2001/856/EC: Commission Decision of 4 October 2000 concerning State aid to Verlipack, Belgium (Text with EEA relevance) (notified under document number C(2000) 2926)
Date: 2000-10-04
Institutions: European Commission
Subjects: Belgium, State aid, aid to industry, control of State aid, glass industry

L 320/28

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Official Journal of the European Communities

5.12.2001

COMMISSION

COMMISSION DECISION

of 4 October 2000

concerning State aid to Verlipack, Belgium

(notified under document number C(2000) 2926)

(Only the French and Dutch texts are authentic)

(Text with EEA relevance)

(2001/856/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

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

Having called on interested parties to submit their comments
to those provisions and having regard to their
pursuant
comments,

Whereas:

I. PROCEDURE

(1)

(2)

Following complaints received in 1997 concerning aid
granted by the Walloon Region to Verlipack which did
not appear to be compatible with the rules on State aid,
the Commission registered the case on 18 November
1997 as non-notified aid.

On 16 September 1998 the Commission decided on the
basis of information formally transmitted by Belgium
not to raise objections to the measures taken by the
Walloon Region following an examination of the meas-
ures under Articles 87 et seq., of the EC Treaty and
Article 61 of the EEA Agreement (1). The decision found
that the measures were compatible with the guidelines
on Government capital injections (2) (hereinafter referred
to as the ‘guidelines’) and, in particular, that the Walloon
Region contribution was consistent with the actions of
an investor operating under normal market economy
conditions. Furthermore, the fact that a private investor,
the Heye-Glas group (hereinafter referred as ‘Heye’) was
acquiring a majority stake at the same time indicated

(1) OJ C 29, 4.2.1999, p. 13.
(2) Bulletin EC 9-1984.

(3)

(4)

(5)

(6)

(7)

(8)

(9)

prospects of
Verlipack group.

future profitability and viability for the

According to the press and several complainants, Verli-
pack's production plants incurred fresh losses in 1998.
Furthermore, according to one complainant, the private
capital injection by Holding Verlipack I (3) on 11 April
1997 apparently originates from funds provided by the
Walloon Region, the SRIW (4), in the form of two loans.

By letters of 14 December 1998 and 13 January 1999,
the Commission requested further information from the
Belgian authorities on Verlipack's history and the alleged
grant of two loans to Heye.

By letter of 25 February 1999, received on 1 March
1999, Belgium supplied the details requested, on the
basis of which the Commission was obliged to re-open
the assessment of the package of measures granted in
1997 by the Walloon Region to Verlipack.

On 19 May 1999 the Commission decided to initiate the
procedure in respect of the aid granted to Verlipack,
pursuant to Article 9 of Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (5).

By letter of 1 July 1999 the Commission informed
Belgium of its decision to open the procedure provided
for in Article 88(2) of the EC Treaty in respect of the aid
in question.

The Commission decision to open the procedure was
published in the Official Journal of the European Communi-
ties (6). The Commission invited interested parties to
submit their comments on the aid in question.

The Commission received comments on the aid from
interested parties, which it forwarded to the Belgian
authorities by letter of 3 December 1999,
for their
observations. The authorities responded by letter of 22
December 1999, which was registered as received on 3
January 2000.

(3) Set up on 24 January 1997 by the Beaulieu group without

the

involvement of the Walloon Region.

(4) Société Régionale d'Investissement de Wallonie, a public limited

company.

(5) OJ L 83, 27.3.1999, p. 1.
(6) OJ C 288, 9.10.1999, p. 24.

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II. DESCRIPTION OF THE MEASURES

II.1. The recipient

(10) Until it was wound up on 18 January 1999, SA Verli-
pack was
the largest Belgian producer of hollow
container glass, with a 20 % share of the Belgian market
and 2 % of the EU market. It employed 735 people in its
factories at Ghlin, Jumet and Mol. The two Walloon
plants, Ghlin and Jumet, are in development areas
covered by a regional aid scheme provided for by the
Belgian Law of 30 December 1970. (1) The limited
companies Verlipack Ghlin, Verlipack Jumet and Verli-
pack Mol were set up in 1985, with Société nationale
pour la restructuration du secteur du verre creux holding
a 49 % stake, approved by the Commission (2).

(14) However,

the new losses incurred in 1998 which,
according to Verlipack, were due to overcapacity on the
market
in question, countered the very favourable
prospects identified when the agreement on technical
and financial assistance and management assistance was
concluded with Heye.

(15) On 7 January 1999, the closure of the Mol plant (Flan-
ders) and the application for a composition for the
Jumet and Ghlin plants (Wallonia) were announced.

(16) On 11 January 1999,

the Commercial Court of
Turnhout declared Verlipack Mol
(Flanders) bankrupt
and, on 18 January 1999, the Commercial Court of
Mons declared that the six companies of the glassmaking
Verlipack group were bankrupt (the plants at Ghlin and
Jumet, Verlipack
Engineering,
Verlimo and Imcourlease).

Belgium, Verlipack

II.2. The aid

In 1989, the Walloon Region acquired, in accordance
with the special Law of 15 January 1989, the non-voting
shares in the Ghlin and Jumet plants, while the shares in
the Mol plant were transferred to the Flemish Region.
Following a number of capital increases by the private
shareholder (Imcopack Wallonie and Imcopack Vlaan-
deren, owned by the Beaulieu group), the public share-
in December
holding was gradually reduced. Finally,
1996, the Walloon Region transferred its holdings in the
two Walloon plants, valued at BEF 113 712 000, to the
Beaulieu group. Thus Verlipack's Walloon plants
temporarily became companies without a public share-
holding.

II.2.1. Measures covered by the Commission decision of 16

September 1998

(17) When Holding Verlipack II was set up by its shareholder
Holding Verlipack I, which has a capital of BEF 1,030
billion held in equal proportions by the Beaulieu group
and the German group Heye (which holds one extra
share), the Walloon Region injected BEF 200 million.
Following the conversion of the equity loan of BEF 150
million, its stake rose to BEF 350 million, or 25,35 % of
the capital of Holding Verlipack II.

In September 1996, the German industrial group Heye-
Glas concluded a technical assistance agreement with
Verlipack. The agreement was subsequently extended to
cover management and financial assistance on 11 April
1997. On the same date, Heye acquired a stake in
Holding Verlipack I, set up on 24 January 1997 by the
Beaulieu group, for BEF 515 million, giving it, after the
capital
increase in Holding I to a total of BEF 1,030
billion, a larger stake than the Beaulieu group. On 11
April 1997, Holding Verlipack II was set up by the
shareholders of Holding Verlipack I and the Walloon
Region (injection of BEF 350 million, i.e. 25,35 %) with
capital totalling BEF 1 380 500 000.

(13) Given the arrival of Heye, the world leader in container
glass technology, its financial commitment, a strategic
plan providing for a major investment programme and
the trend towards more buoyant markets, the Walloon
Region could rely on the prospect of long-term profit-
ability and viability of Verlipack.

(1) OJ L 312, 9.11.1982, p. 18.
(2) Aid N 123/85.

II.2.2. Measures not covered by the Commission decision of

16 September 1998

(18)

The details sent by the Belgian authorities on 25
February 1999 show that
the Walloon Region took
extra measures when Heye acquired a holding in Verli-
pack. Following the decisions taken on 8 January and 12
March 1997 by the SRIW management board, two loans
the
of BEF 250 million were granted to Heye,
amount of the cash injected by Heye into Holding A (the
same amount that was injected into Holding B and
subsequently into the Verlipack operating companies)’.

‘i.e.

(19)

The loans in question consisted of:

(20) — a debenture loan of BEF 250 million granted on 27
March 1997 for five years at a fixed rate of 5,10 %,
plus a 1 % risk premium, to be used as necessary to
finance the recapitalisation of the Ghlin and Jumet
plants and investment in the three operating plants
of the Verlipack group, including the Mol plant in
Flanders.

