2002/779/EC: Commission decision of 21 December 2000 on the State aid granted by the Federal Republic of Germany to Zeuro Möbelwerk GmbH, Thuringia (Text with EEA relevance.) (notified under document number C(2000) 4401)
Date: 2000-12-21
Institutions: European Commission
Subjects: Germany, State aid, application of EU law, control of State aid, furniture industry, redemption

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(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 21 December 2000

on the State aid granted by the Federal Republic of Germany to Zeuro Möbelwerk GmbH,
Thuringia

(notified under document number C(2000) 4401)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/779/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

Having regard to the Treaty establishing the European Com-
munity, 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 the interested parties to submit their com-
ments pursuant to the provisions cited above (1),

Whereas:

1. PROCEDURE

(1)

By letter dated 8 July 1996, received on 9 July 1996,
Germany informed the Commission of the restructuring
of Zeuro Möbelwerk GmbH. By letters of 30 July 1996,
7 October 1996 and 2 April 1997 the Commission
requested additional information, which was supplied
by letters of 11 September 1996, 17 February 1997 and
15 May 1997, this last received on 23 May 1997. On
7 April 1997 the Commission received an amendment
to the initial notification. The case was discussed at a
meeting with the German authorities on 3 February
1997. At the time of the notification the aid had already
been granted, so that Article 88(3) of the EC Treaty had
been infringed. The Commission accordingly entered the
aid in the register of non-notified aid measures.

(3)

(4)

By letter dated 12 August 1997,
the Commission
informed the German authorities that it had decided to
initiate the procedure laid down in Article 88(2) in
respect of the aid.

The Commission decision to initiate that procedure
was announced in the Official Journal of the European
Communities (2). The Commission there called on interest-
ed parties to submit their comments. The Commission
received no comments from interested parties.

On 22 September 1997, after the procedure had been
initiated, a meeting took place between the German
authorities and the Commission. By letter of 14 Novem-
ber 1997, received on 19 November 1997, the German
authorities supplied further information. On 15 October
1998 and 22 September 1999 the German authorities
and the Commission discussed the case again. On
5 October 1999 the Commission asked for information
on some outstanding points, which the German auth-
orities supplied on 4 November 1999.

( 1) OJ C 25, 24.1.1998, p. 2.

(2) See footnote 1.

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2. DESCRIPTION

2.1. THE UNDERTAKING

2.1.1. BACKGROUND

(5)

(6)

(7)

(8)

Zeuro Möbelwerk GmbH (Zeuro) is a furniture manufac-
turer based in Thuringia. The unemployment rate in the
area is 17,9 %.

The German market accounts for 85 % of Zeuro’s sales;
10 % of its sales are in other Member States, and 5 % in
eastern Europe.

According to the information supplied by the German
authorities, Zeuro is an SME within the meaning of the
Community guidelines on State aid for small and
medium-sized enterprises (3) and of Commission Rec-
ommendation 96/280/EC of 3 April 1996 concerning
the definition of small and medium-sized enterprises (4).

The Treuhandanstalt privatisation agency took over
Zeuro in 1990 from the former VEB Möbelkombinat
Zeulenroda, and converted it into Zeulenrodaer Möbel
GmbH. VEB Möbelkombinat Zeulenroda had nine plants
and employed more than 2 500 people. Since the firm
could not be privatised as a whole, the Treuhandanstalt
allowed it to go bankrupt. In 1991, the Treuhandanstalt
founded Zeuro Möbel GmbH in Berlin, which took over
most of the assets and liabilities of the main firm in
Zeulenroda. In March 1993 the movable assets and the
bulk of the liabilities were transferred to the private firm
Furnica GmbH. The firm was renamed Zeuro Möbelwerk
GmbH; in 1994 it experienced severe liquidity problems.

(9)

In June 1994, Thüringer Industriebeteiligungs GmbH
und Co. KG (TIB) therefore acquired Zeuro’s entire share
capital, at a price of DEM 1.

(10) The liquidity crisis of 1994 had the following causes:

(a)

the firm had acquired too many materials at
excessive prices;

(b)

it had too many employees;

( 3) OJ C 213, 23.7.1996, p. 4.
( 4) OJ L 107, 30.4.1996, p. 4.

(c)

(d)

(e)

(f)

it could therefore not even cover its production
costs;

it was keen to increase its turnover but did not
check the liquidity situation of its customers;

its range still contained unfashionable products
which it was unable to sell;

it had evidently suffered from mismanagement
since 1990.

(11) Mr Wohlfahrt was appointed manager. He devised a
restructuring plan intended to solve the firm’s problems.
On 1 February 1996, in a capital increase, he took over
51 % of the shares.

(12) Mr Wohlfahrt started a joint venture in Lithuania which
evidently involved a holding by Zeuro, and transferred
machinery, services and money from the German firm
to Lithuania. He then disappeared. Not only did he fail
to implement the restructuring plan, but he caused
serious damage to Zeuro (misappropriation of some
DEM 0,5 million and the damage caused by the Lithuani-
an joint venture). By a resolution of 23 July 1996 TIB
removed him as manager; his shares were confiscated,
and TIB again became Zeuro’s sole owner.

2.1.2. MORE RECENT DEVELOPMENTS

(13) Mr Gumbel was appointed as the new manager.

