2002/71/EC: Commission Decision of 3 July 2001 on the State aid implemented by Germany for KHK Verbindetechnik GmbH Brotterode (Text with EEA relevance) (notified under document number C(2001) 1781)
Date: 2001-07-03
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, aid to undertakings, metallurgical industry

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COMMISSION

COMMISSION DECISION

of 3 July 2001

on the State aid implemented by Germany for KHK Verbindetechnik GmbH Brotterode

(notified under document number C(2001) 1781)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/71/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

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
pursuant to the provisions cited above (1) and having regard to
their comments,

Whereas:

The Commission received comments from interested
parties. It forwarded them to Germany, which was given
the opportunity to react.

II. DETAILED DESCRIPTION OF THE AID

1. The company

I. PROCEDURE

(1)

(2)

(3)

from Germany dated 14 June 1999,

By letter
the
Commission was informed that Germany had imple-
mented aid for KHK Verbindetechnik GmbH Brotterode
(‘KHK’). By letters dated 8 October 1999, 20 December
1999, 13 January 2000, 27 March 2000 and 3 July
2000, Germany provided the Commission with further
information.

By letter dated 17 October 2000,
the Commission
informed Germany that it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty in
respect of the aid.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties. (2) The Commission invited interested parties to
submit their comments on the aid.

(1) OJ C 27, 27.1.2001, p. 30.
(2) See footnote 1.

(5)

(6)

The company was established in 1996, when the
receiver sold the assets of a company in bankruptcy,
Metallverarbeitung Brotterode GmbH (‘MVB’) (3).

The bankruptcy proceedings in respect of MVB were
effectively opened on 1 July 1996. The
receiver
continued production while seeking a new investor.
Negotiations were entered into with six candidates.
Finally, only one of them — comprising four private
persons, three of them employed by MVB — was chosen
as the best bidder. These private investors founded the
new company KHK Verbindetechnik GmbH Brotterode
(KHK). KHK acquired some of MVB's production facili-
ties by means of an asset deal. MVB's assets, in particular
the necessary buildings and machinery, were sold to
KHK by the receiver for DEM 1,2 million.

(3) In the Commission decision initiating the formal

investigation
procedure, it is stated in paragraph 3 that the aid linked to the first
privatisation is compatible with the common market since it comp-
lied with the Treuhand regimes and aid schemes approved by the
Commission. Therefore, only aid linked to the second privatisation
is assessed in the decision. See footnote 1.

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(7)

The company is situated in Brotterode, Thuringia, which
is an assisted area within the meaning of Article 87(3)(a)
of the EC Treaty. KHK is a small to medium-sized enter-
prise (SME) active in the manufacture of
radiator
supports, step irons used for climbing masts and ball-
transporting prefabricated
ended anchors used for
concrete units.

Item

Price

Purchase price for the assets out of the
bankruptcy

DEM 1 222 000

Investments

DEM 419 000

Inventory build-up

DEM 350 000

2. The restructuring

Liquidity during start-up period

DEM 300 000

(8)

The restructuring plan consists of the following:

Total

DEM 2 291 000

(a) concentration of activities in one location;

(b) modernisation of the production plant;

(c) automation of the production process;

(13)

The public funding for the project is as follows:

Recources from the joint federal/Länder
programme (approved scheme) (1)

DEM 344 000

(d) substantial reduction in the number of employees;

Investment
scheme) (2)

allowances

(approved

DEM 39 000

(e) reduction of the product range and limitation to

SME programme (3)

DEM 140 000

products generating a positive cash flow;

(f) development of a new product line.

(9)

(10)

five
separate production sites
MVB consisted of
dispersed throughout
the town of Brotterode. KHK
bought one of the existing production halls together
with the adjoining land. Production facilities were trans-
ferred to the single production site. KHK invested in
automating the various production lines. Production was
computerised. Subsequent transformation works created
an energy supply separate from the other parts of MVB,
together with a separate heating system.

KHK has successfully continued two product lines out of
the three originally taken over from MVB: radiator
supports and step irons. The product line of pneumatic
tools was discontinued. In 1998 KHK introduced the
production of ball-ended anchors used for transporting
prefabricated concrete units. The company sells its entire
output to German wholesale customers.

(11) When it was declared bankrupt in 1996, MVB employed
48 people and had a turnover of DEM 3,515 million.
KHK employed 18 people when it started up in 1996. In
2000 27 people were employed and, with a balance
sheet totalling DEM 180 000, KHK achieved a turnover
of DEM 4,6 million.

