and as there is therefore trade, the aid
threatens to distort competition in the common market.

(36)

(37)

impossible for the
information injunction, makes it
Commission to conclude that they comply with the
terms of those schemes. Hence, they fall to be assessed
as ad hoc aid.

Regarding the consolidation loans from the Land of
Thuringia totalling DEM 3 million, the Commission has
initiated proceedings against
the programme on the
basis of which they were granted, because there seemed
to be misuse of it. (1) Although the Commission has not
yet decided on the compatibility of the programme, it
should be noted that loans under this aid scheme cannot
be awarded for a period longer than ten years. The loans
in the present case have been awarded for a period of
over 12 years. Therefore, regardless of
the possible
compatibility of the scheme with the common market,
these loans did not fulfil the conditions laid down in the
programme and therefore have to be assessed as ad hoc
aid.

The guarantee of DEM 2,4 million, covering 80 % of the
consolidation loans
referred to in recital 36, was
awarded under an aid scheme approved by the Commis-
sion. However, the terms of this scheme require the
implementation of a restructuring plan leading to the
restoration of long-term viability. The guarantee there-
fore falls to be assessed as restructuring aid. Since the
loans are already deemed to be 100 % aid, the amount
of the guarantee is not taken into account so as to avoid
double counting.

B. Aid measures awarded during the first restruc-

(38)

turing

The following measures have not been granted under
any approved aid scheme and therefore also have to be
assessed as ad hoc aid. These are:

1. Aid granted under approved regional aid schemes

(34)

EKH Loans amounting to DEM 2 million, ERP loans
amounting to DEM 1,236 million, and R&D subsidies
amounting to DEM O,067 million are regarded as
existing aid because they comply with the terms of
approved aid schemes. As they constitute existing aid,
they are not examined in this Decision, but could be
included in the assessment of proportionality.

— loans granted by the Sparkasse Gera-Greiz,

from
mid-1991 to 1997, which, on the basis of the infor-
mation available, are estimated to total some DEM 6
million (2),

— grants for publicity/advertisement granted in 1995

and 1996 amounting to DEM 0,01 million,

— grants for the participation in fairs granted in 1996

amounting to DEM 0,01 million,

— grants for the promotion of employment granted in
1993 and 1997 totalling DEM 0,07 million.

2. Aid falling outside approved regional aid schemes

(39)

In accordance with the Commission communication to
the Member States on the application of Articles 92 and
93 of the EEC Treaty and of Article 5 of Commission

(35) As regards investment grants and investment allowances,
their exact amount is still unclear, although they seem to
total at least DEM 0,96 million. Although they were
purportedly granted under approved aid schemes, the
information provided, despite an
insufficient level of

(1) C 87/98, OJ C 108, 17.4.1999.
(2) According to the information available, these loans are covered by a
number of
specified,
however. Since the value of the collateral is unknown and since the
collateral was apparently not taken up, the aid equivalent is 100 %
of the amount of the loans.

items of collateral. Their value was not

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Directive 80/723/EEC to public undertakings in the
manufacturing sector (1) loans and guarantees for the
rescue and restructuring of firms in difficulty have an
intensity of 100 % (2). Therefore, from the first set of
aid measures,
least
DEM 10,05 million.

the Commission must assess at

Community guidelines on State aid for rescuing and
restructuring firms in difficulty.

(44)

In the guidelines on State aid for rescuing and restruc-
turing firms in difficulty, the Commission sets out the
conditions governing application of the Article 87(3)(c)
derogation:

C. Application of the derogation provided for in
Article 87(3)(c) of the EC Treaty in respect of the
ad hoc aid granted during the first restructuring

1. Restoration of long-term viability

(40)

(41)

(42)

(43)

The Commission assesses individual (ad hoc), State aid
directly under the provisions of Article 87 of the EC
Treaty. Article 87 of the EC Treaty allows exemptions to
the principle of incompatibility of State aid with the
common market. The exemptions in Article 87(2) of the
EC Treaty can serve as a basis for considering aid
compatible with the common market. However, the aid
(a) does not have a social character and is not granted to
individual consumers,
(b) does not make good the
damage caused by natural disasters or exceptional occur-
rences, and (c) is not granted to the economy of certain
areas of the Federal Republic of Germany affected by the
division of Germany.