(14) A new restructuring plan was drawn up and Mr Wohl-
fahrt’s former plan revised. The firm’s difficulties derived
from the following factors:

(a)

(b)

because of the Lithuanian joint venture, the firm
was required to supply machinery and services
which exceeded its capacities;

the firm had been manufacturing too broad a
range of products (55), and its range was not
homogeneous. Of the 55 products, two together
accounted for 40 % of sales, while many of the
other products were not selling at all;

(c)

its products had been sold below cost (negative
profit of up to 25 %). The calculation of costs had
not been properly conducted;

(d) material costs were still much too high;

(e)

transport costs were too high;

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(f)

staff costs were too high. After a short period in
which the number of employees fell, the payroll
had begun to expand again. (The 1995 restructur-
ing plan had projected a total staff of 153. The
number of employees fell initially to 190 but then
rose again to 224). In addition, staff had been taken
on for the joint venture in Lithuania and for
the logistics department. (It would appear that a
subsidiary was set up to develop Zeuro’s logistics.
The Commission has no information on this mat-
ter.) Some of its employees and of the independent
consultants working under contracts concluded by

Mr Wohlfahrt were very highly paid. Wages and
salaries had been agreed in March 1995 which
were too high given the firm’s economic situation;

(g)

the production process was inefficient;

(h)

(i)

the firm had purchased too many vehicles and too
many mobile telephones;

the firm had accepted complaints of all kinds,
including some that were quite unjustified. The
associated
some
DEM 1 million.

costs were

estimated

at

2.1.3.

FINANCIAL DEVELOPMENT OF THE FIRM

1993

1994

1995

1996

(DEM)

Turnover

32 657 315

40 326 044

34 846 240

40 440 490

Cost of materials

20 963 097

22 010 081

18 303 113

23 242 390

Staff costs

10 581 499

14 644 379

12 060 895

12 030 664

Operating result

– 5 354 711

– 10 098 722

– 4 476 573

– 13 546 922

Annual profit or loss

– 5 371 022

– 7 113 909

– 3 796 275

+ 6 398 681

(15) The firm made a profit of DEM 6 838 681 in 1996 on the basis of extraordinary receipts (State aid)

of DEM 20 393 762.

2.2. THE RESTRUCTURING PLAN

2.2.1. RESTRUCTURING MEASURES

(16)

(a) No further supplies of machinery and services (1996 value: DEM 3 million) would be made to
the firm in Lithuania; Zeuro sought to enforce payment of its receivables in respect of goods
and machinery and to sell its holding.

(b) The firm’s product range would be reduced.

(c)

Prices would be renegotiated to enable its products to be sold at a cost-covering level.

(d) Material costs would be reduced by DEM 1,5 million through the purchase and use of fewer

materials.

(e) Transport costs were to be reduced. The firm would consider whether it might not be cheaper
(It was

to farm out its haulage operations rather than use its own hived-off subsidiary.
estimated that this would cost 40 % less, i.e. a saving of DEM 1,6 million).

(f)

Staff costs would be reduced by DEM 1,1 million. The firm would negotiate with the works
council over wages, working hours, etc. The number of employees would be reduced.

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(g) The production process would be optimised. This would cut 22 jobs.

(h) The site and buildings were purchased and rehabilitated. The site was bought for DEM 3 million.

(i)

In 1997 investments totalled DEM 1,1 million for construction work and DEM 1,4 million for
technical equipment and machinery.

(j)

The number of cars and mobile telephones would be reduced.

(k) The complaints system would be changed.

(l)

The firm would negotiate with potential new investors.

2.2.2.

FINANCING OF THE COMPANY

(DEM)

A

Increase of nominal capital by shareholder Wohlfahrt, made up of

2 580 000

— DEM 2 million loan towards the holding (equity assistance granted by

German authorities)

— DEM 580 000 private holding

2 000 000

580 000

B

Extension of repayment of part of TIB shareholder loan of 15 July 1994

1 000 000

C

1996 waiver by TIB of part of shareholder loan of 15 July 1994

4 000 000

D

Increase of nominal capital by TIB

2 500 000

E

1996 waiver by TAB of repayment of an operating loan (wholly guaranteed
by the Land)

1 500 000

F

Loans granted in 1996, 65 % TAB (5) guarantee

6 900 000 (6)

G

Section of the private loans granted in 1996 not guaranteed by TAB

2 100 000

H

I

J

‘Rescue aid’ following Mr Wohlfahrt’s departure: TAB loan up to 31 Decem-
ber 1996, repayment extended, interest 7,5 %, 100 % Land guarantee;
retreat in rank of DEM 4 million

TAB loan up to 30 June 1997 (prefinancing of holding taken by Thuringia
Consolidation Fund (Thüringer Konsolidierungsfonds)), 100 % Land guaran-
tee

Reduction of purchase price

K Waiver of claim to purchase price by Zeuro-Verwaltungs GmbH i.L. (owned

by the BvS, the successor to the Treuhandanstalt)

L

BvS waiver of right of recourse in respect of guarantee

M Holding taken by Thuringia Consolidation Fund (only DEM 1,6 million so

far paid up)

5 000 000

2 500 000

500 000

5 701 000

5 750 000

5 000 000

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N

Grants and investment allowances under the Joint Federal Government/
Länder regional scheme (since 1993)

4 650 000

O Investment grants not yet paid

P

AIF grants (since 1993)

Q Grants for staff costs

SME grant in 1994

R

S

450 000

900 000

13 000

3 000 000

for sales promotion/trade fairs from the Thuringia Trade Fair

Grant
Promotion Programme (Thüringische Messeförderungsprogramm)

111 000

(5) Thüringer Aufbaubank.
(6) The loans granted in 1996 amounted to DEM 9 million. They consisted of a KfW loan of DEM 1 million and a loan of
DEM 2 million from KfW and the ERP, both of which, therefore, were State loans; a loan of DEM 1 million from Zeuro’s
own bank, Dresdner Bank; and a private operating credit line of DEM 5 million from Dresdner Bank. These loans carried
a 65 % guarantee from TAB. The aid component is accordingly DEM 6,9 million.

