2000/567/EC: Commission Decision of 11 April 2000 on the State aid implemented by the Federal Republic of Germany for System Microelectronic Innovation GmbH, Frankfurt/Oder (Brandenburg) (notified under document number C(2000) 1063) (Text with EEA relevance) (Only the German text is authentic)
Date: 2000-04-11
Institutions: European Commission
Subjects: Brandenburg, European Commission, State aid, control of State aid, electronic component, exchange of information

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 11 April 2000

on the State aid implemented by the Federal Republic of Germany for System Microelectronic
Innovation GmbH, Frankfurt/Oder (Brandenburg)

(notified under document number C(2000) 1063)

(Only the German text is authentic)

(Text with EEA relevance)

(2000/567/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,

subject of several meetings between Commission repre-
sentatives and representatives of the Land of Branden-
burg; however, the latter were not in a position to
provide the Commission with further information about
the firm. On 9 June 1997 the case was registered as
State aid No NN 80/97.

Having regard to Council Regulation (EC) No 659/1999 laying
down detailed rules for the application of Article 93 of the EC
Treaty (1), and in particular Article 14 thereof,

(2)

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2) and having regard to
their comments,

Whereas:

the Commission
By letter dated 5 August 1997 (5),
informed the German authorities of
its decision to
initiate the procedure laid down in Article 88(2) of the
EC Treaty in respect of
the aid. The decision was
published in the Official Journal of the European Commu-
nities (6). The Commission accordingly changed the case
number to C 45/97. In addition, interested third parties
were invited to submit comments within one month of
the date of publication.

I. PROCEDURE

(1)

After it had been reported in a press article of 22 August
1996 in the Handelsblatt that the Land of Brandenburg
planned to grant aid of DEM 10 million to the firm
System Microelectronic Innovation GmbH (SMI), Frank-
furt/Oder, the Commission requested further informa-
tion on 2 September 1996 (3) and 23 January 1997 (4).
Despite these requests no official communication,
let
alone a formal notification, has been forthcoming from
the German authorities. The case has also been the

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ C 352, 20.11.1997, p. 3.
(3) Letter D/52388.
(4) Letter D/50321.

(3)

The German authorities responded to the decision to
initiate the procedure by letters of 6 October 1997
(registered as received on 6 October 1997) and 29
January 1998 (registered as received on 30 January
1998). They submitted further information by letters of
28 November 1998 (registered as received on 5 January
1999), 15 March 1999 (registered as received on 16
March 1999), 7 June 1999 (registered as received on 9
June 1999), 12 July 1999 (registered as received on 13
July 1999) and 29 July 1999 (registered as received on
30 July 1999). In this last letter the German authorities

(5) Letter D/6624.
(6) See footnote 2.

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(4)

(5)

announced that a new investor for MD & D, a subsidiary
of SIMI, had been found and that further details would
be provided. As the German authorities failed to provide
any further information, the Commission sent additional
questions to them on 1 December 1999. The German
authorities replied on 23 December 1999. As the reply
was still not satisfactory, the Commission sent a final set
of questions to them on 13 January 2000, stating that it
would take a definitive decision on the basis of the
information in its possession. On 7, 14 and 24 February
2000 and 6 March 2000 the German authorities
submitted for the last time information concerning SIMI
and MD & D.

Only one reaction from a third party, supporting the
Commission's decision to initiate the procedure, was
received by letter of 8 December 1997 (registered as
received on 23 December 1997). It was forwarded to the
German authorities. Their comments were received by
letter dated 21 July 1998 (registered as received on 22
July 1998).

II. BACKGROUND

Before unification, VEB/Kombinat Halbleiterwerk Frank-
furt/Oder was the market
leader in its field in the
Comecon area, with 8 500 employees. Its main activity
was the production of customised circuits. It was situ-
ated in the Land of Brandenburg. On 1 March 1993 the
original firm Mikroelektronik and Technologie Gesell-
schaft mbH (MTG) was renamed Halbleiter Electronic
Frankfurt (O) GmbH (HEG) and was to continue the
main activities of MTG. On the same day a joint venture
was created between HEG and Synergy Semiconductor
Corporation (SSC), United States, which acquired 49 %
of MTG's shares. In January 1993 MTG also sold its
remaining 51 % to the Treuhandanstalt privatisation
agency (THA), which awarded grants totalling DEM 63
the survival of HEG. On 1
million in support of
December 1993 HEG was renamed System Mikroelek-
tronik GmbH (SMI). On 28 June 1994 the THA trans-
ferred its 51 % holding in the firm to the Land of Bran-
denburg, which in turn assigned administration of this
holding to C & L Treuarbeit Deutsche Revision. On 25
April 1997 SMI had to file for bankruptcy and became
SMI i.G. (SMI in Gesamtvollstreckung). The bankruptcy
proceedings were opened on 1 July 1997. At that time
370 employees were still working for SMI.