(11)

(12)

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(21) A conditional loan write-off clause stipulated that ‘if, on
the date on which payment of a tranche of the loan
becomes due, Holding 2 … and the three operating
companies, SA Verlipack Jumet, SA Verlipack Ghlin and
SA Verlipack Mol are declared bankrupt, the amounts
owed by the Company as from that due date inclusive
need no longer be repaid to SRIW, the latter undertaking
in the circumstances to write off the loan provided that
the Company has until then regularly honoured the due
dates of both the principal and the interest. This clause
shall not however apply if the bankruptcy is due to a
deliberate policy decision by the majority shareholder
Heye resulting in the relocation of production to a third
country’.

(22) — a loan granted on 28 March 1997 for ten years at
‘the six-month BIBOR rate in force on the first
working day of each half-year for which it is due, …
plus 1,5 %. …However, the Company may at any
time, from the sixth year, decide to opt for a fixed
interest rate of 7 % per annum for the remaining
period of the loan.’

(23)

(24)

The financial allocation clause in the loan agreement
provides that ‘the full amount … is to be used as neces-
sary to finance the operations described in the Annex to
this Agreement’. The clause was ‘to result in a cash
increase in the capital of SA Verlipack Ghlin of at least
BEF 400 million and … in SA Verlipack Jumet of at
least BEF 300 million and in investments by the three
operating companies of the group in accordance with
the investment plan …’.

The immediate collectability clause in the loan agree-
ment enabled SRIW to demand the immediate repay-
ment of its loan in the event of, inter alia,
‘significant
inaccuracy of the information provided; failure, whether
or not partial, of the Company to satisfy a legal or
contractual obligation relating to the loan; failure to
implement by 31 July 1997 at the latest the allocation
clause (financing operations) or if at least 80 % invest-
ments planned have not been carried out by 31
December 2000 at the latest …; the voluntary liqui-
dation of SA Verlipack Jumet, SA Verlipack Ghlin and
SA Verlipack Mol …’..

(25) — Lastly,

facilities

the Walloon Region granted the Beaulieu
group payment
the repurchase of
for
25 911 stocks and shares in the Verlipack group
under the December 1996 agreement. Payment was
in ‘instalments of 20 % from 2001 to 2005’ and, no
interest would be charged on the amounts due on

the dates provided for in the above-mentioned agree-
ment.

II.3. Reasons given by the Commission for initiating

the procedure

(26)

(27)

Following the communication from Belgium of 25
February 1999 confirming that two loans of BEF 250
million each were granted by the Walloon authorities to
Heye to finance its stake in Verlipack, the Commission
expressed doubt that the Walloon Region had, when it
injected BEF 350 million into Verlipack, complied with
the principle of a private investor operating under
normal market economy conditions.

If the Commission does not have the information that it
needs to assess public authorities' holdings under the
it may have to revoke its decision under
guidelines,
Article 9 of Regulation (EC) No 659/1999. The capital
injection by the Walloon authorities is no longer conco-
mitant with the injection by a private investor as the
latter used public resources.

(28) A private investor would not have acted like the
Walloon Region and acquired a stake of BEF 350
million (23,35 %) on the one hand and, on the other,
lent BEF 500 million to Heye to finance its majority
acquisition in Verlipack. Taking the two loans into
account, the Walloon authorities contributed a total of
BEF 850 million to Verlipack.

(29) As regards the allocation of the two loans of BEF 500
million, the two agreements and the decisions of the
SRIW management board of 8 January 1997 stipulated
that the loans were to be used to increase the capital of
the Ghlin and Jumet plants and for investments in
accordance with the two-stage investment plan (1997 to
1999 and 2000 to 2001). The Commission took the
view in its decision of 19 May 1999 that the recipient of
the aid corresponding to the two loans was Verlipack.

(30)

The Commission considered that the terms on which the
loans were granted were not those of a private investor
operating under market economy conditions. On the
one hand it
involved a debenture loan with a debt
write-off clause in the event of bankruptcy and, on the
other, a second loan which was to be repaid only from
the fourth year,

i.e. from 28 March 2000.

(31)

The Commission also concluded that the measures taken
by the Belgian authorities could not be regarded as
rescue aid as they did not satisfy the conditions provided
for (1).

(1) Eighth Competition Report, point 228.

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(32)

Furthermore, as there was no restructuring plan or real-
istic forecasts of future operating conditions, especially
as regards market trends, the Commission concluded
that the aid to Verlipack could not be approved under
the Community guidelines on State aid for rescuing and
restructuring firms in difficulty (1).

— inadequate management,

— the loss of important markets owing to the above-
mentioned quality problem and a loss of confidence
in the company and its current shareholders, seen as
wishing to disinvest from the sector.

(33) On the basis of

the information available to the
Commission, the aid to Verlipack cannot be regarded as
aid to facilitate the development of certain economic
activities or of certain economic areas.

(39)

(34)

(35)

(36)

(37)

Trade between the Member States on the market for
container glass in which Verlipack operates is subject to
fairly strong competition. In addition, according to state-
ments made by the management of Verlipack,
the
winding-up was the result of a fall
in prices due to
overcapacity in glass production on the European
market. Lastly,
the aid
granted by Belgium was liable to alter the conditions of
trade to an extent contrary to the common interest.

the Commission noted that

The Commission also expressed doubt concerning the
possible benefit to Beaulieu of the payment facilities
granted when it acquired the preference shares, without
for
the
voting
BEF 113 723 000. Following the winding-up of Verli-
pack, Beaulieu did not in fact make any payments to the
Walloon Region.

rights,

shares

profit

and

III. COMMENTS FROM INTERESTED PARTIES

Following the invitation to submit comments under
Article 88(2) of the EC Treaty, the Commission received
comments from three complainants and the private
investor.

signed by Robert Collignon,

The first interested party, hoping that light would be
forwarded a document of 27
shed on the matter,
then
February 1997,
the Walloon Government,
Minister-President
concerning the ‘Setting-up of
the holding company:
Beaulieu group (Verlipack), Heye Glas and Walloon
Region on the basis of a budgetary allocation of
BEF 350 million (decision of the Walloon Government
of 12 December 1996)’.

of

(38) According to that document, the two Walloon plants
were incurring losses at 31 August 1996 estimated at
BEF 184 million by the end of 1996 and due to:

— the continuing slump on the European market,

which led to a slump in selling prices,

(43)

— the poor quality of the products made by Verlipack
for several years, owing in particular to malfunctions
in some of the furnaces,

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

(2) Glass factory.

It is also clear from the document that, despite the
contribution of over BEF 2 billion and considerable
investments, the majority shareholder Beaulieu failed to
achieve adequate quality and productivity. Whilst the
agreement concluded on 1 September 1996 between
Beaulieu and Heye enabled a spectacular recovery in the
quality of glass produced and in productivity at the two
Walloon plants, the losses nevertheless remained very
high.

(40) However, the comments sent to the Commission do not
contain any information concerning the two loans of
BEF 500 million that would allow it to determine the
compatibility of the loans with the common market.

(41) A second interested party expressed its continuing
concern regarding the aid that had been and possibly
would be granted to Verlipack.
It was particularly
concerned by the acquisition of the Ghlin plant by Mr
Dominique Balcaen that had allowed the plant to remain
in operation (2). According to the interested party, one
of the furnaces at Ghlin will have to be replaced within
one or two years to enable production to continue in
the medium-term. The cost of the replacement would
require an investment of some BEF 200 million to
BEF 300 million. The complainant, however, questions
the ability of the new owner to finance such an invest-
ment without further State aid.

(42)

and its

amount of

characterised by

The Commission's attention was drawn to the fact that
the container glass industry continues to face problems
strong
of overcapacity
trade
considerable
competition and a
between Member States. Any fresh aid to Verlipack
would be harmful to other firms in the container glass
in view of the history of State aid to
sector. Finally,
Verlipack and the obvious attempts of
the Walloon
authorities to camouflage State aid by granting loans to
a third party, the Commission is required to inform all
governments and recipients of aid that such behaviour
cannot be tolerated.

regards

the procedure,

The private investor, Heye, stated in the first place that,
as
the
Commission decision of 16 September 1998 only
through the notice published in the Official Journal of the
European Communities of 9 October 1999 and that it had
not had access to the original text of the decision.

informed of

it was

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(44)

that

the two loans of
Secondly, Heye pointed out
BEF 500 million granted on 27 and 28 March 1997 by
the Walloon Region ‘had to be transferred in full to
Verlipack Jumet SA and Verlipack Ghlin SA, operating
the plants of Jumet and Ghlin respectively, in accordance
with the terms of the loan agreements. The funds were
transferred to the operating subsidiaries through two
successive capital increases in Verlipack Holding I, first,
and Verlipack Holding II, second. They were eventually
allotted to capital increases in the operating subsidiaries’.