Total

54 155 000

(17) The firm has therefore received State funds totalling
DEM 49,475 million, plus a further DEM 2 million in
aid to the investor, Mr Wohlfahrt, which was paid to the
firm before his departure and for which he is personally
liable. The private investor’s own contribution is
DEM 2,680 million, made up of an increase of
DEM 0,58 million in nominal capital and the section of
the Dresdner Bank loan not covered by State guarantee
(measure L), which amounts to DEM 2,1 million.

2.3.

EFFECTS ON CAPACITIES

Year

1993

1994

1995

1996

1997

Pieces produced per year

1 784 924

1 826 919

1 560 722

1 635 872

1 528 642

2.4.

PRODUCTS AND MARKETS

(19) The furniture industry is one of the largest processing
industries in the Community. It is highly fragmented,
and SMEs play an important role.

(20)

Furniture sales fluctuate, and are largely dependent
on the general economic climate and the income of
households. Until the recession at the beginning of the
1980s, however, the industry showed healthy growth.

(21) Between 1986 and the beginning of 1991 furniture
manufacturing resumed an upward trend. It fell again
thereafter. Production fell in real terms by 3,2 % between
1992 and 1993, and 46 000 jobs were lost in the
industry in Europe between 1991 and 1993. A further
12 000 job losses occurred in 1994, although new
furniture production rose in 1994 by 1,6 %.

(22) Demand was expected to increase further and to have a
positive impact on the industry in the near future (7).

(18)

Some production facilities were closed in 1995. The
production capacity therefore stood at some 1,7 million
to
pieces per annum in 1997. Zeuro planned not
increase its capacity but to manufacture less on the basis
of the remaining capacities.

(7) See Panorama of EU Industry 1997, Chapter 18.

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3. ASSESSMENT

3.1. AID AMOUNT

(23) Of the measures listed in section 2.2.2, measures A and
E-S constitute State aid caught by Article 87(1) of the EC
Treaty. This is because they confer an advantage on a
particular firm, they were paid out of State resources,
and they affect trade between Member States, since the
recipient firm operates on a market on which there is
brisk cross-border trade within the Community, so that
there is a danger that competition may be distorted.

(24) Measures B, C and D listed in section 2.2.2 are measures
taken by the owner of the firm, TIB, but it has to be said
that they do not satisfy the private investor test. As
explained in section 3.2.1, the money was invested in a
company in serious difficulty, with no reliable indication
that its long-term profitability might be restored; in such
circumstances a private investor would not normally
invest. The Commission is strengthened in this view by
the fact that repeated efforts to find an investor have
proved fruitless. These measures too, therefore, consti-
tute State aid.

3.1.1. AID TO THE FIRM WHICH WOULD HAVE TO BE

REPAID BY THE INVESTOR

Measure A

(25) The investor, Mr Wohlfahrt, invested DEM 2,58 million,
part of which was provided under the equity assistance
scheme (Eigenkapitalhilfe) and part of which was con-
tributed by Mr Wohlfahrt himself.

(26) A sum of DEM 2 million was granted under the equity
assistance scheme to the investor. The amount was paid
to the firm and remained with it after Mr Wohlfahrt’s
departure. Mr Wohlfahrt, and not the firm, is liable for
its repayment.

(27) The German authorities state that the aid was granted in
accordance with the equity assistance scheme for the
new Länder, which has been notified to and approved by
the Commission (aid measure N 510/95) (8).

(28) The scheme is restricted to SMEs. When it initiated the
procedure in the present case the Commission expressed
doubts as to whether Zeuro could be classed as an SME.
According to the information supplied by the German
authorities Zeuro was indeed an SME at the time the
holding was taken. The SME requirement is therefore
satisfied.

(29) The Commission’s approval of the equity assistance
scheme was also made conditional on the existence of a
restructuring plan designed to restore the firm’s long-
term viability. The German authorities had told the
Commission that it was only exceptionally that loans
granted under the scheme would be used to restructure
firms in difficulty. Germany is in any event under an
obligation to apply the Community guidelines on State
aid for rescuing and restructuring firms in difficulty (9).
The aid was granted before the publication of the
new Community guidelines (10), and consequently, in
accordance with point 101 of the new guidelines, it has
to be assessed under the guidelines of 1994 (hereinafter
the guidelines). Among other things the guidelines
require:

(a)

(b)

that a viable restructuring programme be submitted
and put into effect;

that the aid be limited to the strict minimum
needed.

(30)

In Zeuro’s case a restructuring plan was indeed submit-
ted; but it has to be considered whether the plan was at
all capable of restoring the firm to viability, and whether
the aid was confined to the minimum.