Further exemptions for regional aid are provided for in
Article 87(3)(a) and (c) of the EC Treaty. Korn is located
in one of the new German Länder, which fall under the
provisions of Article 87(3)(a) (3). However, the primary
purpose of the aid is to rescue or restructure a company
in difficulty, rather than to promote the economic devel-
opment of the region. Even if a successfully rescued or
restructured company may contribute to the develop-
ment of the region, the Commission generally assesses
such aid under Article 87(3)(c)
than Article
87(3)(a).

rather

(45)

(46)

The grant of
restructuring aid requires a realistic,
coherent and far-reaching restructuring plan capable of
restoring the long-term viability and health of the firm
within a reasonable timescale.

The information submitted by the German authorities
includes information on the company's development
from 1991 to 1997. This information shows that Korn
had a slight positive operating result
in 1994, but
incurred losses as from 1995. Results continued to be
negative in spite of the fact that the company had been
receiving substantial amounts of aid since 1991. The
information submitted refers only vaguely to a previous
restructuring process. The
any
substantial analysis of the difficulties faced by the firm.
Nor is there any restructuring plan describing opera-
tional measures and their related costs. Nor did the
German authorities explain why the aid had not been
used to support of sound restructuring by which the
company's long-term viability could have been restored.

information lacks

(47)

The Commission therefore considers that this require-
ment is not fulfilled.

The exemptions provided for in Article 87(3)(b) and (d)
of the EC Treaty for projects of common European
interest and the promotion of culture and heritage
conservation are not applicable.

(48)

leaves

This
in Article
the exemption provided for
87(3)(c) of the EC Treaty. The Commission's assessment
of aid to facilitate the development of certain economic
activities, where such aid does not adversely affect
trading conditions to an extent contrary to the common
interest, is governed by specific Community guidelines.
Since Germany has explicitly classified the aid as restruc-
turing aid, the Commission bases its assessment on the

2. No undue distortion of competition

The restructuring must include measures to offset as far
as possible adverse effects on competitors, otherwise the
aid involved is contrary to the common interest and not
eligible for exemption pursuant to Article 87(3)(c) of the
EC Treaty. If the company's relevant market is situated
in the EU and an objective assessment of demand and
supply shows that there is a structural excess of produc-
tion capacity, the restructuring plan must make a signifi-
cant contribution to the restructuring of the industry in
this market by irreversibly reducing capacity. Such
reduction must be proportionate to the costs of the
restructuring and the amount of aid received.

(1) OJ C 307, 13.11.1993, p. 3.
(2) See also Commission communication on the application of Articles
92 and 93 of the EC Treaty and Article 61 of the EEA Agreement
to State aid in the aviation sector, point 33 (OJ C 350, 10.12.1994,
p. 5).

(3) See the decision of the Commission regarding aid case N 464/93.

(49)

In spite of an information injunction,
the German
authorities have not provided significant information on
Korn's production capacity or on the relevant markets
on which the company operates. The information
submitted does not mention any measures intended to

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the relevant
reduce production capacity. None of
product markets seems unproblematic with respect to
over-capacity. The agricultural machinery sector has
seen some of its indicators, such as employment and
imports, develop in an unfavourable direction. The
various motor vehicle sectors are highly cyclical, and the
market for metal containers might undergo changes as a
result of increased use of alternative materials, such as
plastic. The Commission cannot therefore assess whether
sufficient measures were taken to offset adverse effects
on competitors as far as possible. Since distortions of
competition cannot be excluded, this criterion of the
guidelines is not met.

the information available, was not called on anyway, the
Commission cannot regard it as a contribution from a
private investor or as a reduction in the aid equivalent
calculated above. Consequently, DEM 2,3 million of the
abovementioned loan is deemed to be state aid.

(55)

The Sparkasse Gera-Greiz and the Thüringer Aufbau-
bank have, as part of the current restructuring, deferred
for three years interest and repayments on loans granted
by them. However, since these deferrals relate to loans
which were granted under the first restructuring and are
100 % aid, these measures are not taken into account so
as to avoid any possible double counting.

(50)

(51)

(52)

(53)

3. Proportionality to restructuring costs and benefits

The amount and intensity of the aid must be restricted
to the minimum required to carry out the restructuring
and proportional
to the benefits expected from a
Community point of view. In addition, the beneficiary
must make a substantial contribution to the restruc-
turing costs.
In the absence of a restructuring plan,
assessment of these aspects is impossible. In particular,
no information on a contribution from the investor has
been provided regarding the first restructuring.

The Commission considers that such substantial aid
could have had an impact on liquidity in that the aid
provided the company with surplus cash that could have
been used for aggressive, market-distorting activities.