DEM 50 000, that was to continue the business with
about 105 employees. All
the shares in SIMI were
owned by SMI i.G. On 1 July 1997 the administrator
founded a wholly owned subsidiary of SIMI, Microelec-
tronic Design & Development GmbH (MD & D), whose
intended activities would be in the field of consulting,
marketing, development and design of microelectronic
products and services.

On 29 January 1999 the German Government informed
the Commission that the grants from the Land of Bran-
denburg totalled DEM 70,3 million and not DEM 67
million, as stated in a ‘concept book’ sent informally to
the Commission by the Land of Brandenburg at the
beginning of 1997 (7). It was stated that these measures
had been authorised by the Land Ministry of Finance.

The Land of Brandenburg, together with the bankruptcy
administrator,
to a private
then tried to sell SIMI
investor. In the course of the privatisation efforts, the
administrator planned to sell the shares of SIMI and the
assets of SMI i.G. to Integrated Semiconductor Technol-
ogies GmbH (IST). The contract was suspended as IST
was unable to satisfy its general terms until 25 June
1999.

(7)

(8)

(9) When the negotiations with IST finally broke down, the
German authorities informed the Commission on 29
July 1999 of new negotiations with Megaxess Inc., USA,
one of the partners of
IST. These negotiations were
successful in the end and SIMI was sold to Megaxess. By
contract of 28 June 1999, 80 % of the shares of MD & D
were sold to Megaxess. The remaining 20 % were
bought by three employees of MD & D. On 14 July
their
1999 MD & D acquired the shares of SIMI at
nominal value of DEM 50 000 and the assets of SMI
i.G. for DEM 1,7 million. In other words, the subsidiary
took over the shares of the Auffanggesellschaft SIMI, the
former parent company, and the assets of the original
firm SMI.

III. FINANCIAL MEASURES

3.1. Financial measures in favour of SMI

(10) According to the information submitted by the German
following financial

received the

Government, SMI
support from two different sources:
THA

(in DEM million)

Overview

1993 investment premium

Liquidity premium

Removals in 1995

(not specified)

45

18

1,8

Total

64,8

(6)

SMI i.G. ceased trading on 30 June 1997. On 29 January
the
1998 the German authorities notified details of
bankruptcy proceedings. The administrator decided that
the firm should continue in operation. For this purpose,
on 30 June 1997 he founded a new company (Auffang-
gesellschaft) named Silicium Microelektronik Integration
capital of
GmbH Frankfurt/Oder

(SIMI), with a

(7) Owing to a lack of information, the Commission did not specify
the exact amount in its decision to initiate the procedure, indicating
its doubts in this respect. For this reason, the amount of aid for the
purpose of the decision initiating the procedure is deemed to be the
full amount of aid granted by the Land of Brandenburg and speci-
fied in the present decision (DEM 70,3 million).

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Land of Brandenburg

Overview

(in DEM million)

tained whether any of the exemptions under Article 87
of the EC Treaty was applicable.

1993 to 1997 loss compensation by way
of loans

70,3

Total

70,3

(17) Until then, no official information had been submitted
to the Commission enabling it to analyse the aid granted
in the past to SMI, despite its official request that a
formal notification be made. The Commission also had
no practical information about the future plans for the
firm.

(11) As shown above, the financial support from the THA
(DEM 63 million) and for
was used for investment
unspecified removals
(DEM 1,8 million), while the
support of DEM 70,3 million from the Land of Branden-
burg was used to cover losses between 1993 and 1997.
The overall amount of financial support was therefore
DEM 135,1 million.

(12)

The Land of Brandenburg had lodged its claims during
the bankruptcy procedure, whereas no claim was made
for repayment of the financial support from the THA.

3.2. Financial measures in favour of SIMI

(13) According to the German Government, SIMI benefited

from the following financial measures:

— On 29 July 1997 the Land provided a loan of
DEM 4 million to enable continuation of the activity
of SMI i.G. The loan had to be repaid by 30 June
1999 and the interest rate was 3 % above the market
rate. According to the information provided by the
German Government
in its letter of 7 February
2000,

it had not yet been repaid.

— SIMI was expected to have a negative result of up to
DEM 1 million for the twelve-month period up to
June 1998, and this was to be covered by the
Bundesanstalt
für vereinigungsbedingte Sonderauf-
gaben (BvS — successor to the THA).