(49) As to the substance of the Commission's decision of 16
September not to object to the capital injected by the
Walloon authorities, it noted that the statement that ‘...
Heye, when it acquired its shares in the capital of Verli-
pack, did not wish to commit own funds’ did not reflect
the true situation. When the loans were granted, Heye
agreed that Holding II would invest BEF 2 452 billion in
the three Verlipack plants, in accordance with a phased
plan valid until 2002, a copy of which was attached to
its comments. The funds earmarked for the investments
are significantly higher than the BEF 500 million lent to
it by SRIW.

(45) Heye has stated that it informed the Region as early as
March 1997 (i.e. before the loan agreements were
concluded) of its concerns that the proposed measures
might constitute State aid and ought to be notified to
the
the Commission.
Walloon authorities as follows:
‘They maintained that
there was no State aid in the present instance and that, if
this were not the case, they were accustomed to noti-
fying State aid plans to the Commission and would see
to it’.

It summarised the attitude of

(50)

In addition to the capital contribution of BEF 500
million lent by the Walloon authorities, Heye began to
implement the plan and invested BEF 100 million on
27 March 1998 and BEF 200 million on 19 June 1998.
Proof of the payments, made from own resources and
terms by its banker, were
loans granted on market
attached to the comments. Thus it seems that
the
investor contributed a total of BEF 800 million to the
capital

increases in Verlipack.

(46)

Furthermore, according to the Walloon authorities,
in
view of the interest rate charged on the two loans, in
any event for the first few years, the amounts concerned
could not possibly constitute State aid. In their view, the
measure was similar to one taken by a private investor,
and derogations from the common law on State aid
control were applicable in view of the geographical loca-
tion of Verlipack's plants.

(47) Heye had no reason to doubt these statements, made by
the representatives of a public undertaking. Nor was it
under any obligation to inquire as to the exact content
of the notification, as this is not required of a recipient
or, a fortiori, third parties (1).

(48)

The investor stated that it had played only a limited part
in drafting the notification to the Commission and had
provided all the information requested to the Walloon
authorities, ‘from the moment at which the notification
actually takes place,
the recipient may legitimately
expect it to be complete and accurate, especially as it
carried out by a public authority which is bound by an
the
obligation
reasonable
Community institutions under Article 10 of
the EC
Treaty’. It therefore considered that neither it nor the
recipient firms should be reproached for the fact that the
Walloon authorities failed to reveal the existence of the
two loans in the notification that resulted in the decision
of 16 September 1998.

cooperation with

of

(51) According to Heye, the Walloon authorities did not in
fact allocate any other funds apart from the two loans of
BEF 500 million and the
contribution of
BEF 350 million.

capital

(52) Heye considers that, as it has fulfilled its commitments,
i.e. investment in Verlipack in accordance with a phased
plan on the one hand and the transfer of a furnace
located in Germany with an annual output of 50 000
tonnes to a site in Wallonia on the other, it has demon-
strated the viability of the restructuring plan drawn up at
the
time. The plan had a reasonable chance of
succeeding and leading to the recovery of Verlipack. The
difficulties that Verlipack encountered thereafter, which
led to the bankruptcy of most of the members of the
group in January 1999, allegedly stemmed from external
circumstances, more specifically the rapid fall
in the
price of container glass.

(53) According to Heye,

it was not possible in 1997 to
forecast the trend in prices, which had indeed, in the
general opinion of the industry, reached their lowest
point that year. Heye then provides confidential figures
in support of the prices anticipated in 1997.

(54)

Lastly, given Heye's undertaking to carry out an invest-
ment plan totalling some BEF 1,8 billion for
the
Walloon sites alone,
it considered that ‘the measures
taken by the Walloon authorities on behalf of the Verli-
pack group could have been taken by a private investor
of a comparable size to that of the bodies administering
the public sector’ (2).

(1) Case C-39/94 SFEI [1996] ECR I-3579, point 73.

(2) Case C-305/89 Alfa Romeo [1991] ECR I-1603, points 18 and 19.

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(55) Heye emphasised the difference between, on the one
hand, firms used only to transfer funds, such as in the
present case and, on the other, firms that have benefited
from such transfers and thus become recipients within
the meaning of Community rules on State aid (1).
incurred heavy
According to Heye which, moreover,
losses from the Verlipack operation, even if a Commis-
sion decision were to require Belgium to recover the aid,
no such decision could be taken with regard to Heye
under Article 14 of Regulation (EC) No 659/1999.

(56) Heye attached to its a comments a ‘statement of events’,
which it had lodged with the Mons Commercial Court in
January 1999 and which had formed one of the annexes
to the application for a composition.

IV. COMMENTS FROM BELGIUM

IV.1. Comments on the initiation of the procedure

(57)

its

The comments from the Belgian authorities dated 29
September 1999 referred first to the circumstances of
the intervention by the SRIW, namely the granting of
two loans, not notified to the Commission in the course
of
investigation leading to the decision of 16
September 1998. According to the Commission, ‘in the
context of its negotiations with the Beaulieu group then
with the Walloon Region, the Heye group applied in
1996 to SRIW for financing for its capital investments
in Verlipack’. At the time, SRIW had reminded Heye that
its role was ‘ to contribute to the financing of industrial
or commercial activities and not to allocate subsidies, a
role played by the Walloon Region through the different
mechanisms at its disposal’ (2).

(58)

The Belgian authorities then listed the many credibility
including the financing granted by the two
factors,
private shareholders and bankers, the signing of the
assistance agreement, the reputation and professional
competence of Heye and the restructuring plan for Verli-
pack and its favourable prospects, which made it clear
that SRIW, like the Walloon Region, had shown suffi-
cient caution before taking its decision.

(59) Whilst

is an
the bankruptcy, according to Belgium,
unfortunate and unpredictable consequence of a deteri-
oration which occurred after the public and private-
sector injections into Verlipack, there are no new factors
that would point to the conclusion that the Belgian
public and private-sector partners that placed their trust

(1) Joined Cases C-329/93, C-62/95 and C-63/95 Germany v Commission

[1996] ECR I-5151, point 56.

(2) The letter of 21 January 1996 from SRIW to Heye was attached to

the comments.

(60)

(61)

in Heye made an error of judgement such that it could
be said that, at the time, they failed to act in accordance
with the principles guiding a private investor operating
under normal market economy conditions.

The Belgian authorities referred in this connection to the
abovementioned letter from SRIW to Heye stating that
‘it will no longer be a “high risk” company’ (Verlipack)
and that ‘therefore, we do not regard it as exaggerated to
ask Heye to cover 50 % of the risk that Heye regards as
small’.

The Belgian authorities then wondered whether ‘Heye
had been reckless with regard to its partners not
belonging to the glass industry by presenting them with
industrial, commercial and financial projections that
were too optimistic or seriously incorrect’. The public
like Beaulieu and the banks, according to
authorities,
Belgium, had been misled by their new partner,
‘for
which they can obviously not be blamed when they
assessed the case before them’. The Belgian authorities
concluded their
SRIW
concerning
the
the public
decision to finance Heye by stating that
authorities had behaved like a private investor in their
examination of the case and in view of the information
provided by Heye which appeared to be completely
credible regarding the future of Verlipack. According to
the Belgian authorities, the fact that bankruptcy occurred
22 months later does not mean that, in March 1997,
SRIW, like the Walloon Region, did not act like a private
investor.

comments

(62) As regards the terms of the loan and the debenture loan,
which had not been notified to the Commission during
the inquiry that resulted in the decision of 16 September
1998, the Belgian authorities commented first on the
reference rate of 7,21 % applicable in Belgium in the
first half of 1997.

(63)

The interest rate on the five-year debenture loan of
BEF 250 million granted by SRIW to Heye on 27 March
1997 was 5,10 %, plus a risk premium of 1 %.