3.1.2. OTHER AID TO THE FIRM

3.1.2.1. Measures taken by TIB

Measures B, C and D

(31) TIB owns all of the shares in Zeuro. When it took over
the firm in 1994,
it granted a shareholder loan of
DEM 5 million (measures B and C). In 1996, it waived
repayment of DEM 4 million of
this amount; the
repayment period of the remaining DEM 1 million was
extended to 30 September 1999. TIB also increased the
nominal capital by a further DEM 2,5 million.

( 8) N 510/95, SG (95) D/11491.

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

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(32) According to the information supplied by the German
authorities, TIB’s holding is based on a scheme which
has been notified to and approved by the Commission
(aid measure N 183/94 (11)). It should be pointed out
here that the Commission has now initiated proceedings
in respect of that measure, on the ground that it is not
being properly applied (12). The Commission has not yet
taken a final decision in that case, but there is evidence
that the conditions attached to the Commission’s earlier
authorisation of the scheme have not been complied
with.

(33) Under the scheme, firms which receive aid from TIB
may not, for the duration of that aid, receive aid from
any other scheme involving capital injections from State
funds, such as the equity assistance scheme and the ERP
holdings programme. But Zeuro did receive such aid. It
may be questionable whether the equity assistance loan
would rule out aid from TIB, because equity assistance
is officially granted to investors and not to firms. This
question need not be conclusively settled here, however,
because the firm in any case received additional aid in the
form of a holding taken by the Thuringia Consolidation
Fund, loans from TAB, etc. These measures are clearly
caught by this provision of the scheme. Consequently,
TIB’s holding cannot be deemed to have been acquired
under an authorised aid scheme, and has to be classed
and examined as a one-off measure.

(34) When the Commission authorised the scheme it did
allow TIB to provide capital for firms in difficulty,
but only on condition that a restructuring plan was
submitted and put into effect which would restore the
firm’s profitability. A restructuring plan was indeed
submitted here, but the Commission must now consider
whether that plan was such as to return the firm to
profitability.

(35) Moreover, the Commission’s approval of the scheme
relates solely to minority holdings.
In the case of
majority holdings individual notification is required.
Germany has failed to comply with this obligation under
Article 88(3) of the EC Treaty, and the aid is therefore
unlawful on formal grounds. It remains to be seen
whether it is compatible with the common market.

3.1.2.2. Measures taken by TAB

Measure E

(36) The Commission was first informed in May 1997 of the
waiver of
the repayment of the operating loan of
DEM 1,5 billion, which was fully guaranteed by the Land
of Thuringia. This aid was not granted on the basis of
any scheme, and consequently ought to have been
its
notified. Germany has therefore failed to meet
obligation to notify under Article 88(3) of the EC Treaty,
so that the aid is unlawful on formal grounds, and must
be assessed for compatibility with the common market
as a one-off restructuring measure.

Measures F and G

(37)

In 1996 TAB granted a 65 % guarantee on the following
loans, totalling DEM 9 million:

(a)

(b)

(c)

(d)

a KfW/ERP loan of DEM 2 million at an interest
rate of 5 % and with a term of 15 years (up to
30 June 2011);

a KfW loan of DEM 1 million at an interest rate of
5,9 % and with a term of 15 years;

a loan of DEM 1 million from Zeuro’s main bank,
Dresdner Bank, at an interest rate of 5,9 % and with
a term of 10 years (up to 30 June 2006);

an operating credit line of DEM 5 million at an
interest rate of 6,75 % and with a term of 15 years;
this can be used for discounts, guarantees, letters of
credit and cash subsidies.

(38) The KfW/ERP loan and the KfW loan were State loans,
and they were granted to a firm in difficulty, so that
the aid intensity is 100 % and the aid amounts to
DEM 3 million (measure F). The Dresdner Bank loan and
credit
line are of private origin, but carry a 65 %
guarantee from TAB. The amount of aid therefore
amounts to DEM 3,9 million (measure G).

(39) The German authorities state that the guarantee was
granted in accordance with the TAB rules on guarantees
(Bürgschaftsrichtlinie), which were notified to the Com-
mission and approved by it on 6 November 1996 (aid
measure N 117/96 (13)). But this guarantee had already
been granted before the Commission authorised TAB’s
guarantee rules as a notified aid measure, so that it
cannot be regarded as covered by that scheme (14).

( 11) N 183/94, SG (94) D/11661.
( 12) SG (99) D/1972, 15.3.1999.

(13) N 117/96, SG (96) D/11696.
(14) See also case No C 36/2000, State aid to Graf von Henneberg

Porzellan GmbH, Ilmenau, Thuringia.

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(40)

In addition, the conditions attached to the scheme were
evidently not complied with. Where, under the rules,
guarantees were to be given to firms in difficulty,
Germany had undertaken to observe the criteria laid
down in the guidelines.

(45) The guarantee given by the BvS to Furnica is a State aid
measure; the Commission accepts that it is within the
terms of the Treuhand scheme of 1992 (16). The BvS’s
waiver of its right of recourse against Zeuro in respect
of the guarantee is not a fresh aid measure.

(41) The TAB guarantee is therefore not covered by the
guarantee rules, and has to be classed as a one-off aid
measure. As Germany did not meet its obligation to
notify under Article 88(3) of the EC Treaty, the aid is
unlawful on formal grounds.