(18)

(19)

3.3. Financial measures in favour of MD & D

(14)

Since, according to the German authorities, MD & D has
not and will not receive any aid, the present assessment
will be limited to the financial measures in favour of SMI
and SIMI.

IV. COMMISSION DECISION

THE
PROCEDURE UNDER ARTICLE 88(2) OF THE EC
TREATY

TO INITIATE

(15) When it

initiated the procedure,

the Commission
assumed that the Land of Brandenburg had tried in vain
to privatise SMI in the years prior to the opening of the
in 1997.
bankruptcy procedure (Gesamtvollstreckung)

(16) According to unofficial

information in the ‘concept
book’ transmitted by the German authorities in early
1997, the firm received aid totalling DEM 131 million
from the THA and from the Land of Brandenburg
between 1993 and 1997. However, it remained unclear
whether this represented all the aid granted to SMI.
Owing to a lack of information, it could not be ascer-

Moreover, it did not become clear whether the financial
assistance from the THA in 1993 constituted grants or
loans. It could not, therefore, be checked whether it was
compatible with 1992 Treuhand regime applicable at
the time (8).

This was also the case as regards the loans from the
Land.

Furthermore,
the Commission was unable to clarify
whether the sale of SMI (at the time still HEG) to SSC
complied with the Community competition rules.

The Commission therefore enjoined (9)
the German
authorities to provide all the necessary information that
would allow it to evaluate the compatibility with Article
92 (now Article 87) of the EC Treaty of the aid already
granted and that still to be granted. Despite the Commis-
sion's injunction, the German authorities have not yet
made a formal notification.

V. REACTION OF THIRD PARTIES

The Commission received only one comment from a
third party in reaction to the initiation of the procedure.
The Swedish Electronic Component Manufacturers Asso-
ciation (SECA) supported the Commission's decision
because of the competitive advantage allegedly gained as
a result of the aid by SMI over other firms operating on
the same market.

(20)

The German authorities replied that, as SECA did not
specify the market in question, no answer was possible.

VI. REACTION OF THE GERMAN AUTHORITIES

(21)

In response to the injunction of 6 October 1997, the
the grants totalling
German authorities declared that
DEM 64,8 million made in 1993 to SMI by the THA
were based on the second THA regime and thus compat-
ible with Community legislation. However, nothing was
said about the DEM 70,3 million in loans made by the
Land. In their letter of 7 February 2000 the German
authorities declared that these loans had been granted on
normal market conditions.

(8) E 15/92, which allowed loans but not grants.
(9) OJ C 119, 7.4.1997, pp. 4 and 8.

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(22) As regards the financial measures in favour of SIMI, the
German authorities claimed in their supplementary reply
of 29 January 1998 that they could not be considered as
aid because, as a new legal firm, SIMI could not be
regarded as being in difficulty. The guidelines
for
rescuing and restructuring firms in difficulty (10) were
not therefore applicable.

(23)

(24)

(25)

VII. ASSESSMENT

The European semiconductor industry enjoyed rapid
growth and large profits until 1995. Given the globalisa-
tion of the production process and the size of the main
producers in Europe or elsewhere, the target of these
players is the world market. However, intra-Community
trade is also important and there is keen competition on
the market. For this reason, the measures in favour of
both SMI and SIMI are likely to affect trade and to
distort competition between firms in the semiconductor
market.

Consequently, the individual measures have to be exam-
ined in the light of Article 87(1) of the EC Treaty since
the funds are granted out of State resources and thus
threaten to distort competition, to affect trade between
Member States and to confer an advantage on investors
in that they are relieved of costs which they would
otherwise have to bear themselves.

It can be deduced from the information available to the
Commission that, in view of their situation, both firms
were to be regarded as firms in difficulty. Both SMI and
SIMI were suffering heavy losses when the aid was
granted. SMI subsequently became insolvent and went
into liquidation. SIMI was from the outset a wholly
owned subsidiary of SMI, with very limited capital and
no assets of its own, and could operate only by availing
itself of SMI's assets for a monthly fee of DEM 12 000.
Under these circumstances, even though SIMI was a new
legal entity, it could not operate under normal market
conditions and must therefore be regarded as a firm in
difficulty. Moreover, for a long time it proved impossible
to find an investor willing to take over the activity of
these firms. Lastly, the Commission would note that, in
spite of the injunction addressed to the German author-
ities, the latter did not provide substantial evidence that
SMI and SIMI were not firms in difficulty.