(64)

The rate at which the 10-year loan was granted on 28
March 1997 with a three-year grace period is equivalent
to the six-month BIBOR rate in force on the first
working day of each half-year for which it is due, plus
1,5 % (which corresponds to a rate of 4,92 % for the
period from 28 March 1997 to 31 September 1997 and
5,30 % for the period from 1 October 1997 to 30
September 1998).

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(65)

The Belgian authorities pointed out that, according to a
study carried out for the Commission by KPMG ‘on the
method for setting the reference rates applicable to the
various aid schemes for businesses in the Union’, the
particularly high reference rate did not correspond at the
time to the market rates in force. Following that study,
the Commission amended the method for fixing the
reference rate in a letter of 18 August 1997 to the
Member States (1) and noted that ‘the rate on a public
loan having a duration of five years may be lower than
the EMI rate and yet not contain any aid element’. The
reference rate applicable from 1 August 1997 was
5,55 %. (2)

(66) As regards the terms of the loans, Belgium concluded
that they did not contain any state aid elements and that
the bankruptcy of Verlipack's operating companies is
not relevant either to their returns or to their recovery,
as the debtor was solvent. Furthermore, the loans are to
be the subject of legal recovery proceedings before the
Liège commercial court.

(67) As regards the debt write-off clause accompanying the
debenture loan of 27 March 1997, Belgium referred to
the obligation on Heye to repay in full the capital,
interest and penalties for failure to comply with the fund
allocation clause. According to the Belgian authorities,
the write-off is conditional, under Article 2 of the deben-
ture loan agreement. The allocation clause provides that
‘the full amount is intended to finance as appropriate the
operations described in the annexes to this agreement’
and ‘is intended to result in a cash increase in the capital
of Verlipack Ghlin of at least BEF 400 million and …in
a cash increase in SA Verlipack Jumet of at
least
BEF 300 million and in investments for the three oper-
ating companies of the group in accordance with the
investment plan …’. Belgium also referred to the fact
that
the abovementioned agreement (3) was validly
terminated before the events entailing immediate collect-
ability of the loan occurred, i.e. the bankruptcy of Verli-
pack Holding II. According to the comments from
Belgium, the write-off clause is not applicable owing to
the fact that ‘Verlipack Holding is not bankrupt at the
present time’ (4).

(68) As regards the question whether the debt write-off
the Belgian authorities
clause constitutes aid or not,
pointed out that the cover of BEF 250 million obtained
by Heye through SRIW involved only a ‘very small risk’
which explained the risk premium of 1 %. They

(1) SG(97)D/7114.
(2) Against 7,21 % before.
(3) On 20 January 1999 according to the memo of 25 February 1999
sent in the course of the Commission's investigation leading to the
initiation of the procedure under Article 88(2) of the EC Treaty.
(4) Judgment of 31 May 1999 of the Mons Commercial Court rejecting

the statement of bankruptcy.

acknowledged that the rate of 6,10 % could have been
fixed at a maximum of 6,50 %.

(69)

Lastly, as regards the loans granted by SRIW to Heye,
the Belgian authorities stated that ‘there are no grounds
for concluding that Heye, in view of its results and its
solvency, could not have financed its capital injection in
Verlipack by having recourse to financial
institutions
other than SRIW, on similar financial terms, with the
possible exception of the return on the debenture loan’.

(70) Under the plan, at least 80 % of the investments were to
be carried out by 31 December 2000. According to
Annex 14 of the comments from the Belgian authorities,
a total of BEF 438,4 million was invested in 1997 and
1998 at Mol, Jumet and Ghlin in accordance with an
undertaking given by Heye to invest up to BEF 2,452
billion in the three plants. However, according to the
same comments, investment in Jumet and Ghlin totalled
BEF 294,5 million,
investment of
excluding
BEF 143,9 million in the Mol plant in Flanders, included
in the total

investments.

the

(71) As regards the undertaking given by the banks to
finance the investments, the Belgian authorities referred
to their letters of 28 August 1997, 2 April 1998 and 25
February 1999, stating that the amount owed to the
banks by the Verlipack group at 30 September 1997
totalled BEF 995 million. The letters referred to by the
Belgian authorities are in the possession of the Commis-
sion (Crédit Lyonnais Belgium to Verlico, 29 November
1996; Kredietbank to Verlico, 22, 23 August and 29
November 1996). The financial support from Verlico
(Beaulieu group) of BEF 1 billion was confirmed on 11
April 1997.

(72)

The Belgian authorities then turned to the conclusion
reached by the Commission, on the basis of the informa-
tion in its possession, in its decision of 19 May 1999
when assessing whether BEF 500 million could be
regarded as aid for the restructuring of Verlipack. At the
time, it had stated that the conditions of the guidelines
had been satisfied. It had based its view on a realistic and
detailed restructuring plan, a business plan for the
period 1997 to 2000 that would place Verlipack on a
stable footing and involved a structural reorganisation, a
new industrial strategy, synergy of
the groups, on
improvement in quality and an investment programme
of BEF 2,452 billion. The Belgian authorities also drew
attention to the fact that Verlipack's two Walloon sites
were located in an assisted area under Article 87(3)(c).

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(73) As regards the Commission's preliminary assessment of
the measures not covered by its decision of 16
September 1998, Belgium argued first that the Commis-
sion ‘should apply individually to each form of interven-
tion’, i.e. the two loans granted by SRIW to Heye, ‘the
necessary criteria for assessing their respective compli-
ance and whether each measure constitutes aid and, if
so, whether the aid is compatible with the Community
rules’. Especially ‘in view of the fact that the recipient of
the loans is a sound company rather than a firm under-
going restructuring’.

(74)

The Belgian authorities then stated their view that the
capital injections by the Walloon Region represented a
risk taken by a shareholder whose investment is linked
to the results of the company in which it has a stake,
Verlipack Holding II. The SRIW for its part, in granting
loans to Heye, also took a risk concerning the solvency
of its debtor Heye.

(75) According to the Cityflyer

judgment of 30 April
1998 (1) referred to by the Belgian authorities, there is
an important difference between the two, since a sum
provided in the form of a contribution to share capital is
transferred on a permanent basis whereas a sum
provided by way of loan, being repayable, is made avail-
able only temporarily. The Belgian authorities consider
that Heye will have to repay the amounts borrowed,
despite having lost its entire stake in Verlipack which the
loans enabled it to acquire.

(76) According to the Belgian authorities, Heye never ques-
tioned the value of its investment in Verlipack as it
regarded the risk as small and, during a period of diffi-
culty, it maintained its support for Verlipack, in partic-
ular through two further capital injections of BEF 100
increased to
million on 30 March 1998 (capital
BEF 1 330 500 000) and BEF 200 million on 26 June
1998 (capital
increased to BEF 1 630 500 000). The
notarised acts of the capital injections were attached to
the communication from Belgium. According to the act
of 26 June 1998, not only Heye but SA Worldwide
Investors of Luxembourg underwrote the capital of
Verlipack Holding II to the tune of BEF 100 million.

(77) As regards the Commission's doubts concerning the
behaviour of the Walloon Region as a private investor
acting under normal market economy conditions,
i.e.
acquiring a share in the capital of Verlipack and granting
to Heye to finance its capital contributions,
loans

(1) Case T-16/96 [1998] ECR II-757.

Belgium concluded that ‘a private investor could very
well have invested capital in Verlipack and granted loans
to another firm (Heye) without having to globalise its
risk, since it concerned two separate “debtors”’, one
solvent and the other bankrupt.

(78)

(79)

Belgium challenged the Commission's view that
the
actual recipient of the aid corresponding to the two
loans granted by SRIW was Verlipack. It considered that
the allocation clause in the debenture loan agreement
concerned a capital contribution by the debtor and the
use of the capital for investment. It also stated that ‘it
was entirely in Heye's interest to borrow the capital it
was going to invest in Verlipack and it was in the
interests of SRIW to obtain a financial return from a
company investing in the Walloon Region’.

Furthermore, the Belgian authorities stated that Heye
took the decision to restructure Verlipack and that it
applied for and obtained the loans from SRIW to finance
its capital contribution. Lastly, ‘the theory that Verlipack
is the actual beneficiary of the loans comes up against
the fact that, if it became necessary to repay the aid,
SRIW has no means of claiming repayment by Verlipack
as its debtor is Heye’.

