2000/727/EC: Commission Decision of 21 June 2000 concerning State aid granted by France to Manufacture corrézienne de vêtements (MCV) and the plan to grant aid to the company that is to succeed it (notified under document number C(2000) 1729) (Text with EEA relevance) (Only the French text is authentic)
Date: 2000-06-21
Institutions: European Commission
Subjects: France, State aid, clothing industry, control of State aid, industrial restructuring, infringement of EU law

22.11.2000

EN

Official Journal of the European Communities

L 293/13

COMMISSION

COMMISSION DECISION

of 21 June 2000

concerning State aid granted by France to Manufacture corrézienne de vêtements (MCV) and the
plan to grant aid to the company that is to succeed it

(notified under document number C(2000) 1729)

(Only the French text is authentic)

(Text with EEA relevance)

(2000/727/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

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 regard to Council Regulation (EC) No 659/1999 of 22
March 1999 laying down procedures for the application of
Article 93 of the EC Treaty (1),

Having given interested parties notice
their
comments in accordance with the abovementioned provi-
sions (2),

to submit

Whereas:

I. PROCEDURE

(1)

An article published in Les Échos on 24 March 1998
drew the Commission's attention to State aid allegedly
granted by France to Manufacture corrézienne de vête-
ments (hereinafter ‘MCV’), a company in liquidation. Aid
was also allegedly to be granted to a new firm (herein-
after ‘the firm’) which was to acquire MCV's assets once
it had been wound up.

(1) OJ L 83, 23.3.1999, p. 1.
(2) OJ C 298, 16.10.1999, p. 11.

By letters of 7 April 1998 (D/51578) and 31 July 1998
(D/53275), the Commission asked France for explana-
tions concerning the context of, and legal basis for the
measures in question.

By letter of 25 June 1998, received on 26 June (A/
34909), France provided the Commission with incom-
plete
second
request for information went unanswered.

information, while

the Commission's

On 21 April 1999 the Commission decided to initiate
the Article 88(2) procedure in respect of the abovemen-
tioned aid; it formally requested France to supply the
necessary information that would allow it to determine
whether the aid was compatible with the Treaty.

The decision was communicated to France by letter of
17 May 1999 (SG(99)D/3460).
its
comments by letters of 22 September 1999, received on
(A/37235), of 17 November 1999,
23 September
received on 18 November
and of 2
(A/38788),
December 1999, received on 3 December (A/39357).

France

sent

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (3). The Commission invited interested parties to
submit their comments on the aid in question.

(3)

(4)

(5)

(6)

(7)

No comments were received.

(3) See footnote 2.

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II. DETAILED DESCRIPTION OF THE AID

The measures

(a) MCV

(8)

(9)

(10)

(11)

its main activity.

MCV is located in Bort-les-Orgues (Corrèze), in a region
that is experiencing economic difficulties and is there-
fore classified as an area eligible for the higher-rate
regional planning grant (4). According to the French
authorities, MCV failed to overcome its financial difficul-
ties, which stemmed from the fact that it continued to
manufacture textiles as
It never
possessed a strategy for responding flexibly to market
demand and for improving its added value by means of
special services such as the development of new designs,
its industrial
quality control and speed. Furthermore,
equipment was antiquated and designed for outdated
working methods, and this reduced its productivity.
According to an article published in Les Échos on 24
March 1998, State aid totalling FRF 100 million
(EUR 15 244 902) was granted to help the firm over-
come its financial difficulties. On 18 December 1997 the
relevant court had started winding-up proceedings for
MCV and decided that it should be wound up.

(b) The firm

A firm, Core Placements SA, presented a plan to restore
the economic viability of the former MCV. On 13 July
1998 the competent court accepted an offer made by
Mr Bienaimé, President of Core Placement SA, who was
acting on the
to re-employ 110
employees and to purchase the stock and operating
plant for FRF 100 000.

latter's behalf,

Core Placements was a limited company with its head-
quarters in Bort-les-Orgues (Corrèze) and a registered
capital of FRF 1 million. Mr Bienaimé and Mr Terras-
soux together held 75 % of the shares, the remaining
shares being owned by other individuals.

Core Placements intended to continue MCV's activities
through a new firm whose shares would be held by Core
Placements SA (35 %), by a subsidiary of Établissements
Albert SA (10 %), by a textiles distribution company
(10 %) and by individuals (45 %).

(12)

To carry out the plan, Core Placements had provided for
the following measures, to be implemented up to 2003:

(4) ‘Zone PAT’.