7.1. Financial measures in favour of SMI

(26)

The following financial measures were undertaken in
favour of SMI:

— Grants totalling DEM 64,8 million from the THA

According to the German authorities, these meas-
ures, which were undertaken in 1993 and 1995,
second and third THA
were based on the

(10) OJ C 368, 23.12.1997, p. 12.

regimes (11). However,
they were not covered by those regimes.

in the Commission's view,

The THA regimes applied only to loans and guaran-
tees and not to grants, except in case of privatisa-
tions. However, in the case of SMI, the grants were
part of a transaction whereby the THA sold only
49 % of the shares of SMI to SSC. As a result, the
THA remained the majority shareholder in SMI.
According to the German authorities, the company
was at the time ‘privatised’ via the sale to the private
investor SSC. They argued that the THA regimes did
not provide any indication whether it was a condi-
tion that the majority of a firm's shares had to be
transferred from a public to a private body in order
for this to be regarded as a privatisation. They also
claimed that, under Article 295, the EC Treaty was
without prejudice to the system of property owner-
ship in the Member States. Consequently,
in their
view, a public owner could also be an investor, with
the result that grants could be made. Accordingly,
the
abovementioned transaction could also be
regarded as a privatisation within the meaning of the
guidelines. Grants were therefore permitted.

In the Commission's view, this contract within the
meaning of the THA regimes cannot be regarded as a
‘privatisation’.

Under those regimes, grants were authorised in the
case of privatisation precisely because of THA's
unique and unprecedented task, namely the transfor-
mation of a planned State economy into a market
economy (12). Nevertheless, such aid can attain its
objective only if publicly owned enterprises are sold
and control of them transferred to private investors.
Under these circumstances, the principle set out in
Article 295, according to which the Treaty must in
no way prejudice the rules
in Member States
governing the system of property ownership, does
not imply that any sale of shares in a public enter-
In the
prise is to be regarded as a privatisation.
present case, a public body retained a majority
holding in the firm and full control over its activities,
while private shareholders had only a minority
holding.

Therefore, the total amount of DEM 64,8 million
granted as aid cannot be deemed to be covered by
the second and third THA regimes.

The financial measures in question cannot, therefore,
be considered to be covered by an approved scheme
and need to be assessed individually within the

(11) E 15/92 and N 768/94 respectively.
(12) See the Commission decision concerning the first THA regime (case

NN 108/91).

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framework of the present procedure. The THA held
51 % of SMI's shares when it made the grants, but it
did not increase its holding as a result and no similar
contribution was made by the other shareholders.
The Commission considers that no private investor
would have invested such an amount under these
circumstances. Therefore, the grants constitute State
aid within the meaning of Article 87(1) of the EC
Treaty. Moreover, these measures should also have
been notified in advance to the Commission on an
ad hoc basis pursuant to Article 88(3) of the EC
Treaty. The German authorities did not comply with
this notification requirement since the THA grants
were made without
prior
approval. Consequently, the aid was granted illegally.

the Commission's

— Loans of DEM 70,3 million from the Land of Bran-

denburg to SMI

that, under

The German authorities argued that these loans were
granted on normal market conditions. However,
when they were granted, SMI was a firm in difficulty,
with substantial
losses and mounting debt. The
these circum-
Commission assumes
stances, no private lender would have granted such
loans. It should also be noted that, in spite of the
injunctions addressed to them, the German author-
ities failed to provide substantial evidence that the
Land of Brandenburg behaved like a private lender.
Therefore, the Commission concludes that the loans
also constitute State aid within the meaning of
Article 87(1) of the EC Treaty. The aid has been
authorised by the Land Ministry of Finance but was
not notified to, or approved by, the Commission.
Neither it was based on an aid scheme previously
approved
the Commission. Consequently,
pursuant to Article 88(3) of the EC Treaty, it too
should have been notified. By not notifying the aid,
Germany has failed to comply with this requirement.
Consequently, this aid was also granted illegally.

by

7.2. Financial measures in favour of SIMI

(27)

The following financial measures were undertaken in
favour of SIMI:

(28)

(29)

because no private bank or private investor would
have provided financing to a firm in difficulty that
had no capital or assets of its own without appro-
priate guarantees.

— DEM 1 million loss compensation granted by the
BvS for the twelve-month period until June 1998

Since the BvS did not receive consideration for its
grant, this measure must also be considered as State
aid within the meaning of Article 87(1) of the EC
Treaty.