Measures H and I

(42) The 100 % guarantees granted by the Land of Thuringia
on the DEM 5 million and DEM 2,5 million loans were
also granted under TAB’s guarantee rules (15). When the
Commission approved the rules it required Germany to
notify any cases in which there was renewed aid to the
same firm, unless the need for such fresh financing was
due to factors external to the firm. Measures H and I are
renewed measures to overcome repeated difficulties in
the firm, and these difficulties were caused at least in
part by the firm itself, which failed to implement the
restructuring plan. The TAB guarantee ought therefore
to have been notified on an individual basis. It has to be
classed as a one-off aid measure.

3.1.2.3. Measures taken by the BvS

Measures L and K

(43)

In 1993 the BvS granted a guarantee of DEM 6 million
to Furnica GmbH, now Zeuro Möbelwerk GmbH, on
the financing obtained for the purchase price that
Furnica paid to Zeuro Verwaltungs GmbH i.L., which
was owned by the BvS. A DEM 6 million loan was
provided by Deutsche Bank. Of the DEM 6,25 million
purchase price, however, Zeuro paid only DEM 250 000;
it diverted the remaining funds to cover its losses. In
1995 the purchase price was reduced by DEM 500 000
(measure J). A DEM 5,701 million payment to Zeuro
Verwaltungs GmbH i.L. and a debt of DEM 5,75 million
to Deutsche Bank were still outstanding.

(46) The

of

price

purchase

reduction

by
the
DEM 500 000 constitutes State aid outside the scope of
the Treuhand scheme, because it is neither a loan nor a
guarantee. The 1996 waiver of the claim to rest of the
purchase price, amounting to DEM 5,701 million, is
likewise State aid, and is not covered by any scheme.
Both these sums are therefore to be assessed as one-off
restructuring measures.

3.1.2.4. Holding taken by the Thuringia Consoli-

dation Fund

Measure M

(47) A holding of DEM 5 million was taken by the Thuringia
Consolidation Fund; the Commission has initiated pro-
ceedings against the Consolidation Fund scheme (aid
measure NN 74/95) (17) on the ground that it is not
being properly applied. The Commission has not yet
decided whether or not the scheme is compatible. But in
any event there is evidence that in Zeuro’s case the
conditions which the Commission attached when it
originally approved the scheme have not been complied
with.

(48) The Commission approved the scheme on condition
that financing would be available from the Consolidation
Fund only where a restructuring plan was submitted
which would restore the profitability of the firm. This
means that in order to establish whether or not a
measure is within the terms of the scheme an assessment
has to be made of the restructuring plan. The scheme
does not allow continued financing and restructuring.

(49) The holding taken by the Thuringia Consolidation Fund
cannot be regarded as authorised aid, and is therefore
subject to the obligation to notify. Only a part of the aid
has
to
DEM 1,6 million.

so far been paid

amounts

out;

this

3.1.2.5.

Investment grants

Measures N and O

(44)

the payment of

In 1996 the BvS took over
the
DEM 5,75 million to Deutsche Bank (measure L), waived
its right of recourse against Zeuro in respect of the
guarantee, and instructed Zeuro Verwaltungs GmbH i.L.
to waive its claim to the rest of the (unpaid) purchase
price, that is to say DEM 5,701 million (measure K).

(50) The firm received a grant under the twenty-fifth outline
plan of the joint Federal Government/Länder scheme for
improving regional economic structures (aid measure
N 186/96), a scheme that was notified to the Com-
mission and approved by it. The grant was in accordance
with the authorised scheme.

( 15) N 117/96, SG (96) D/11696.

(16) Aid scheme E 15/92.
(17) NN 74/95, SG (96) D/1946.

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(51) The firm also received a grant under the Investment
Allowance Act (aid measure N 49A/95). This scheme has
also been notified to and approved by the Commission.

3.1.2.9. SME grant (measure R)

(52) The investment grants given under these two schemes
total DEM 4,65 million. Further investment grants of
DEM 450 000 are planned but have not yet been
granted. They are likewise in accordance with the
Investment Allowance Act scheme.

3.1.2.6. Grants for staff costs (measure Q)

(53) The Commission has not been informed of the legal
basis for these grants, which amount to DEM 671 839.
They have therefore to be treated as one-off measures.

3.1.2.7. Grant for sales promotion/trade fairs from
the Thuringia Trade Fair Promotion Pro-
gramme (measure S)

According to the German authorities this aid was
granted under the de minimis rule (18). In order to fall
within the de minimis rule the total amount of aid over a
period of three years from the date on which the first
such aid is granted must not exceed EUR 100 000. This
ceiling applies to all aid granted under the de minimis rule;
it does not prevent the recipient firm from qualifying for
aid under other schemes approved by the Commission.
The grant given by the Thuringia Trade Fair Promotion
Programme, at DEM 111 000 (measure S), is below the
de minimis threshold. According to the information
the
supplied by the German authorities,
requirements of the de minimis rule are met, and the
measure is accordingly within the scope of the rule.

therefore,

3.1.2.8. AIF grants (measure P)

(54) The Commission has not been informed of the legal
basis for this grant, which amounts to DEM 900 000.
The grant has therefore to be treated as a one-off
measure.

(55) No information has been supplied on this grant, which
amounts to DEM 3 million. It has therefore to be treated
as a one-off aid measure.

3.2.

EXEMPTIONS

(56) The Commission has to examine whether the content of
the aid measures is compatible with the common
market, and whether the exemptions provided for in
Article 87(2) and (3) of the EC Treaty apply in the
present case.