— Core Placements would undertake an FRF 12,8
million investment programme including building
work, plant acquisitions and R & D activities,

— a vocational training scheme for MCV employees
providing 42 000 hours of training at an investment
cost of FRF 4,2 million,

— a

a

specialist

in the manufacture

contract with Établissements Albert
supply
and
(Vendée),
marketing of children's ready-to-wear clothing with
brands such as Chevignon Kids, UCLA and Naf-Naf.
Its managing director was Mr Bienaimé. In October
1998 Établissements Albert undertook to supply the
firm with a turnover of 150 000 hours of work per
annum for five years.

(13)

France had planned to grant aid as follows:

— the firm would have equity of FRF 3 million, of
which FRF 2,2 million from Mr Bienaimé and Mr
Terrassoux and FRF 0,8 million from Sofred (5),

— public grants (central government, local authorities

and the ERDF) totalling FRF 12,3 million,

New Plant

Land

Vocational training

Unspecified measures

(in million FRF)

Amount

1,2

0,9

3,4

6,8

Total

12,3

— loans: FRF 8,7 million, of which FRF 2,7 million at
subsidised rates (4 % and 4,5 %) and the balance at
market rates.

The other winding-up procedures

(14) On 19 January 1999 Établissements Albert

filed for
bankruptcy. On 24 February Artal Europe made an offer
for its assets without, however, concluding the supply
contract with the firm, as envisaged in the restructuring
project presented by Core Placements.

(5) Société de financement pour la restructuration des industries de

défense.

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(15) As a result,

the supply contract with Établissements
Albert, an essential part of the recovery plan drawn up
by Core Placements with a view to setting up a new
company that would benefit
from MCV's existing
production plant, was cancelled. According to the infor-
mation in the Commission's possession, the plan was
never carried out. Core Placements was compelled to
petition for bankruptcy on 30 September 1999. By
decision of the competent court of 21 October, the
company was put
the
company ceased trading completely. The French authori-
ties confirmed that no aid had been granted to the plan
to restart production at the former MCV site.

into liquidation. As a result,

III. COMMENTS FROM FRANCE

(16)

By letters of 25 June 1998, 22 September 1999, 17
November 1999 and 2 December 1999, France replied
to the questions put by the Commission in its letters of
7 April and 31 July 1998 and in its formal request for
information of 21 April 1999. The comments may be
summarised as follows.

Measures relating to MCV

(17)

By letter of 23 September 1999, France confirmed that
it had granted aid to MCV but pointed out that the
amount of FRF 100 million on which the Commission
based itself was incorrect. It did not provide any further
details concerning the exact amount granted. Nor did it
challenge the Commission's assumption in its decision
of 21 April 1999 that the aid had been granted on an ad
It also stated that MCV was located in a
hoc basis.
regional eligible for regional planning grants and that, if
this had not been the case, MCV would have been
covered by the national aid scheme of 12 April 1996.
However, France failed to provide any further informa-
tion on the schemes which may have served as a basis
for the aid granted.

Measures relating to the firm

(18)

Following the Commission's formal request for informa-
tion on 21 April 1999, France provided an explanation
by letters of 22 September and 17 November 1999 of
the attempts by Core Placements to restore the financial
viability of the former MCV plant and the reasons for
the failure of
those attempts. Core Placements had
presented the proposed measures to the French authori-
ties with a view to obtaining aid. Following its bank-
ruptcy, no aid was granted or paid.

IV. ASSESSMENT OF THE AID

Aid under Article 87(1) of the EC Treaty

(a) MCV

(19) Article 87(1) of the Treaty states that, except where
otherwise provided, aid which distorts or threatens to
distort competition by favouring certain enterprises or
the production of certain goods is, in so far as it affects
incompatible with the
trade among Member States,
common market. France confirmed that State aid had
been granted to MCV, although it did not specify the
exact amount. It therefore failed to comply with the
Commission's formal request
for information of 21
April 1999. Accordingly, the Commission is taking its
decision on the basis of the information available,
in
accordance with Article 13(1) of Regulation (EC) No
659/1999. According to the article published in Les
Échos on 24 March 1998, State aid totalling FRF 100
before
million
December 1997 (6). The aid allowed MCV to be relieved,
by means of public resources, of some of the costs
which it would normally have had to bear itself.