The Commission would point out that, in the decision
to institute the procedure against SMI i.G., it mentioned
all past and future aid for the firm. When aid was
granted to SIMI, all of its shares were owned by SMI i.G.
and no private investor could be found. Since there were
no indications that SIMI was commercially independent
of the parent company, it has to be assumed that SMI
i.G. effectively controlled SIMI. The measures in favour
of SIMI can therefore be regarded as measures in favour
of SMI i.G., with the result that they were also covered
by the decision to initiate the procedure. In their letter of
expressly
February 2000,
concurred with this view. Accordingly, these measures
must be included in the present decision. They should
have been notified pursuant to Article 88(3) of the EC
Treaty. By not notifying the aid, Germany has failed to
comply with this requirement. For this reason, these aid
measures were also granted illegally.

the German authorities

VIII. COMPATIBILITY OF THE AID MEASURES WITH

THE TREATY

It should now be examined whether the aid measures
can be exempted from the basic prohibition in Article
87(1) of the EC Treaty. The Commission has also exam-
ined whether the exemptions set out in Article 87(2) and
(3) of the EC Treaty apply. The exemptions in Article
87(2) could serve as a basis for rendering the aid
compatible with the common market. However, the aid
measures (a) do not have a social character and are
granted to individual consumers, (b) do not make good
the damage caused by natural disasters or exceptional
occurrences and (c) are not required in order to compen-
sate for the economic disadvantages caused by the divi-
sion of Germany. The exemptions in Article 87(3)(b) and
to projects of common European
(d), which refer
interest and to the promotion of culture and heritage
conservation, do not apply either. Nor did the German
authorities attempt to justify the aid on the grounds
enumerated above.

— DEM 4 million loan from the Land of Brandenburg

to the newly created SIMI

The loan was based on an authorisation by the Land
Ministry of Finance in 1997. It also ranks as aid
within the meaning of Article 87(1) of the EC Treaty

(30) As to the exemption in Article 87(3)(a), the Commission
has taken into consideration the fact
the new
German Länder rank as assisted areas under that provi-
sion where the standard of living is abnormally low and
where there is serious underemployment (13). Neverthe-
less, it should be first be pointed out that, in accordance

that

(13) N 464/93,

letter of 22 April 1994 (ref. SG(94) D/5633); N 613/

96,

letter of 23 January 1997 (ref. SG(97) D/488).

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and restructuring

with point 2 of the Guidelines on national regional aid
(‘regional guidelines’) (14) an individual ad hoc aid
payment made to a single firm may have a major impact
on competition in the relevant market, and its effects on
regional development are likely to be too limited. There-
fore, the Commission considers that, unless it can be
shown otherwise, such aid does not fulfil the require-
ments of those guidelines. The German Government did
not provide any evidence that the equilibrium between
the resulting distortions of competition and the advan-
tages of the aid in terms of the development of a less-
favoured region can be guaranteed. Second, in accord-
ance with footnote 10 in the regional guidelines, ad hoc
aid for firms in difficulty is governed by specific rules
and is not
(rescue
conceived of as regional aid. Third, the aid measures
described above do not appear to be linked to any
specific investment and must therefore be regarded as
operating aid. Point 4.15 of the regional guidelines stip-
it is
ulates that such aid may be granted only if (i)
justified in terms of its contribution to regional develop-
ment and its nature and (ii) its level is proportional to
the handicaps it seeks to alleviate. Moreover, in accord-
ance with point 4.17, operating aid must be limited in
time and progressively reduced. The German authorities
have failed to show that these conditions are met. Since
some of these measures may be classed as investment
aid, the recipient's contribution to their financing must,
in accordance with point 4.2 of the regional guidelines,
be at least 25 % so as to ensure that the productive
investment aided is viable and sound. In the present case
this condition was not met either.

guidelines)

(31)

The aid provided by the BvS and the Land of Branden-
burg for SMI and SIMI was described as restructuring aid
designed to restore the viability of a firm in difficulty.
Therefore, the Commission has examined in particular
the exemption in Article 87(3)(c) for ‘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’ since the
predominant objective of the aid is the restructuring of a
firm in difficulty. Such aid may be considered compat-
ible with the common market if the relevant criteria are
met. These criteria are set out in the Community guide-
lines on State aid for rescuing and restructuring firms in
difficulty (15), which have been in force since 1994, and
in the Commission's Eighth Report on Competition

(14) OJ C 74, 10.3.1998, p. 9. In accordance with point 6.1 of these
guidelines, the Commission will assess the compatibility of regional
aid with the common market on the basis of these guidelines as
soon as they are applicable.