(57) The Commission notes that Article 87(2) and (3)(b), (d)
and (e) are quite clearly not relevant here, and indeed
have not been invoked by Germany.

(58) The

other

possible

exemptions

in
Article 87(3)(a) and (c) of the EC Treaty. The Commission
takes the view that the guidelines on State aid for
research and development, environmental protection,
SMEs, employment or training are not applicable here.

those

are

(59) Zeuro is located in a region which is eligible for aid
under Article 87(3)(a) of the EC Treaty because the
standard of living there is abnormally low and there is
serious underemployment: the unemployment rate is
17,9 %, compared with the Community average of
10,8 %. Nevertheless, the Commission takes the view
that in the present case Article 87(3)(c) has to be
considered, because the main purpose of the aid was not
to promote the development of a disadvantaged region
but rather to restore a firm in difficulty to profitability.
Under Article 87(3)(c) the Commission can authorise
State aid to facilitate the development of certain econ-
omic activities provided the aid does not adversely affect
trading conditions to an extent contrary to the common
interest. In view of Zeuro’s past losses it may be held to
constitute a firm in difficulty within the meaning of the
Community guidelines on State aid for rescuing and
restructuring firms in difficulty.

(60) Restructuring aid is authorised only if the tests set out in

the guidelines are satisfied:

( 18) Commission notice on the de minimis rule for State aid, (OJ C 68,

6.3.1996, p. 9).

(a)

the restructuring must
restore the long-term
viability of the firm (point 3.2.2.i of the guidelines).

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(b)

there must be no undue distortions of competition
(point 3.2.2.ii);

only if a restructuring plan which restores the
firm to profitability is implemented in full.

— the volume and intensity of the aid must be
confined to the strict minimum necessary, and
the costs may not be greater than the benefits
(point 3.2.2.iii),

— aid of the kind at issue here may be granted

3.2.1. RESTORATION OF VIABILITY

(61) Zeuro’s restructuring plan must be so designed that it
can reasonably be expected to restore the firm’s long-
term profitability and viability within a reasonable time.
As a rule restructuring aid may be granted only once.

(62) The restructuring measures taken were those described in recital 16. According to the German
authorities they could be expected to restore Zeuro’s viability. The financial forecast was as follows:

1997

1998

1999

DEM

Turnover

34 388 000

37 827 000

38 500 000

Cost of materials

16 851 000

18 165 000

18 519 000

Staff costs

9 084 000

9 084 000

9 324 000

Operating result

18 000

444 000

Annual profit or loss

1 182 000

444 000

480 000

(63) When the Commission initiated the proceedings it had doubts as to whether the timescale provided
for in the restructuring plan was reasonable, given that the restructuring operation began in
1994/95. The Commission pointed out that the steps being taken to rescue Zeuro did not constitute
a one-off operation, as the measures envisaged under the first restructuring plan had not been fully
implemented, and new ones had been added. The measures that had been undertaken in 1994/95
had not guaranteed the firm’s long-term viability; indeed they had made the situation even worse.

(64) The Commission also doubted whether the restructuring plan was based on realistic assumptions.
Most of the measures were at the planning stage, and it might not be possible to implement all of
them. Moreover, the new restructuring plan had not been made dependent on a new investor being
found.

(65) After the proceedings had been initiated the German authorities put forward their view of the
matter. They said that fundamentally speaking the initial plan still held; since 1996 the new
management had been seeking to correct deviations and to implement the original strategy.

(66) One of the key points in the restructuring plan had been the reduction and adaptation of the
product range. As a result of the measures taken in this respect the costs of materials had been
reduced. The planned reduction in staff was going ahead too, despite the substantial costs incurred
as a result of social legislation. In transport costs, expenses had been reduced from 11 % to 7 %.
Zeuro’s management was convinced that the poor turnover figures for 1998 would recover thanks
to the products exhibited at the furniture fair in September and October 1997. The German
authorities concluded that a new restructuring plan would not be necessary. The original plan had
been adjusted and implemented in full.

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(67) The German authorities said that TIB had made further efforts to find a new investor. But the
success of the restructuring plan did not hinge on whether or not an investor was found. Zeuro
itself believed that its prospects of stabilisation and long-term viability were good.

(68) The guidelines state that a restructuring plan must allow for the foreseeable movement of supply
and demand on the relevant product market. The Commission takes the view that Zeuro’s
restructuring plan is not based on realistic assumptions. This is true especially of the sales figures.
The Commission considers that the restructuring plan cannot restore the firm to profitability,
because it does not comprise any sufficiently precise market analysis. The German authorities have
argued that Zeuro has been prevented from increasing its sales as it had planned by the difficult
situation on the furniture market; but this argument is unsound, because the restructuring plan
took no account of foreseeable market developments, and sales remained far behind the forecast
figures.

1997

1998

1999

(DEM)

Sales

22 500 000 (19)

23 800 000 (20)

24 000 000

(19) Figures supplied by the German authorities.
(20) Dunn & Bradstreet Report.

(69)

Prospects for growth in the furniture industry were not
at all bad once the industry had recovered from the
recession in the middle of the 1990s. The fact that Zeuro
was unable to take advantage of
this development
to increase its sales confirms the Commission in its
assessment of the restructuring plan.