(EUR 15 244 902) was

granted

(20) Where financial aid granted by a State strengthens a
firm's position in relation to that of its competitors in
the Community,
it must be regarded as affecting
competition. Competition in the textile industry is
extremely strong. According to the 1997 Panorama of
EU industry (7), Community textile producers had to cope
both with weak domestic demand for their products and
with increasing competition from developing countries.
As a result, production and employment in the industry
have fallen. Between 1990 and 1994 output declined by
14 % at constant prices while employment fell by 21 %.
The industry is currently undergoing restructuring in
order to make it more competitive at international level.
therefore liable to distort
The aid in question is
competition and affect trade between Member States in
the relevant sector and consequently constitutes State aid
within the meaning of Article 87(1) of the Treaty.

(b) The firm

(21)

In its decision initiating the procedure, the Commission
assumed that various measures for restoring the viability
of the former MCV plant were to be subsidised through
public resources. It emerged in the course of the proce-
dure that Core Placements had submitted an investment
plan. The receiver appointed to MCV therefore sold the
latter's assets to Core Placements. When the main
purchaser of the products to be produced by the firm
replacing MCV went bankrupt, Core Placements itself
was wound up by decision of 21 October 1999. France
confirmed that no aid had therefore been granted. In the
circumstances, there is no need for the Commission to
take a decision on this matter.

(6) Winding-up decision taken on 18 December 1997.
(7) Pages 4 to 9.

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Compatibility of
Article 87 of the EC Treaty

the aid granted to MCV with

(22)

leather and footwear industries,

France stated that the aid for MCV could have been
granted under
the ‘textile plan’. By Decision 97/
811/EC (8) concerning aid granted by France to the
textile, clothing,
the
the aid measures
Commission took the view that
provided for in the ‘textile plan’ were not compatible
with the Treaty. The action for annulment instituted by
France was rejected by the Court of Justice of the Euro-
pean Communities (9). France failed to communicate any
evidence that measures had been taken to recover the
aid granted to MCV. On the contrary, by letter of 22
September 1999,
i.e. after the negative Commission
decision concerning that aid scheme, France claimed that
the aid granted to MCV conformed to the ‘textile plan’.
The Commission therefore based its assessment on the
assumption that no steps had been taken to recover the
aid.

(23)

In its decision of 21 April 1999 to initiate the proce-
dure,
the Commission based its assessment on the
assumption that the aid had been granted on an indi-
vidual ad hoc basis. France did not challenge this
assumption and simply mentioned the other hypotheses
which might serve as a basis for the measure. The
Commission decision does not therefore cover the hypo-
thetical application of the PAT regional aid scheme.

(24)

In view of the foregoing, the aid should have been
notified in advance and France failed to fulfil its obliga-
tions under Article 88(3) of the Treaty.

(25) Article 87(2) and (3) allow several derogations from the
principle that aid is incompatible with the common
market.

(26) As the aid granted to MCV is intended to assist in its
restructuring, it cannot be exempted under Article 87(2).
In particular, 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 occurrences and (c) is not granted to the
economy of certain areas of the Federal Republic of
Germany. Nor is it granted in a region qualifying for
regional aid under Article 87(3)(a). Finally, the deroga-
tions provided for in Article 87(3)(b) and (d) for projects
of common European interest and aid to promote
culture and heritage conservation are not applicable, and
France has not invoked them.

(27) As regards the derogation under Article 87(3)(a) of the
Treaty, the Commission points out that point 2 of the
guidelines on national regional aid (10) provides that an
individual ad hoc 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. It therefore considers that such
aid does not fulfil the requirements of the guidelines.
Consequently, the derogations in question are, in prin-
ciple, granted only in respect of multisectoral aid
schemes applicable in a given region to all firms in the
sectors concerned. France has not shown that the equi-
librium between the resulting distortions of competition
and the advantages of the aid in terms of the develop-
ment of a less-favoured region can be guaranteed. The
derogation is not therefore applicable.

(28) As regards the first part of the derogation under Article
87(3)(c), i.e. aid to facilitate the development of certain
economic activities, the Commission based its assess-
ment on the fact that the aid was essentially intended to
restructure a firm in difficulty. The aid was granted
before 18 December 1997, the date on which MCV was
wound up.

(29) Accordingly, the Commission examined the aid in the
light of
the Community guidelines on State aid for
rescuing and restructuring firms in difficulty (11) (herein-
after ‘the guidelines’), in accordance with point 7.5(b) of
the new Community guidelines on State aid for rescuing
and restructuring firms in difficulty (12).