(80) As regards the transfer of the stake held by the Walloon
Region to Beaulieu, the Belgian authorities estimated the
nominal subscription value of the shares without voting
rights and the profit shares held by the Walloon Region
in Verlipack Ghlin and Verlipack Jumet at BEF 10 000.
According to the transfer contract of 18 December
1996, Sowagep (2) held 5 087 preference
shares
without voting rights and 3 937 category I profit shares
in Ghlin, and 2 923 preference shares without voting
rights and 2 267 category I profit shares in Jumet. The
Beaulieu group, through SA Ter Lembeek International,
purchased the Ghlin shares for BEF 72 192 000 and the
Jumet
for BEF 41 520 000, or a total of
BEF 113 720 000. The contract shows that the amount
is payable on 31 December 2001, net/net, without
interest.

shares

(81)

In view of the results of 30 April 1998, with turnover
losses BEF 269,3 million
reaching BEF 1,195 billion,
and a cash-drain of BEF 107,3 million, the cashflow of
the Verlipack group showed a deficit of BEF 376,8
million, which was overdue, unpaid and impossible to
reduce in the short term. In order to resolve the situa-
tion, Heye, Beaulieu, the representatives of the Walloon
Region and a number of banks met in order to examine
different methods of relaunching the Verlipack restruc-
turing plan. A relaunch agreement was concluded on 5
June 1998. (3)

(2) Société pour la gestion des participations de la Région wallonne dans des
sociétés commerciales (company managing Walloon Region holdings in
commercial firms).

(3) At the same time as the Commission investigation was underway,

which resulted in the decision of 16 September 1998.

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(82) Under the agreement, the banks waived debts of BEF 73
million and agreed a fresh line of credit of BEF 100
million. Heye contributed BEF 200 million in cash at
the time of the capital increase on 26 June 1998 and the
Walloon Region converted its equity loan of BEF 150
million (1). Sowagep undertook to find an investor for a
cash contribution of BEF 100 million. The investor,
Worldwide International, was finally found by Beaulieu
and participated in the capital
increase in Verlipack
Holding II on 26 June 1998. Lastly, Beaulieu agreed to
waive repayment of BEF 600 million of capital and
interest, unless there was a return to better fortunes after
1 January 2002. The financial impact of the additional
measures taken by Heye and Verlipack may be estimated
at BEF 1 450 million.

(83)

on

26

The total capitalisation of Verlipack Holding II after the
increase
to
BEF 1 630 500 000, or 158 224 shares, of which the
Walloon Region held 19 408, Heye 29 112, Worldwide
Investors 9 704 and Holding Verlipack I (Beaulieu, Heye)
100 000.

amounted

1998

June

(84) However, Sowagep failed to produce a new shareholder
to take the place of Worldwide Investors. In an amend-
ment of 20 November 1998 to the transfer contract of
18 December 1996, Beaulieu and Sowagep agreed that
the payment of
totalling
BEF 113 712 000, could take the form of either a
payment or the transfer of 9 704 capital shares in Verli-

the price for

the shares,

(85)

(86)

(87)

pack Holding II which had been issued in exchange for
the contribution from Worldwide Investors.

In December 1998, after acquiring the shares held by
Worldwide Investors, Ter Lembeek International (Beau-
lieu group) sold 9 704 shares in Verlipack Holding II to
the Walloon Region in settlement of
its debt of
BEF 113 712 000.

Belgium thus claimed that ‘Sowagep repaid the capital
increase to Beaulieu as it had undertaken’. The difference
of BEF 13 712 000 compared with the balance of the
debt owed by Ter Lembeek International can be
explained on the one hand by the return on the contri-
bution Ter Lembeek agreed to make and, on the other,
by the fact
in
December 1998 was in advance of the due date for
i.e. 31
repayment of
December 2001.

the transfer in lieu of payment

the capital without

interest,

that

Lastly, the Belgian authorities considered that the fresh
contribution made by the Walloon Region to Verlipack
in December 1998 (2) in practice constituted a further
capital increase in Verlipack of BEF 100 million (9 704
shares), financed by Beaulieu as repayment of its debt to
the Walloon Region. The fresh contribution by the
Region took place 15 months after its first measures, in
the context of a recovery plan to which Verlipack's
private-sector partners made a significant contribution.

(88)

The development of Verlipack's capital since the arrival
of Heye can be seen in the following table:

Date

Capital

Shareholders

Contribution in BEF

Shares

Total shares

18.12.1996

Walloon Region transfers 14 214 shares worth BEF 113 712 000 to the Beaulieu group

24.1.1997

515 000 000

Beaulieu group

11.4.1997

1 030 500 000

Heye group

515 500 000

→ Holding I

49 999

50 001

11.4.1997

1 230 500 000

Walloon Region

200 000 000

19 408

→ Holding II
region)

(Holding I and Walloon

30.3.1998

1 330 500 000

Heye

26.6.1998

1 630 500 000

Heye

Worldwide Investors

100 000 000

200 000 000

100 000 000

9 704

19 408

9 704

100 000

119 408

129 112

158 224

15.10.1998

1 780 500 000

Walloon Region

150 000 000 (*)

14 556

172 780

20.11.1998

Transfer of 9 704 shares in lieu of payment from Beaulieu to the Walloon Region in settlement of 1996 debts constituting,
according to the Belgian authorities, a fresh capital

increase.

(*) Conversion of the equity loan, covered by the decision of 16 September 1998.

(1) See also the Commission decision of 16 September 1998.

1999.

(2) I.e. several weeks before the declaration of bankruptcy in January

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IV.2. Observations concerning the comments from

other interested parties

(89) On 22 December 1999 Belgium responded to the
comments from interested parties following publication
of the Commission letter of 1 July 1999 in the Official
Journal of the European Community.

the plant,

(95) With regard to the comments from the interested party
concerned by the continuation of activities at Ghlin after
the acquisition of
the Belgian authorities
claimed that if ‘the Walloon Region plans to grant assis-
tance to the new company operating from the former
Verlipack Ghlin plant, it will apply the procedural rules
in Article 88 of the Treaty, in accordance with Council
Regulation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of
the EC Treaty’.

(90)

Belgium first commented on relations between the
Walloon Region and Heye. It considered that, as the
capital was contributed by the Walloon Region to Verli-
pack, direct cooperation with the representatives of Heye
‘was not necessary as Heye was not at the time involved
in the European Commission procedure’. On the other
hand, Heye apparently ‘participated actively via its
management and its board’ through Verlipack, which
was then part of the Heye group. It is clear from the
annexes to the comments that
the correspondence
concerning the case was between the Walloon Region,
through its lawyers, and Verlipack Belgium. The Belgian
authorities are surprised in this connection that Heye
‘was not kept informed by its subsidiary of the progress
of the Commission procedure and was not aware of the
favourable Commission decision of 16 September 1998’.

(91) As to Belgium's failure to notify the public measures and
Heye's ignorance of the fact that might constitute State
aid which should have been notified to the Commission,
the Belgian authorities justified their behaviour as being
consistent with the private investor principle. As to the
two SRIW loans, the authorities considered that ‘the
terms on which they were granted conformed to market
conditions’.

(96)

(97)

(98)

(92)

for

request

The Belgian authorities also considered that
their
communication of 2 April 1998 responding to the
Commission's
information ‘cannot be
regarded as prior notification of a plan to grant aid’.
Consequently, Heye ‘cannot invoke the protection of a
legitimate expectation that the aid is lawful insofar as the
public measures in question were not granted in accord-
ance with the procedure in Article 88 of the Treaty if,
against all possibility, the Commission were to decide
that the measures constitute State aid that is incompat-
ible with the common market’.

(93) On the other hand, Belgium agrees with Heye that the
measures taken by the Walloon authorities are consis-
tent with the behaviour of a private investor.