(12)

The restructuring period was notified as being 1996 to
1999 and the total cost of
the restructuring plan
DEM 2,291 million.

Subsidy for personnel costs (4)

DEM 130 000

Conditionally repayable BvS (Bundes-
anstalt für vereinigungsbedingte Sonder-
aufgaben) loan

DEM 960 000

Total

DEM 1 613 000

(1) Twenty-sixth framework plan, State aid N 123/97, Commission
authorisation of 30 July 1997 (joint federal/Länder programme).

(2) Special tax depreciation 1997 to 1999, State aid NN 47/94.
(3) SME programme for Thuringia, State aid N 480/94.
(4) Under Section 10 of the Social code (Sozialgesetzbuch) III, approved by
the Commission on 8 December 1997, State aid NN 107/97.

(14)

The investor contribution as notified to the Commission
is as follows:

Paid-in capital upon incorporation of
KHK

DEM 50 000

Current-account credit
bank)

facility (private

DEM 213 000

Investment loan (private bank) (1)

DEM 415 000

Total

DEM 678 000

(1) Investment loan from Deutsche Bank, 100% refinanced by the Kredit-
anstalt
its ERP reconstruction
programme, State aid N 563/c/94, approved by the Commission on 1
December 1994.

für Wiederaufbau (KfW) under

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(15) With the DEM 960 000 loan KHK bought MVB's assets.
Subsequently, a private bank granted the company a
DEM 213 000 current-account credit
facility (with a
ceiling of DEM 300 000) and a DEM 415 000 invest-
ment loan. Both credit lines are backed by the same
the
collateral, namely the personal guarantee of
investors, a mortgage on the premises of the company
amounting to DEM 715 000, a transfer of
title on
machines, installations and inventory, and a transfer of
accounts receivable on clients. The investment loan is
also secured up to 80 % (DEM 332 000) by a public
deficiency guarantee by the Bürgschaftsbank Thür-
ingen (4) and 100 % refinanced by the Kreditanstalt für
Wiederaufbau (KfW) under an approved ERP reconstruc-
tion programme scheme (5).

total of DEM 180 000. Without

than expected, with a turnover of DEM 4,6 million and
a balance-sheet
the
financial support from the BvS and the Land of Thur-
ingia, however, it would not have been possible to estab-
lish the company and consequently all jobs would have
been lost. The company's shareholders were committed
to carrying on the activities successfully and had also
committed themselves financially by providing personal
guarantees for the company.

IV. COMMENTS FROM GERMANY

(16)

(17)

(18)

In its decision opening the procedure, the Commission
doubted whether the DEM 415 000 investment
loan
could be considered in full as an investor contribution
within the meaning of the Community guidelines on
State aid for rescuing and restructuring firms in diffi-
culty (6) (‘the guidelines’) since it was secured, in addition
to the collateral provided by the investor/company, by a
amount
public
(DEM 332 000). It was also noted that the loan was
refinanced by the KfW under its ERP programme, an aid
scheme approved by the Commission, and that
the
company assets used as collateral for the loans were
acquired mainly through the State aid received.

guarantee

80 %

the

of

of

In addition, the Commission also doubted whether the
DEM 213 000 current-account
facility was
granted under market conditions and could therefore be
considered an investor contribution within the meaning
of the guidelines since it was secured by assets bought
with State aid.

credit

For the reasons set out above, the Commission had
doubts whether the investor contribution to the restruc-
turing could be
considered significant within the
meaning of the guidelines and hence whether the aid
could be regarded as being in proportion to the restruc-
turing costs and benefits.

III. COMMENTS FROM INTERESTED PARTIES

(19)

The Commission received comments from KHK, which
stressed that the restructuring plan had been fully carried
out and that the company's results in 2000 were better

(4) Bürgschaftsrichtlinie Aufbaubank Thüringen, State aid N 117/96,

approved by the Commission on 27 December 1996.

(5) Investment

loan from Deutsche Bank, 100% refinanced by the
Kreditanstalt für Wiederaufbau (KfW) under its ERP reconstruction
programme, State aid N 563/c/94, approved by the Commission on
1 December 1994.