(15) See footnote 10. These guidelines have been recently replaced (OJ
C 288, 9.10.1999, p. 2). However, point 101(b) of the new guide-
lines provides that the applicable guidelines for non-notified aid are
those in force at the time such aid was granted.

Policy (16) for the preceding period. Under both sets of
rules, rescue aid may be granted only for the time
needed (generally not exceeding six months) to devise
the necessary and feasible recovery plan; restructuring
aid may be granted only on the basis of an appropriate
restructuring plan.

8.1. Aid in favour of SMI

(32)

(33)

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 time scale and on the basis of
realistic assumptions as to its future operating condi-
tions. Despite numerous letters and requests for infor-
mation sent to them by the Commission, the German
authorities have never submitted any restructuring plan
that would have enabled it to ascertain that SMI would
return to viability within a reasonable time scale.

It would even seem that the financial efforts made by the
THA and the Land of Brandenburg were never based on
a restructuring plan. The ‘concept book’ cannot be
regarded as a restructuring plan as it is not part of the
official information submitted to the Commission that
would allow the aid to be examined. The aid from the
Land of Brandenburg was granted exclusively in the form
of loss compensation, which is allowed only within the
framework of a restructuring designed to enable the
company to make a better start. In this case, however,
the aid was apparently paid to keep afloat a firm which
would otherwise have disappeared from the market.

(34)

It has not been demonstrated either whether the other
conditions laid down in the rescue and restructuring
guidelines, notably those relating to undue distortion of
competition and necessity of the aid, have been met.

(35) Ultimately, however, despite all the efforts made, neither
the viability of SMI could be restored nor the bank-
ruptcy of the firm averted.

(36) As the conditions set out in the guidelines have not been
met,
the aid measures in favour of SMI cannot be
exempted on the basis of Article 87(3)(c) of the EC
Treaty. In the light of the abovementioned facts, both
the grants from the BvS totalling DEM 64,8 million and
from the Land of Brandenburg totalling
the loans
DEM 70,3 million are incompatible with the common
market within the meaning of Article 87(1) of the EC
Treaty.

(16) See paragraphs 177, 227 and 228.

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8.2. Aid in favour of SIMI

IX. REPAYMENT OF THE AID

(37)

the liabilities of

SIMI was set up as an Auffanggesellschaft to take over
the assets of SMI. Normally, the rescue and restructuring
guidelines do not apply to firms set up with assets since
they are relieved of
the original
company and cannot therefore be regarded as being in
difficulty. However, exceptions are the ‘Auffanglösun-
gen’ (17) for firms in the new Länder, which involved not
simply a sale of assets but also continuation of the entire
activity of the firm in bankruptcy (Gesamtvollstreckung).
For these new firms, when the guidelines were applied,
account was taken of the enormous difficulties they
faced mainly owing to a lack of capital and obsolete
plant. Consequently, the granting of restructuring aid to
SIMI
is justified because of the — in historical and
economic terms — exceptional situation that existed at
the time of the transition from a planned economy to a
market economy and in view of the special role played
by the BvS (successor to the THA) during the transition
It goes without saying that this exception is
period.
limited to the new German Länder.

(38)

By letter of 30 January 1998, the German authorities
submitted a restructuring plan for SIMI. However, since
the plan covered only the period from the opening of
bankruptcy proceedings until mid-1998 and since no
other plan was submitted for the ensuing period, it is
not to be regarded as a sound restructuring plan within
the meaning of
the guidelines. During the period
covered by the plan, the firm's return to viability was
not ensured. Hence, the main criterion of the rescue and
restructuring guidelines was not met.

(41) On the assumption that effective competition should be
restored in the case of aid measures which are both
unlawful and incompatible with the common market,
Article 14(1) of Council Regulation (EC) No 659/1999
provides that
‘where negative decisions are taken in
cases of unlawful aid, the Commission shall decide that
the Member State concerned shall take all necessary
measures to recover the aid from the beneficiary’. The
Commission has accordingly decided that Germany
should recover the aid from the beneficiary.

(42) Having regard to recent changes affecting the beneficiary
of the aid, the Commission considers it appropriate to
define further the extent of the obligation to recover the
aid.

(43)

In accordance with Commission practice and the case
law of the Court of Justice, aid must be recovered from
the firm which actually received it. Where the benefi-
ciary has subsequently been sold, aid must be recovered
irrespective of whether the cor-
from the purchaser,
responding amounts were or were not
taken into
account in the conditions of sale. In this respect, no
law can stand in the
conflicting principle of national
way of the full application of Community law (18).

9.1. Aid granted to SIMI

(44)

In so far as the present decision concerns aid granted to
SIMI,
it should be noted that its shares were sold to
MD & D on 14 July 1999. Therefore, this aid must be
recovered from MD & D.