(94) As regards the statement by Heye that it did not benefit
from the public funds lent by SRIW, the Belgian authori-
ties referred to their argument concerning the actual
recipient of any aid element contained in the two loans.
Furthermore, it considered that ‘this argument is clearly
used by Heye in order to avoid having to repay any aid’.

the Belgian authorities considered that

Lastly,
‘the
Commission should quite simply ignore the docu-
ment (1) sent by an anonymous person, on the one
hand because it cannot identify the author and cannot
therefore treat them as an interested party under the
procedure and, on the other hand, because from an
ethical standpoint the very fact that the document was
sent anonymously should entail

its rejection’.

The Commission would draw the attention of
the
Belgian authorities in this connection to Article 6(2) of
Regulation (EC) No 659/1999 which states that ‘if an
interested party so requests, on grounds of potential
damage, its identity shall be withheld from the Member
State concerned’.

V. ASSESMENT OF THE AID

The capital
injected by the Walloon Region in April
1997 into Verlipack and the two loans granted by SRIW
in March 1997 to Heye to finance its capital contribu-
tion to Verlipack stem from public resources. Under
Article 87(1) of the EC Treaty and Article 61(1) of the
EEA Agreement, aid granted by States or thorough State
resources in any form whatsoever which distorts or
threatens to distort competition by favouring certain
insofar as it affects trade between
undertakings is,
Member States, incompatible with the common market.

(99) Under the guidelines on public authorities' holdings,
there is a presumption that there is State aid where the
authorities' intervention takes the form of acquisition of
a holding combined with other types of intervention
which need to be notified pursuant to Article 88(3) of
the EC Treaty. It can be assumed that the two loans
granted by SRIW to Heye to finance the latter's stake in
Verlipack constitute aid which, together with the capital
injected by the Walloon Region into Verlipack, should
have been notified. The Commission regrets
that
Belgium did not notify the two loans, totalling BEF 500
million, to the Commission to enable it to assess the
measures in accordance with Article 88(3) of the EC
Treaty. In failing to notify the measures, the Belgian
authorities failed to fulfil their obligations under the
Treaty.

(1) Document dated 27 February 1997, signed by R. Collignon, then
Minister-President of
concerning the
composition of the holding: Beaulieu group, Heye Glas and Walloon
Region.

the Walloon Government

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(100)

In addition, the lack of such decisively important infor-
mation prevented the Commission from applying the
rules on State aid correctly and efficiently and may result
in it revoking its decision of 16 September 1998.

V.1. Compatibility with

the

private

investor

principle

(101) Under the guidelines on public authorities' holdings
there is no State aid where the injection of fresh capital
into firms is carried out in circumstances that would be
acceptable to a private investor operating under normal
market economy conditions. This was the conclusion
drawn by the Commission in its decision of 16
September 1998 on the basis of information officially
transmitted by the Belgian authorities in the course of
the assessment of their concurrent, minority holding in
Verlipack, amounting to BEF 350 million. According to
the information acquired by the Commission after its
decision, however, Heye had not provided its own risk
capital but funds stemming from state resources.

(102) On the other hand, aid granted by a State that does not
correspond to the actions of a private investor favours
the recipient firm and may affect trade between Member
States and distort or threaten to distort competition
under Article 87(1) of the Treaty.

into companies whose capital

(103) Under the guidelines, such would be the case where the
injection of capital
is
divided between private and public shareholders makes
the public holding reach a significantly higher level than
originally and the relative disengagement of private
shareholders is largely due to the companies' poor profit
outlook. Furthermore, aid may be involved where the
financial position of the company, and particularly the
structure and volume of its debt, is such that a normal
return on the capital invested cannot be expected within
a reasonable time.

tions from the banks and that they relied on a business
plan and an extensive investment programme, drawn up
by Heye. It seems that, at the time of its intervention, the
Walloon Region could expect an eventual return from
Verlipack. Nevertheless,
the Commission is surprised
that Belgium is now wondering whether Heye misled
those partners, including the Walloon Region, that ‘did
not belong to the glass sector’. The Commission notes
that the Walloon Region has been a shareholder of the
Verlipacks Walloon production plants since 1989, when
it held 49 % of their capital, and was therefore fully
aware of the results achieved by Verlipack since then
and of
the European
market (1).

the continuing weakness of

(105) However, the Walloon Region was aware that there was
no private risk capital, that having been provided by a
Walloon public-service body.

the time of

(106) The Commission notes the relative disengagement on
its acquisitions in
the part of Heye at
Holding II
in April 1997. According to the Belgian
authorities, it was Heye that instigated the borrowing of
the necessary sum. In its letter of 21 November 1996,
SRIW asks Heye ‘to cover 50 % of a risk that Heye
regards as minor’.
the
Commission believes that the sole reason why the group
called on a public financial
institution to finance its
entry into Verlipack was to offset the risk to a maximum
through the terms of the loan agreements concluded
with SRIW.

In view of Heye's credibility,

(107) The Commission doubts that Heye, whose previous rela-
tionship with Verlipack was limited to technical assis-
tance, would in fact have taken a financial holding in
that company without the public resources that covered
its capital contribution. The
almost
Commission notes in this respect that Verlipack's finan-
cial position prior to Heye's arrival could not have indi-
cated viability.

the whole of

(108)

It must be concluded that the capital contribution of
BEF 350 million benefited Verlipack, whilst the loan
was granted to Heye to finance its acquisition of a stake
in Verlipack. The allocation clauses in the two agree-
ments specifically stipulate that Heye agreed (i) to recapi-
talise the Ghlin and Jumet plants and (ii) to finance
investments in the three Verlipack plants, including the
Mol plant (Flanders).

(104)

In 1996 the Ghlin and Jumet plants experienced signifi-
cant operating losses and a sharp drop in turnover
compared with preceding years. The Commission notes,
however,
the measures taken by the Walloon
Region in April 1997 were accompanied by contribu-

that

(109) The Commission then notes that Heye was unable to use
the funds for any purpose other than to transfer them
immediately, through Holding II, to the Verlipack plants
and thus did not benefit from the public funds.

(1) See the document of 27 February 1997.

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(110) A recipient of aid, which may have to be repaid, is not
necessarily the firm to which the public authorities
granted the funds directly but rather the firm that
actually benefited from the aid. This is upheld in the case
Justice (1), which distinguishes
law of
between, on the one hand, firms that acted merely as a
conduit for the funds and, on the other,
firms that
derived an advantage from the aid such that they qualify
as recipients under the Community rules on monitoring
State aid.

the Court of

(111)

In view of the allocation clauses aimed at financing the
recapitalisation of Verlipack, through the funds lent to
Heye, the Commission considers that the funds only
transited through Heye and through Holding II to Verli-
pack. Consequently, Verlipack must be regarded as the
recipient of the loans from which it alone benefited. The
same argument means that the Commission must apply
the abovementioned case law to Holding II as well.

(112)

In view of the foregoing, the Commission considers that
a lender would not on the one hand have acquired a
shareholding for BEF 350 million and, on the other, lent
risk capital of BEF 500 million covering 50 % of the risk
in the event of Verlipacks profit outlook proving un-
favourable.

(113) However, according to the first indent of paragraph 3.2
of the guidelines, an injection of fresh capital into a firm
may be acceptable to a private investor ‘where the reci-
pient company's development potential,
reflected in
innovative capacity from investment of all kinds, is such
that the operation may be regarded as an investment
involving a special risk but likely to pay off ultimately’.
The investment plan (1997 to 2001) provided for the
installation of new furnaces, machines, cold-end equip-
ment and measures to protect the environment, for a
total cost of BEF 1,754 billion for the two plants in
Wallonia, of which 16 % was carried out in June 1998.
The investment plan does not indicate that the new
furnaces were replacing existing ones. Nor have the
Belgian authorities provided evidence that the invest-
ments could have produced innovation capacity in addi-
tion to rationalisation and improved control of
processes and products. The abovementioned derogation
in the guidelines is therefore not applicable in the
present case.

V.2. The loans granted by SRIW

(115) The debenture loan of BEF 250 million contains a
write-off clause in the event of Verlipack being wound
up. Heye was not therefore running any risk in respect
of that amount, which accounted for half its capital
injection into Verlipack. The Commission does not agree
with the Belgian authorities that Heye would have
obtained ‘equivalent terms’ on the market, despite its
acknowledged creditworthiness and solvency. No lender
would have agreed to write off BEF 250 million to
refinance Verlipack,
its operating results before the
arrival of Heye very clearly pointing up the groups
difficulties.