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

for

(20) Germany stated that the Commission's doubts about the
two credit lines were based on the fact that the company
assets used as collateral
the loans had been
purchased at least partly with the aid granted to KHK.
According to Germany, the Commission concluded that
using the assets purchased by State aid as collateral for a
loan from a commercial bank had the effect that the
loan contained aid elements as well. This would lead to
inadmissible double counting of the aid, resulting in
inadmissibility of the conclusion itself. For example, the
BvS loan would be considered once as ad hoc aid with a
100 % aid intensity and once as an aid element
contained in the commercial

loan.

conclusion,

irrespective of the inadmissi-
(21) According to Germany,
the
the above
bility or otherwise of
Commission should in such a case also define the
amount of the aid element. It would be virtually impos-
sible to determine what proportion of
the financial
resources used for buying the assets employed as collat-
eral stemmed from State aid. There was no formula that
would help to quantify the possible aid element in the
loan and so this did not lead to a practicable solution.

(22) Germany stressed that the Commission's conclusion did
not take into account the fact that the objective, and
very essence of the aid, was to enable the beneficiary to
take part in commercial business under market condi-
tions. The continued existence of
the aid in the
economic development of the company was therefore
inherent
in the aid in question. The Commission's
conclusion would result in a situation where the aid
intensity would be increased by every economic event
that could somehow be related to the originally granted
aid.

(23) Moreover, Germany stressed that

the Commission
should also take into account the fact that the loans
were also secured by the personal guarantee of
the
investors, a transfer of title on inventory and a transfer
Therefore
of

receivable

accounts

clients.

on

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the purchasing of assets with aid should not lead to a
finding that
loans secured by these assets contained
further aid elements.

(24) As

regards

the DEM 415 000 investment

loan,
Germany stated that,
in its opinion, the aid element
contained in this loan amounted at most to the 80 % of
i.e. DEM 332 000.
the loan guaranteed by the Land,

(25) As regards the DEM 213 000 operating loan, Germany
stated that Deutsche Bank AG was a private bank and
the loan had been granted under market conditions. It
should therefore be considered an investor contribution
in accordance with the Commission's practice. Germany
pointed out that the maximum amount of the credit line
was DEM 300 000, the interest rate was 9 % and the
loan was secured by the personal guarantee of
the
investors (DEM 417 000), a mortgage on the company's
premises
title on
machines, installations and inventory, and a transfer of
accounts receivable on clients. According to Germany,
these conditions corresponded to market conditions.

(DEM 715 000),

transfer of

a

(26)

(27)

the

In addition, Germany explained that the credit line of at
most DEM 300 000 granted to KHK by Deutsche Bank
should be considered an investor contribution in its
entirety. So far,
company had drawn only
DEM 213 000, but it could not be ruled out that the
company might need to resort
to the remaining
DEM 87 000 owing to unexpected liquidity needs. The
full amount of DEM 300 000 was in any case available
to the company. The total amount of the restructuring
costs for the company should therefore be considered to
be DEM 2,378 million.

The final point raised by Germany in its comments
related to the size of
the company and the area
concerned. Germany stressed that KHK was an SME and
a management buy-out by former employees of
the
company. The company was situated in an assisted area
within the meaning of Article 87(3)(a) of the EC Treaty
characterised by high unemployment. The investment in
KHK permanently secured 24 jobs in the region and
thereby contributed to its economic development.

(30)

(31)

(32)

distort competition by favouring certain undertakings or
the production of certain goods is, in so far as it affects
trade between Member States,
incompatible with the
common market. According to the established case-law
of the Court of Justice and the Court of First Instance of
the European Communities, the criterion of trade being
affected is met
firm carries out an
the recipient
economic activity involving trade between Member
States.

if

(29)

resources

The Commission notes that the notified aid is being
granted through State
to an individual
company, thereby favouring it by reducing the costs it
would normally have to bear if it wanted to carry out
the notified restructuring project. Moreover, the reci-
pient of the aid, KHK, produces metal components that
are subject to trade between Member States. The aid in
question therefore falls within the scope of Article 87(1)
of the EC Treaty.

1. Restructuring aid

The notified project is concerned with restructuring the
company in line with the restructuring plan submitted
by the investors. The Commission notes that restruc-
firms in difficulty must be assessed
turing aid for
pursuant to the guidelines.

in order to make the
The Commission notes that,
restructuring possible, the newly incorporated company
KHK took over assets from MVB. The assets of MVB
were sold under an open bidding procedure governed by
the rules of German insolvency law. From the informa-
tion provided in the notification, the Commission can
conclude that the assets of MVB were sold to the highest
bidder at their market price.