(39) As no private investor was found to take over SIMI, the
Commission was unable to assess the proportionality of
the aid and whether the investor would have made a
significant contribution to the restructuring plan.

9.2. Aid granted to SMI

(40)

Since the conditions set out in the rescue and restruc-
turing guidelines have not been met, the aid measures in
favour of SIMI cannot be exempted on the basis of
Article 87(3)(c) of the EC Treaty. In the light of the
abovementioned facts, both the DEM 4 million loan
from the Land of Brandenburg and the amount of
DEM 1 million granted by the BvS are incompatible
with the common market within the meaning of Article
87(1) of the EC Treaty.

(17) See Commission approvals dated 16 April 1997 and 30 April
1997: State aids Nos N 874/96 and NN 139/96 for Union Werk-
zeugmaschinen GmbH (letter D/3428 of 2 May 1997) and State
aid No N 887/96 for Foron Haus- und Küchentechnik GmbH
(letter D/4047 of 28 May 1997); see also the new guidelines for
rescuing and restructuring firms in difficulty, footnote 15.

(45)

In so far as the present decision concerns aid granted to
SMI, the Commission considers that, in order properly
to implement a Commission decision requiring the
recovery of State aid, the Member State must behave as a
private creditor would and with at least the same care
that it would itself exercise if it were collecting, say, tax
or social security debts. Domestic law must not be
applied in a less favourable way than it would be applied
to a claim made purely under domestic law, or in such a
way that collection is rendered impossible or extremely
difficult. Generally speaking, this means that the Member
State must seek to collect the debt at once and must use
all available means to do so, where possible taking meas-
ures to enforce its claim against all available assets of the
debtor and seeking the liquidation of the debtor firm if it
is unable to repay the debt.

(18) See Case C-303/88 Italy v Commission [1991] ECR I-1433, para-

graph 60.

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Official Journal of the European Communities

L 238/57

(46) As with the collection of any debt, a Member State
acting as an ordinary creditor must seek to ensure that
there is no danger that the collection of the debt might
be contested or annulled; in doing so, it must make use
of all the means available under domestic law, e.g. under
provisions governing fraud perpetrated at the expense of
creditors or suspected agreements prior to insolvency
proceedings.

(47)

all

the

It is possible, indeed likely, that in a liquidation stem-
firm's
ming from insolvency proceedings
remaining assets will be sold. In itself this raises no
particular problem as the sale takes place under the
supervision of a liquidator, who is required to seek the
best possible result in the interests of creditors, with the
proceeds of the sale of the assets being used to satisfy
their claims. However, the proceeds of the sale of the
assets might not be sufficient to pay off all the firm's
debts and,
in order to ensure full repayment, a liqui-
dation is not therefore without importance in terms of
competition. Competing firms which might have
suffered injury as a result of the incompatible State aid
will have the opportunity to fill the gap in the market
left by the liquidated firm and themselves to buy the
assets being sold with a view to using them more effi-
ciently.

that

(48) Nevertheless, in order to prevent its decision from being
frustrated and to ensure
all distortions of
competition are eliminated, the Commission has a duty,
if necessary, to require that recovery proceedings should
not be confined to the initial recipient but should
instead be extended to include any firm that continues
the business of the initial firm using the transferred
production plant, in so far as there are aspects of the
transfer on either side which indicate that the business is
in fact being continued. Examples of considerations of
this kind would be what is transferred (assets and liabil-
ities, staff, consolidated assets), the purchase price, the
identity of the shareholder, the owner of the initial firm
and the buyer, the time at which the transfer takes place
(after investigations have begun, after the initiation of
the formal investigation procedure or after adoption of
the final decision), and the commercial character of the
transfer. Such considerations also apply when the busi-
ness is transferred in the course of insolvency proceed-
ings.

(50)

(51)

(52)

ensure that the obligations imposed by a Commission
decision are complied with.

In the present case, SMI's assets were sold to MD & D
together with SIMI's shares. The assets sale was neces-
sary in order to allow MD & D to take over SIMI's
activities since SIMI had always made use of SMI'S
assets, thereby benefiting from the aid granted formally
to SMI.

The assets sale took place shortly after 28 June 1999,
when the same administrator sold 80 % of the shares of
MD & D to Megaxess and the remaining 20 % to
employees of MD & D. It is therefore evident that all
these transactions are closely connected and that they
amount to a transfer of all the assets owned by SMI and
used by SIMI to MD & D's new shareholders, in such a
way as to shelter them from the recovery of illegal State
aid. Under these circumstances,
the respective prices
paid for MD & D's shares, on the one hand, and for
SMI's assets and SIMI's shares, on the other, have no
bearing on the assessment of the overall transaction.