(116) Consequently, the debenture loan of BEF 250 million
granted to Heye to finance its capital injection in Verli-
pack constitutes aid to Verlipack within the meaning of
Article 87(1) of the Treaty.

(117) The Commission notes that the BEF 250 million loan
was granted in March 1997 at 4,92 % for the period
from 28 March to 31 September 1997 and at 5,30 % for
the period from 1 October 1997 to 30 September 1998.
However, the comparison between market conditions
and those accompanying the loans in question must
relate to the period when the loans were granted,
namely 27 and 28 March 1997. The reference rate
applicable in Belgium at the time was 7,21 %. On the
basis of a 10-year duration, a three-year grace period
and to the extent that the interest subsidy is variable, the
loan contains an element of aid of 2,85 % gross, corre-
the
sponding to BEF 7,125 million. Furthermore,
Commission notes that the loan agreement does not
require Heye to give any collateral for the loan from
SRIW. Thus, whilst bearing in mind the letter from
Heyes bankers confirming its solvency, the Commission
institution would
doubts whether a private financial
have taken such a risk without any security.

(118)

In view of the foregoing, the Commission considers that
the behaviour of SRIW in connection with the loan is
not consistent with the actions of a private investor and
that the loan contains an element of aid.

V.3. Exemption under Article 87

(114) The Commission concludes that Belgium, in providing
Verlipack with fresh capital and in granting the two
loans, did not act like a private-sector investor operating
under normal market economy conditions.

(1) Cases C-329/93, C-62/95 and C-63/95 Germany v Commission

[1996] ECR I-5151, paragraph 56.

(119) The guidelines stipulate that, where it is apparent that a
public authority injects capital by acquiring a holding in
a firm in circumstances that would not be acceptable to
a private investor operating under normal market
economy conditions, the case has to be assessed in the
light of Article 87 of the EC Treaty.

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(120) The capital contribution of BEF 350 million to Verli-
pack and the debenture loan of BEF 250 million to
Heye for Verlipack stem from State resources and consti-
tute aid within the meaning of Article 87(1) of the
Treaty,
in addition to an aid element of BEF 7,125
million. The aid is not compatible with the common
market under Article 87(2) of the Treaty as it does not
constitute aid having a social character, granted to indi-
vidual consumers, and is not intended to make good the
damage caused by natural disasters or exceptional occur-
rences. Nor is the exemption in Article 87(2)(c) applic-
able. Similarly, the aid cannot be regarded as compatible
with the common market under Article 87(3)(a), (b) and
(d) as it is not intended to promote the economic devel-
opment of areas where the standard of living is abnor-
mally low or where there is serious underemployment
within the meaning of Article 87(3)(a) and the Commis-
sion communication on the method for the application
of Article 87(3)(a) and (c) to regional aid. (1) Further-
more, the aid is not intended to promote the execution
of a project of common European interest or to remedy
a serious disturbance in the economy of a Member State
or to promote culture and heritage conservation.

(121) Thus

step is

the Commission's next

to determine
whether the aid qualifies for exemption under Article
87(3)(c) of the Treaty. In this context, the exemption
should be examined in the light of the frameworks and
guidelines in which the Commission has published its
interpretation of the exemption in question.

V.4. Restructuring aid

(122)

In its decision of 19 May 1999 to initiate proceedings,
the Commission had already examined the compatibility
of the aid under the exemption in Article 87(3)(c) of the
Treaty and the application of the exemption on the basis
of the Community guidelines on state aid for rescuing
and restructuring firms in difficulty (2) (hereinafter the
‘Community guidelines’). According to the guidelines,
the Commission takes the view that restructuring aid
may contribute to the development of economic activi-
ties without adversely affecting trade to an extent
contrary to the common interest if certain conditions
are met: (i) a restructuring plan satisfies all the general
conditions, and in particular a return to long-term viabi-
lity, (ii) there are no undue distortions of competition,
(iii) the aid is in proportion to the restructuring costs
and benefits and (iv) the plan is implemented in full.

in April 1997, a capital contribution of
obtained,
BEF 350 million, financing of BEF 500 million through
two loans granted to Heye and, in December 1998, a
fresh injection of BEF 100 million through the write-off
of the Beaulieu debt to the Walloon Region.

(124) According to the Belgian authorities, the conditions of
the Community guidelines in force at the time were met.
They point out that the Verlipack plants in Wallonia
were located in an assisted area under Article 87(3)(c) of
the Treaty.

(125) With the exception of a business plan and an investment
plan with a budget of BEF 1,8 billion for the two plants
in Wallonia, which cover the period 1997 to 2001, as
well as financing granted by the banks involving a
reduced interest rate and the rescheduling of current
debt repayments, Belgium never submitted a realistic
and detailed restructuring plan. The business plan fore-
cast a positive operating result as from 1998. The fore-
casts, however, were not based on realistic assumptions,
especially as regards market
trends. A ‘Heye group
strategy for Verlipack’ attached to the letter from SRIW
of 18 December 1996, which constituted the basis of
the financing of the injections by Heye-Glas, proposed
to alter the product mix in favour of particularly prom-
ising segments and/or niches. It is also clear from the
information available that the proposed investment in
Verlipack was to have increased production in the three
plants by 26 % on average in the period from 1997 to
2001, compared with production in 1996. Given the
overcapacity in the market, however, the restructuring
plan should have provided for a cut
in production
capacity in order
to prevent undue distortions of
competition.

(126) Lastly, the business plan on which the Belgian authori-
ties based their capital injection into Verlipack and the
additional
indirect financing in the form of the two
loans granted to Heye was not implemented in full, as is
clear from the bankruptcy of Verlipack in January 1999.
The aid cannot be regarded as compatible with the
common market under the Community guidelines.

V.5. Investment aid

(123) Under the guidelines, restructuring aid should normally
be needed only once and should allow the firm in
difficulty, after restructuring, to operate on the strength
of
its own resources without requiring further State
assistance. In view of the foregoing, however, Verlipack

(1) OJ C 212, 12.8.1988, p. 2.
(2) OJ C 368, 23.12.1994, p. 12.

(127) The aid may be analysed from the standpoint of aid
intended to facilitate
certain
economic areas. The Ghlin and Jumet plants are located
in an assisted region under Article 87(3)(c) of the Treaty
which benefits from the maximum ceiling of 25 % net,
or 35 % gross. (3)

the development of

(3) N 307/93/A - Commission decision of 8 June 1994 on a review of
development areas in Hainaut, programming of objective 1, 1994-
99.

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(128) Under

the guidelines on national

regional aid (1)
(regional aid guidelines), 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.

(129) There is no doubt

that

the measures taken by the
Belgian authorities to assist Verlipack constitute aid
within the meaning of Article 87(1) of the Treaty and
that the aid is liable to distort competition and affect
trade between Member States. In order to qualify for
exemption under Article 87(3)(c) of the Treaty, the aid
must facilitate the development of the assisted region
and must not affect trade to an extent contrary to the
common interest.

(133) Regional aid aimed at reducing a firm's current expenses
(operating aid) is normally prohibited (3). Exceptionally,
however, such aid may be granted in regions eligible
under the derogation in Article 87(3)(a) provided that it
is justified in terms of its contribution to regional devel-
opment and its nature and its level is proportional to the
handicaps
to alleviate. The Commission
concludes, however, that the region in which the two
Walloon plants are located is not covered by Article
87(3)(a) and that the exception in the abovementioned
Article is not applicable.

seeks

it

(134)

In view of the foregoing, the aid to Verlipack does not
qualify for exemption under Article 87(3)(c) and (a).

(130) Verlipack operated in the market for hollow container
glass, of which its share was 20 % in Belgium and 2 % in
the European Union. With a market share of 13 %, the
container glass industry takes third place in the pack-
aging sector, after plastic with 35 % and paper-board,
with 32 % (2). The period 1996 to 1998, when Belgium
granted the aid to Verlipack, was affected by a fall in
prices which, according to Heye and the sector in
general, was not forseeable in 1997. The rapid down-
ward trend in prices continued as a result of competition
from other packaging products (PET, cardboard and
cans) and the collapse of the Russian market. Given the
economic situation, the investment in Verlipack had the
effect of increasing its production. Any aid to that firm
was thus liable to affect Verlipack's position on the
market with regard to its competitors in the EU.