The Commission concludes that the aid granted in the
context of the first restructuring was not justified as no
restructuring plan meeting the requirements set out in
the Community guidelines was provided. The Commis-
sion therefore considers this aid incompatible with the
common market.

D. New aid granted during the second restructuring

Consolidation loans amounting to DEM 3,8 million
were granted to Korn within the context of the new
restructuring. These loans are based on a regional aid
programme of Thuringia (1), an approved aid scheme for
restructuring firms in difficulty, which requires the full
implementation of a restructuring plan meeting the
requirements of the Community guidelines. They are
therefore to be assessed as restructuring aid.

(54) According to the latest information provided by the
these loans were secured by a
German authorities,
personal guarantee by Mr Korn amounting to DEM 1,5
million, which was actually called on. Since the total
value of the other collateral is unclear and, according to

(1) NN 747/95, SG (96) D/194, 6 February 1996.

E. Application of the derogation provided for in
Article 87(3)(c) of the EC Treaty to the aid
granted during the second restructuring

(56) As no other derogation from the general ban on aid laid
down in Article 87(1) of the EC Treaty is applicable, the
new aid measures also fall to be assessed under Article
87(3)(c) of the EC Treaty and the Community guidelines
on State aid for rescuing and restructuring of firms in
difficulty. The guidelines establish the general rule that
aid measures should be granted only once. Repeated
granting of aid must be based on reasons which are
external and unforeseeable for the company and lie
entirely outside its responsibility.

(57)

influence of
therefore be considered ‘external’. Hence,

The reasons invoked by the German authorities to justify
the repeated restructuring aid are the losses since 1993
due to product liability claims. The only other reason
put forward relates to the inability of the company to
sell one of the products it had developed. The Commis-
sion considers that both reasons stem directly from
the company and
within the sphere of
cannot
the
conditions for repeated granting of aid are not met and a
distortive effect on the market served by the recipient
cannot be excluded. These findings in themselves are
sufficient for the Commission to conclude that, since the
aid does not comply with the Community guidelines on
restructuring aid, it is incompatible with the common
market.

(58) However,

the Commission also examined the other
conditions under point 3.2 of the guidelines so as to
assess the capacity of the plan to restore the company's
long-term viability, its potential to distort competition,
the proportionality of the aid to the plan's costs and
benefits, as well as its full

implementation.

L 295/28

EN

Official Journal of the European Communities

23.11.2000

1. Restoration of long-term viability

metal containers,
undue distortions of competition.

the Commission cannot

rule out

(59)

(60)

The reorganisation of the company into three new busi-
ness areas and the reorganisation within the business
areas are only very briefly described in the business plan.
The plan calculations contain some more detail. The
new plan covers the years 1997 to 2000. The financial
data indicate that already within one year of the imple-
mentation of this new plan Korn should be able to cover
its losses and obtain positive operating results. As a
matter of fact, the information submitted shows that a
turnover increase in 1998 of almost the amount of the
loans received (1). According to the latest case-law extra-
ordinary incomes in the form of aid should not be taken
into account in assessing a return to viability (2). The
new aid is simply used to cover losses.

The Commission considers the company's problems
insufficiently described in the restructuring plan. Besides,
the plan lays out insufficient detail as to the operational
measures to be taken. The Commission notes that the
second consultant does not agree with the main consul-
tant's conclusions as to the measures necessary to
restore the company's viability. In particular, there are
discrepancies concerning the structure of the company
and the importance of marketing in future earnings. The
Commission also notes that there is no agreement as to
the future profitability of the company. Finally, there is
no clear link between the operational measures in the
new business areas and the financial plan calculations.
The underlying assumptions have not been made suffi-
ciently explicit.

3. Proportionality of the aid to restructuring costs and benefits

(63)

The restructuring plan does not specify the overall costs
of the restructuring. The Commission cannot therefore
assess whether the aid received is proportional to the
restructuring costs. Nor can it evaluate whether the aid
is limited to the strict minimum needed for the restruc-
turing.

(64) According to the most recent

information provided,
some of the loans granted under the second restruc-
turing were secured by private collateral
from the
investor Mr Korn amounting to DEM 1,5 million. This
collateral was actually called on. This amount is there-
fore
contribution from a private
investor (3). In the absence of an account of the overall
restructuring costs, however, the Commission cannot
determine whether the investor's own contribution is
proportional to the overall restructuring costs.

regarded as

a

(65)

In any case, the Commission notes that a hypothetical
sale price from a planned MBO (which never took place)
cannot be accepted as a significant investor's contribu-
tion within the meaning of the guidelines if it is not
extensively backed up with comprehensive information
as to realistic assumptions underlying it. The informa-
tion available for Korn seems to indicate that the MBO
was planned with the financial assistance of the State.