The transactions of 28 June and 14 July 1999 took
place during the investigation procedure. In other words,
the assets of the parent company and the shares of its
wholly owned subsidiary were transferred to a wholly
owned subsidiary of the subsidiary during the current
procedure and pending a decision on the aid granted to
the parent company and to its subsidiary. Therefore,
Megaxess and the other buyers of MD & D, and of
course MD & D itself, were perfectly aware of the exis-
tence of the present procedure and should, in any case,
have taken it into account. They could have also asked
the Commission to explain the possible consequences of
its future decision for MD & D. Lastly, the Commission
notes
the German authorities have expressly
acknowledged in their letter of 7 February 2000 that the
investigation procedure concerned not only SMI and
SIMI, but also MD & D. Therefore,
the Commission
considers it necessary to make it clear in this decision
that the term ‘the recipient’ encompasses not only SIMI
and SMI but also MD & D and any other firm to which
SMI's, SIMI's or MD & D's assets have been or will be
transferred in order to evade the consequences of this
decision.

that

X. CONCLUSION

(49) After initiating the procedure in this case and shortly
before adopting its final decision, the Commission learnt
that the bankruptcy administrator had sold SMI's assets
to MD & D on 14 July 1999. The object and effect of
this move may be to place these assets beyond the scope
of the Commission decision. This would be in contradic-
tion with the Commission's duty to prevent frustration
of its decision and with the duty of Member States to

(53)

Taking the above facts into account, the Commission
concludes that
the grants amounting to DEM 64,8
the amount of
million from the THA for SMI,
DEM 70,3 million granted by the Land of Brandenburg
to SMI, the DEM 4 million loan from the Land of Bran-
denburg to SIMI and the DEM 1 million grant from the
BvS to SIMI are to be regarded as aid to which none of
the exemptions in Article 87(2) and (3) applies.

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Official Journal of the European Communities

22.9.2000

electronic Innovation GmbH Frankfurt/Oder (SIMI), are likewise
incompatible with the common market.

Article 3

Germany shall take all necessary measures to recover
1.
from the beneficiaries the aid referred to in Articles 1 and 2
unlawfully made available to them.

law. The aid to be recovered shall

Recovery shall be effected in accordance with the proced-
2.
include
ures of national
interest from the date on which it was at the disposal of the
beneficiaries 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.

3.
For the purposes of this Article, the term ‘beneficiaries’
shall encompass SMI, SIMI and Mikroelectronic Design &
Development GmbH (MD & D) as well as any other firm to
which SMI's, SIMI's or MD & D's assets have been or will be
transferred in order to evade the consequences of this decision.

Article 4

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 5

Done at Brussels, 11 April 2000.

For the Commission

Mario MONTI

Member of the Commission

(54)

The unlawful and incompatible aid paid to the firm
must be recovered. This assessment is not affected by
the fact that SMI was subject to bankruptcy proceedings.
In addition, all the abovementioned aid must also be
recovered from MD & D since it acquired SIMI's shares
and SMI's assets were transferred to it in order to evade
the consequences of this decision or, in any event, with
such an effect in mind. Lastly, the aid must be recovered
from any other undertaking to which SMI's, SIMI's or
MD & D's assets have been or will be transferred in
order to evade the consequences of this decision.

(55)

Recovery of the aid, including interest from the date on
which it was paid, must be effected in accordance with
German law (19).

(56) According to the case law of the Court of Justice, the
relevant national procedural provisions must not render
impossible
required by
the
Community law. Any procedural or other difficulties in
implementing the measure do not have any influence on
its lawfulness (20),

in practice

recovery

HAS ADOPTED THIS DECISION:

Article 1

The grants totalling DEM 64,8 million made by the Treu-
handanstalt and the loans totalling DEM 70,3 million granted
by the Land of Brandenburg to System Microelectronics Inno-
vation GmbH, Frankfurt/Oder i.G. (SMI), are incompatible with
the common market.

Article 2

The grant of DEM 1 million made by the Bundesanstalt für
vereinigungsbedingte Sonderaufgaben and the loan of DEM 4
million granted by the Land of Brandenburg to System Micro-

(19) Commission letter to the Member States of 4.3.1991 (SG(91) D/
4577); see also Case C-142/87 Belgium v Commission [1990] ECR
I-959.

(20) See footnote 19 (paragraphs 58 to 63).