(131) The total cost of planned investments in the Walloon
plants was BEF 1,8 billion. According to Belgium and
Heye, BEF 294,5 million was invested in 1997 and
1998. Heye stated that the funds came from its own
resources. Accordingly, the aid granted by the Walloon
Region (an injection of BEF 350 million) and by SRIW
(borrowing and loan totalling BEF 500 million) was not
intended for investments in Verlipack. The aid therefore
does not qualify for exemption under Article 87(3)(c) of
the Treaty.

(132) Similarly, the aid cannot be regarded as an initial invest-
ment or as aid for job creation linked to the carrying-out
of an initial
investment project under the abovemen-
tioned guidelines.

(1) OJ C 74, 10.3.1998, p. 9.
(2) Verre-avenir: Key figures concerning the container glass industry.

V.6. Fresh capital injected by the State as part of the

relaunch in June 1998

(135) As part of the procedure initiated on 19 May 1999,
Belgium described the development of Verlipack in the
months preceding and following the Commission
decision of 16 September 1998. The Commission notes
that, in view of the deterioration in the firm's position at
the end of May 1998, fresh efforts had to be made by
the partners (banks, Beaulieu group and Heye) under a
relaunch agreement concluded on 5 June 1998. A fresh
capital
increase in Verlipack was decided on 26 June
1998 with a contribution from Heye (4) of BEF 200
million for 19 408 new shares, and an injection by
Worldwide Investors of Luxembourg, the investor found
by Beaulieu, of BEF 100 million, in exchange for 9 704
new shares.

(136)

In the autumn of 1998, however, the involvement of the
private investor Worldwide Investors ended with the sale
of its shares to the Beaulieu group, which in turn trans-
ferred them to the Walloon Region. The transfer was in
lieu of payment (5) of the amount owed by Beaulieu to
the Walloon Region for the shares acquired in December
1996, valued at BEF 113 712 000, the repayment of
which, without interest, was to start on 31 December
2001. The Commission notes that the withdrawal of the
private investor and the transfer in lieu of payment of a
debt that was to start being repaid only on 31 December
2001 took place several weeks before Verlipack peti-
tioned for bankruptcy.

(3) See paragraph 4.15 of the regional aid guidelines.
(4) In ‘full knowledge of the rules of procedure and financial position

of the Verlipack Holding II SA’.

(5) Annex of 20 November 1998 to the transfer agreement of 18
December 1996 between the Walloon Region and the Beaulieu
group on the acquisition of 14 214 shares.

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(137) According to the Belgian authorities,

the transfer in
December 1998 by Beaulieu in lieu of payment of its
debts to the Walloon Region should be regarded as a
fresh capital injection in Verlipack of BEF 100 million.

VI. CONCLUSIONS

(138) The Commission would remind the Belgian authorities
that,
in their letter of 10 April 1998 replying to the
Commission letter of 26 January 1998, they announced
their intention to grant Verlipack BEF 100 million, in
the form either of a capital contribution or of a long-
term loan. They also specified that
‘they would not
implement the project without prior notification to the
Commission and without authorisation’. If the Belgian
authorities consider that the fresh support given by the
Walloon authorities to Verlipack in December 1998 in
fact constitutes a further injection of capital into Verli-
pack of BEF 100 million,
they have failed in their
undertaking not to implement any plans without noti-
fying the Commission in advance and without author-
isation.

(139) The Commission also draws attention to its letter of 14
December 1998 in which it reserved ‘its position as
regards any further intervention by the Walloon authori-
ties in favour of Verlipack’. That position was repeated
in its letter of 13 January 1999. On 4 February 1999,
they ‘had never
the Belgian authorities
considered financing the composition period in view, in
particular, of the terms of the recent Commission deci-
sion’ (1). The Commission also notes that the Belgian
authorities, in their reply to the comments of the inter-
communicated to the Commission,
ested parties
announced the same intention should they decide to
grant support
for the new firm operating from the
former Verlipack Ghlin site.

stated that

(140) As this is a fresh measure by the Walloon Region and is
connected with the repayment of the debt owed to the
Region by Beaulieu for its acquisition of the shares in
the Ghlin and Jumet plants in 1996, the details of which
were not notified to the interested parties, the Commis-
sion does not at this stage have all the information it
needs to assess the compatibility of the measure with
Article 87. It has therefore informed Belgium in a letter
of 5 July 2000 that it has entered the new measure in
the register of non-notified aid under number NN 73/
2000 with a view to determining its compatibility with
the common market.

(1) Decision of 16 September 1998.

(141) The

capital of BEF 350 million (EUR 8 676 273)
injected into Verlipack by the Walloon Region together
with the two loans also stemming from public resources
is regarded as aid under Article 87(1) of the Treaty
because the capital was contributed by the Walloon
Region in circumstances that would not be acceptable to
a private investor operating under normal market
economy conditions.

(142) The loan of BEF 250 million (EUR 6 197 338) granted
by SRIW to Heye, the recipient of which, however, was
Verlipack, constitutes aid under Article 87(1) because
the acceptance of a write-off clause in the event of
Verlipack's winding up cannot be regarded as the behav-
iour of a private investor.

(143) The loan of BEF 250 million granted by SRIW to Heye,
the recipient of which, however, was also Verlipack,
contains an aid element of BEF 7,125 million. As no
collateral was pledged, the behaviour of SRIW does not
conform to the private investor principle.

(144) The aid does not qualify for exemption under Article
87(3)(c), pursuant to the Community guidelines on aid
for rescuing and restructuring firms in difficulty, since
Belgium failed to submit a specific, detailed restructuring
plan backed up by realistic forecasts and the business
plan and the investment plan were not implemented in
full.

(145) Nor can the aid be regarded as investment aid as the
investments stemmed from Heye's own resources and
the aid does not qualify for exemption under Article
87(3)(a) and (c) of the Treaty.

(146) The aid amounts to BEF 350 million for the capital
contribution and BEF 250 million for the loan,
i.e. a
total of BEF 600 million, plus the aid element contained
in the loan of BEF 250 million, which amounts to
BEF 7,125 million,
of
giving
BEF 607 125 000.

grand

total

a

(147)

In view of the foregoing, it must be concluded that the
BEF 350 million of capital
injected by the Walloon
Region can no longer be regarded as concomitant with
the capital injected by Heye, as BEF 500 million of the
contribution of BEF 515 million came from public
funds and was intended for Verlipack, the sole benefi-
ciary. Hence the Commission decision of 16 September
1998 not to raise objections to the capital injected into
Verlipack by the Walloon Region must be revoked
under Article 9 of Regulation (EC) No 659/1999,

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HAS ADOPTED THIS DECISION:

Article 5

Article 1

The Commission decision of 16 September 1998 not to raise
objections in respect of the capital contributed to Verlipack is
hereby revoked under Article 9 of Regulation (EC) No 659/
1999 of 22 March 1999 laying down detailed rules for the
application of Article 93 of the EC Treaty.

Article 2

The State aid totalling EUR 8 676 273 (BEF 350 million)
granted by Belgium to Verlipack is incompatible with the
common market.

Article 3

1.
Belgium shall take the necessary steps to recover from the
recipient the aid referred to in Articles 2 to 4, which was
granted to it unlawfully.

Recovery shall be effected in accordance with the proced-
2.
ures of national
law. The sums to be recovered shall bear
interest from the date on which they were made available to
the recipient until their actual recovery. The interest shall be
calculated on the basis of the reference rate used to calculate
the grant equivalent of regional aid.

Article 6

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

The State aid totalling EUR 6 197 338 (BEF 250 million)
granted by Belgium to Verlipack is incompatible with the
common market.

This Decision is addressed to the Kingdom of Belgium.

Article 7

Article 4

Done at Brussels, 4 October 2000.

The State aid totalling EUR 6 197 338 (BEF 250 million)
granted by Belgium to Verlipack contains an element of State
aid amounting to 176 624 (BEF 7,125 million) that is incom-
patible with the common market.

For the Commission

Mario MONTI

Member of the Commission