(30) MCV is located in Bort-les-Orgues, in a region covered
by Article 87(3)(c) of the Treaty. In accordance with
point 3.2.3 of the guidelines, the fact that an ailing firm
is located in an assisted area does not, however, justify a
wholly permissive approach to aid for restructuring. The
criteria in point 3.2.2 are therefore equally applicable to
assisted areas, even when the needs of regional develop-
ment are taken into account. In particular, the result of
the restructuring operation must be an economically
viable business that will contribute to the real develop-
ment of the region without requiring continual aid —
contrary to that prior condition. The MCV production
plant will, however, never become an economically
viable enterprise. The buyers have not to date succeeded
in restoring its viability and have been obliged to file for
bankruptcy. The Commission therefore considers that
the survival of the production site depends on repeated
aid.

(8) OJ L 334, 5.12.1997, p. 25.
(9) Judgment of 5 October 1999 in Case C-215/97.

(10) OJ C 74, 10.3.1998, p. 9.
(11) OJ C 368, 23.12.1994, p. 12.
(12) OJ C 288, 9.10.1999, p. 2.

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(31)

(32)

(33)

(34)

In addition, point 3.2.2 of the guidelines stipulates that
restructuring aid can be considered to be compatible
with the common market only if the following condi-
tions are fulfilled: (a) a viable restructuring plan must be
submitted and implemented;
it must provide for the
firm's return to long-term viability within a reasonable
timescale and on the basis of realistic assumptions as to
its future operating conditions; (b) undue distortions of
competition must be avoided; (c) the amount and inten-
sity of the aid must be limited to the strict minimum
during the restructuring phase and must be related to
the benefits anticipated from the Community's point of
view.

France has not furnished any evidence that the condi-
tions described above have been met. In so far as the aid
in question does not meet the conditions of the guide-
lines, it cannot be regarded as contributing to the devel-
opment of
adversely
affecting trade to an extent contrary to the common
interest; as the derogation under Article 87(3)(c) is no
longer
the principle of prohibition
provided for in Article 87(1) is fully applicable.

activities without

relevant either,

economic

to the judgment of

If aid is incompatible with the common market, the
the
Commission must, pursuant
Court of Justice in Case 70/72, upheld in its judgments
in Cases 310/85 and C-5/89 (13), require the Member
State to recover from the recipient all aid granted unlaw-
fully (14). This measure is necessary in order to restore
the financial
the previous situation by removing all
benefits which the firm receiving the unlawful aid has
improperly enjoyed since the date on which the aid was
paid (15). Recovery of incompatible and unlawful aid is
an obligation imposed on the Commission by Regula-
tion (EC) No 659/1999.

Recovery must be effected without delay and in accord-
ance with the procedures of French law provided that
they allow the immediate and effective execution of the
Commission decision. The aid to be recovered includes
interest from the date on which it was granted to the
recipient until the date of its recovery. Interest is calcu-
lated on the basis of the reference rate used for calcu-
lating the grant equivalent of regional aid.

aid for rescuing and restructuring firms in difficulty have
been met. The aid is incompatible with the common
market.

(36)

The Commission concludes
that France unlawfully
implemented the aid measures in question in breach of
Article 88(3) of the Treaty. The aid must be recovered,

HAS ADOPTED THIS DECISION:

Article 1

The State aid of EUR 15 244 902 (FRF 100 million) granted
by France for the restructuring of Manufacture corrézienne de
vêtements is incompatible with the common market.

Article 2

1.
France shall take all necessary measures to recover from
the recipient the aid referred to in Article 1 and unlawfully
made available to the recipient.

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 granted to the recipient until the date of its
recovery. Interest shall be calculated on the basis of the refer-
ence rate used for calculating the grant equivalent of regional
aid.

Article 3

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

Article 4

This Decision is addressed to the French Republic.

V. CONCLUSIONS

Done at Brussels, 21 June 2000.

(35)

The aid for MCV constitutes aid which has distorted
competition and affected trade within the meaning of
Article 87(1) of the Treaty. The derogation provided for
in Article 87(3)(c)
the
conditions set out in the Community guidelines on State

is not applicable as none of

For the Commission

Pedro SOLBES MIRA

Member of the Commission

(13) Case 310/85 Deufil v Commission [1987] ECR 901 and Case-5/89

Commission v Germany [1990] ECR I-3437.

(14) Case 70/72 Commission v Germany [1973] ECR 813.
(15) Case 310/85, referred to above, and Case C-142/87 Belgium v

Commission [1990] ECR I-959.