(61)

The Commission cannot
therefore agree with the
German authorities' view that the restructuring plan will
restore the company's viability.

(66)

The Commission concludes that, due to a lack of infor-
mation, it is unable to assess the proportionality of the
aid. This requirement of the Community guidelines is
therefore not met.

2. No undue distortions of competition

(62) Aid beneficiaries may not use aid to increase capacity
and in the event of sectoral over-capacity, a capacity
reduction is expected. Despite an information injunction
explicitly addressing this aspect, the capacity develop-
ment of the company was not explained and the restruc-
turing plan did not include any measure capable of
reducing the company's production capacity. Having
regard to the above comments on the relevant product
markets and the potential capacity problems in the
sectors of agricultural machinery, motor vehicles and

(1) One of

the
the reasons given by the German authorities
repeated granting of aid was that, due to the loans from the
Thuringia consolidation fund and the guarantee, there was a clear
improvement in turnover and profit results in 1998 compared to
the previous year.

for

(2) Judgment of

the Court of First

Instance of 15 September 1998,

Cases T-126/96 and T-127/96 Breda Fucine [1998] ECR II-3437.

4. Full

implementation of the restructuring plan

(67) On 8 November 1999 the company was declared insol-
vent by the district court in Gera. This confirms the
Commission's doubts as to the restoration of viability.

(68)

The Commission concludes that the aid granted as part
of the second restructuring was not justified as there
were no unforeseeable and external factors which were
the reason for the company's difficulties and as the
restructuring plan provided is incomplete, which means
that the relevant requirements set out in the Community
guidelines were not met. The Commission therefore
considers the new aid incompatible with the common
market.

(3) The other collateral covering these loans was not called on. The
Commission further notes that some of this collateral, e.g. the rights
from Mr Korn's insurance policy and the assignment of claims, had
alreday served to secure the loans of the Sparkasse Gera-Greiz.

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Official Journal of the European Communities

L 295/29

V. CONCLUSIONS

— grants for the promotion of employment in 1993 and

(69)

The Commission notes that Germany has unlawfully
granted aid to Korn, in breach of Article 88(3) of the EC
Treaty. On the basis of its assessment, the Commission
concludes that the aid is incompatible with the common
market as it does not fulfil the conditions set out in the
Community guidelines. The aid granted during the first
restructuring is incompatible in the absence of a restruc-
turing plan. The second grant of restructuring aid is not
that
justified by unforeseeable and external
affected the company, and the restructuring plan does
not meet the criteria set out in the guidelines,

factors

HAS ADOPTED THIS DECISION:

Article 1

The State aid implemented by Germany for Korn Fahrzeuge
and Technik GmbH, amounting to at least EUR 6,31 million
(DEM 12,35 million),
incompatible with the common
market. The aid consists of the following measures:

is

— investment grants in 1993 and 1994, which, on the basis
of the information available, are estimated to amount to
DEM 0,81 million,

— investment allowances granted from 1992 to 1997, which,
on the basis of the information available, are estimated to
amount to DEM 0,15 million,

— consolidation loans from Thuringia amounting to DEM 3

million granted in 1995,

— loans granted by the Sparkasse Gera-Greiz, from mid-1991
to 1997, which, on the basis of the information available,
are estimated to total some DEM 6 million,

— grants for publicity in 1995 and 1996 amounting to

DEM 0,01 million,

— grants for the participation in fairs in 1996 amounting to

DEM 0,01 million,

1997 totalling DEM 0,07 million,

— consolidation loans of Thuringia amounting to DEM 2,3

million granted in 1997.

Article 2

1.
Germany shall take all necessary measures to recover the
aid referred to in Article 1 that was unlawfully made available
restructuring aid for Korn Fahrzeuge and
and any other
Technik GmbH which could not be specified in Article 1 due
to lack of information, or unclear information, submitted by
the German authorities.

Recovery shall be effected without delay and in accord-
2.
ance with the procedures of national law provided that they
allow the immediate and effective execution of the decision.
The aid to be recovered shall include interest from the date on
which it was at the disposal of the beneficiary until the date of
its recovery. Interest shall be calculated on the basis of the
reference rate used for calculating the grant-equivalent of
regional aid.

Article 3

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

This Decision is addressed to the Federal Republic of Germany.

Article 4

Done at Brussels, 23 February 2000.

For the Commission

Mario MONTI

Member of the Commission