(73) The furniture industry was not suffering from overcapa-
city, so that there was no obligation to reduce capacity.
Zeuro did not in fact increase capacity, but instead
reduced it until the end of 1997, as provided in the plan.

(70) The Commission also takes the view that participation
by a private investor is an essential component of the
restructuring plan. Despite its efforts TIB has failed to
find an investor prepared to commit himself financially
to Zeuro;
in the Commission’s view this is further
proof of the rightness of its own assessment of the
restructuring plan. Despite a five-year search, and an
encouraging trend on the furniture market, no private
investor has been found who shares the German auth-
orities’ estimate of the viability of the restructuring plan:
so far nobody has been prepared to bear the financial
risk associated with the restructuring operation.

(71) The Commission concludes that the requirement that

long-term viability be restored is not met.

(74) When the Commission initiated proceedings, however,
it expressed the doubt that the measures might be
causing undue distortion of trade. The investigation of
the firm’s problems showed that the former investor had
sold goods below cost, and that the current management
was having difficulty negotiating new terms for some of
these contractual obligations. The Commission asked
interested third parties for their observations. No such
observations were received.

(75) The German authorities stated that no sales were taking
place at prices below production cost, but did not
comment on the conduct of the previous investor. The
Commission cannot rule out the possibility, therefore,
that there has been undue distortion of competition.
Thus the second requirement of the guidelines is not
met either.

3.2.2. DISTORTIONS OF COMPETITION

3.2.3. AID IN PROPORTION TO THE COSTS AND BENEFITS

OF RESTRUCTURING

(72) The restructuring of Zeuro must be accompanied by
measures which as far as possible prevent adverse effects
on competitors; otherwise the aid would be contrary to
the common interest and would not qualify for exemp-
tion under Article 87(3)(c) of the EC Treaty.

(76) The amount and intensity of the aid must be limited to
the strict minimum needed to enable restructuring to be
undertaken and must be related to the benefits antici-
pated from the Community’s point of view.

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(77)

For this reason,
the investor is required to make a
contribution to the restructuring process from his own
resources.

(78) The former investor injected only DEM 2,58 million
into the company, and of that figure DEM 2 million
came out of public funds. The investor was thus
contributing DEM 580 000 of his own; there was also
DEM 2,1 million in private loans not carrying a State
guarantee. The private contribution to the restructuring,
therefore, amounts to DEM 2,68 million. All the other
funding, amounting to DEM 49,475 million, was pro-
vided by the German authorities; this figure includes
only the aid granted to the firm itself. The investor’s
share of the restructuring costs amounted to just 5 %.

(79) Despite TIB’s efforts no fresh investor has so far been
found, so that TIB continues to hold the entire share
capital.

(80) Thus the amount of

the aid bears no reasonable
relation to the contribution made by the recipient. The
requirement that the aid be in reasonable relation to the
costs and benefits of restructuring is not satisfied.

4. CONCLUSIONS

(81) The aid to the investor in the form of an equity assistance
loan of DEM 2 million is not within the terms of the
equity assistance scheme for the new Länder, State aid
measure N 510/95, because the restructuring plan was
not such as to restore the firm to viability. The aid has
therefore to be treated as a one-off aid measure. As the
requirements of the guidelines have not been complied
with, the tests of Article 87(3)(c) are not satisfied. The
equity assistance loan of DEM 2 million to Mr Wohlfahrt
is therefore incompatible with the common market
within the meaning of Article 87(1).

(82) The shareholder loan of DEM 5 million granted by TIB
to Zeuro and the increase of DEM 2,5 million in Zeuro’s
nominal capital contributed by TIB are not within
the terms of State aid scheme No 183/94, and have
consequently to be treated as restructuring aid. As the
requirements of the guidelines have not been complied
with, the tests of Article 87(3)(c) are not satisfied. The
shareholder loan of DEM 5 million and the capital
increase of DEM 2,5 million are therefore incompatible
with the common market within the meaning of
Article 87(1).

(83) TAB’s waiver of the repayment of the operating loan of
DEM 1,5 million, wholly guaranteed by the Land of
Thuringia, is not within the terms of any aid scheme,
and must accordingly be classed as a one-off aid measure.
As the requirements of the guidelines have not been
complied with, the tests of Article 87(3)(c) are not
satisfied. TAB’s waiver of the repayment of the operating
loan of DEM 1,5 million wholly guaranteed by the Land
of Thuringia is therefore incompatible with the common
market within the meaning of Article 87(1).

(84) The KfW/ERP loan of DEM 2 million and the KfW loan
of DEM 1 million likewise constitute restructuring aid.
As the requirements of the guidelines have not been
complied with, the tests of Article 87(3)(c) are not
satisfied. The KfW/ERP loan of DEM 2 million and the
KfW loan of DEM 1 million are therefore incompatible
with the common market within the meaning of
Article 87(1).

(85) The 65 % guarantee on loans totalling DEM 9 million is
not within the terms of aid measure N 117/96. The
guarantee covers 65 % of the KfW loan and the KfW/
ERP loan, both of which are incompatible with the
common market, and likewise 65 % of loans of private
origin amounting to DEM 6 million. The public loans
and the guarantee together comprise State aid of
DEM 6,9 million. This aid has to be assessed as
restructuring aid. As the requirements of the guidelines
have not been complied with, the tests of Article 87(3)(c)
are not satisfied. The 65 % guarantee on loans totalling
DEM 9 million is therefore incompatible with the
common market within the meaning of Article 87(1).

(86) The waiver by Zeuro-Verwaltungs GmbH i.L. of its
DEM 5,701 million claim to the purchase price and the
reduction of the purchase price by DEM 500 000 have
been classed as one-off restructuring aid. The criteria in
the guidelines have not been met, and the aid is
consequently incompatible with the common market.
As the requirements of the guidelines have not been
complied with, the tests of Article 87(3)(c) are not
satisfied. The waiver by Zeuro-Verwaltungs GmbH i.L.
of its purchase price claim of DEM 5,701 million and
the reduction of the purchase price by DEM 500 000 are
therefore incompatible with the common market within
the meaning of Article 87(1).

(87) The BvS’s waiver of its right of recourse in respect of a
guarantee of DEM 5,7 million is within the terms of the
Treuhand scheme of 1992.

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(88) The holding of DEM 5 million taken by the Thuringia
Consolidation Fund, of which DEM 1,6 million has been
paid up, is not within the terms of State aid measure
NN 74/95. As the requirements of the guidelines have
not been met,
the tests of Article 87(3)(c) are not
satisfied. The holding of DEM 5 million taken by
Thuringia Consolidation
Fund, of which DEM
1,6 million has been paid up, is therefore incompatible
with the common market within the meaning of
Article 87(1).

(96) The aid of DEM 35,114 million granted by Germany to
Zeuro in various forms must be recovered in accordance
with the requirements and procedures of German law,

HAS ADOPTED THIS DECISION:

(89) The investment grants of DEM 4,65 million already paid
out and the investment grants of DEM 450 000 not yet
paid out were granted under arrangements which the
Commission has authorised, and are therefore covered
by that authorisation.

1.
The State aid of DEM 2 million granted by Germany to
the investor Mr Wohlfahrt is incompatible with the common
market.

Article 1

(90) The grants for staff costs of DEM 13 000 are one-off
restructuring measures. As the requirements of
the
guidelines have not been complied with, the tests of
Article 87(3)(c) are not satisfied. The grants for staff
costs of DEM 13 000 are therefore incompatible with
the common market within the meaning of Article 87(1).

(91) The grant of DEM 111 000 from the Thuringia Trade
Fair Promotion Programme is covered by the de minimis
rule.

(92) The AIF grant of DEM 900 000 is a one-off aid measure.
As the requirements of the guidelines have not been
complied with, the tests of Article 87(3)(c) are not
satisfied. The AIF grant of DEM 900 000 is therefore
incompatible with the common market.

(93) The SME grant of DEM 3 million is a one-off aid
measure. As the requirements of the guidelines have not
been complied with, the tests of Article 87(3)(c) are not
satisfied. The SME grant of DEM 3 million is therefore
incompatible with the common market.

(94) The measures classed here as restructuring aid cannot be
authorised as such because they do not ensure the long-
term viability of the firm; and for the same reason they
cannot make any contribution to regional development.
Thus
they do not qualify for exemption under
Article 87(3)(a) either.

The following State aid granted by Germany to Zeuro
totalling DEM

2.
Möbelwerk GmbH, Thuringia
35,114 million, is incompatible with the common market:

(Zeuro),

(a)

the TIB shareholder loan of DEM 1 million;

(b)

(c)

(d)

(e)

(f)

the waiver by TIB of the repayment of a shareholder loan
of DEM 4 million;

the increase of DEM 2,5 million in the nominal capital of
Zeuro carried out by TIB;

the waiver by TAB of the repayment of an operating loan
of DEM 1,5 million previously granted;

the public loans granted by KfW, amounting to
DEM 3 million;

the 65 % guarantee given by TAB on private loans
amounting to DEM 3,9 million;

(g)

the TAB loan of DEM 5 million;

(h)

the TAB loan of DEM 2,5 million, wholly guaranteed by
the Land;

(i)

(j)

the BvS’s
DEM 500 000;

reduction of

the purchase price

by

the waiver by the BvS of the remainder of the purchase
price, amounting to DEM 5,701 million;

(k)

the paid-up portion, amounting to DEM 1,6 million, of a
holding taken by the Thuringia Consolidation Fund;

(95) The Commission observes that Germany inadmissibly
granted the aid in breach of Article 88(3). The aid of
DEM 2 million granted by Germany to Mr Wohlfahrt in
the form of an equity assistance loan must be recovered
by Germany in accordance with the requirements and
procedures of German law.

(l)

the AIF grants amounting to DEM 900 000;

(m)

the grants towards staff costs of DEM 13 000; and

(n)

the SME loans of DEM 3 million.

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3.
The State aid of DEM 3,5 million which Germany intends
to grant in the form of the portion of the holding taken by the
Thuringia Consolidation Fund which has not yet been paid up
is incompatible with the common market.

Article 3

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

Article 2

1.
Germany shall take all necessary measures to recover
from the recipients the aid referred to in Article 1(1) and (2)
and unlawfully made available to them.

2.
Recovery shall be effected in accordance with the
law. The aid to be recovered shall
procedures of national
include interest from the date on which it was at the disposal
of the recipients until the date of its recovery. Interest shall be
calculated on the basis of the reference rate used for calculating
the grant equivalent of regional aid.

Article 4

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 21 December 2000.

For the Commission

Mario MONTI

Member of the Commission