In general, a newly founded company cannot be consid-
ered a company in difficulty. However, on account of
the exceptional
in the new
Länder, the Commission has agreed to apply the guide-
lines
(arrangements whereby
companies are offered a new chance) provided that the
operation is not a mere sale of individual assets and that

transformation process

to ‘Auffanglösungen’ (7)

V. ASSESSMENT OF THE AID

(28)

Pursuant to Article 87(1) of the EC Treaty, any aid
granted by a Member State or through State resources in
any form whatsoever which distorts or threatens to

(7) See approvals by the Commission dated 16 April 1997 and 30
April 1997: State aid N 874/96 and NN 139/96 in favour of
UNION Werkzeugmaschinen GmbH — letter D/3428 dated 2 May
1997; State aid N 892/96 in favour of FORON Haus- und Küchen-
technik GmbH — letter D/4047 dated 28 May 1997. This approach
is now confirmed by point 7,
the Community
guidelines on State aid for rescuing and restructuring firms in diffi-
culty (OJ C 288, 9.10.1999, p. 2): ‘The only exceptions of this rule
are any cases dealt with by the Bundesanstalt für vereinigungsbedingte
Sonderaufgaben in the context of
its privatisation remit and other
similar cases in the new Länder, involving companies emerging from
a liquidation or a take-over of assets occurring up to 31 December
1999.’

footnote 10, of

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the activity of the company in bankruptcy is continued.
Applying the guidelines to such companies can be justi-
fied in the light of the problems in the new Länder in
general and of the company in particular.

(33)

KHK is situated in the new Länder. The sale comprised all
assets of the former MVB, which were necessary for the
production lines taken over. The financially viable activi-
ties of MVB were continued. Consequently, the asset deal
constitutes a genuine ‘Auffanglösung’ and the measures in
favour of KHK can be regarded as restructuring aid.

(37) According to the guidelines the aid must be in propor-
tion to the restructuring costs and benefits. Point
3.2.2(iii) of the guidelines stipulates that the aid needs to
be limited to the strict minimum needed to enable
restructuring to be undertaken and must be related to
the benefits anticipated from the Community's point of
view. Aid beneficiaries should make a significant contri-
bution of their own to the restructuring plan.

(38)

the two credit

In the Commission decision opening the procedure, the
Commission doubted whether
lines
granted to the company by Deutsche Bank could be
considered an investor contribution since they were
secured by assets bought with State aid. Therefore, the
Commission had doubts as to whether the investor
contribution could be considered significant within the
meaning of the guidelines.

(34)

The Commission notes that on 9 October 1999 new
Community guidelines on State aid for rescuing and
restructuring firms in difficulty entered into force (8).
According to point 101 of
the
Commission examines the compatibility of non-notified
aid on the basis of the new guidelines if some or all of
the aid is granted after their publication and on the basis
of the guidelines in force at the time the aid is granted in
all other cases. Since all aid in the present case was
granted before the new guidelines entered into force, the
aid is assessed in the light of the 1994 guidelines (9).

these guidelines,

(35) According to the guidelines, the Commission considers
that rescue and restructuring aid may contribute to the
development of economic activities without adversely
affecting trade to an extent contrary to the common
interest within the meaning of Article 87(3)(c) of the
Treaty if the conditions laid down in the guidelines are
met.

(39)

(40)

(36)

of

the

that,

total

notes

The Commission
of
DEM 1 643 000 of public contributions notified for the
second restructuring, DEM 653 000 is aid granted on
the basis of approved schemes. Therefore, this aid is
considered to be existing aid within the meaning of
Article 1(b)(ii) 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 (10), and its
compatibility with the common market does not there-
fore need to be assessed by the Commission in this
decision. However, the DEM 653 000 of existing aid is
taken into account in assessing the proportionality of
the aid pursuant to point 3.2.2(iii) of the guidelines.

(8) OJ C 288, 9.10.1999, p. 2.
(9) See footnote 6.
(10) OJ L 83, 27.3.1999, p. 1.

2. Investment loan of DEM 415 000

In the decision opening the procedure, doubts were
raised as to whether the DEM 415 000 investment loan
could be considered an investor contribution since it
was secured, in addition to the collateral provided by the
investor/company, (11) by a public deficiency guarantee
of 80 % of the amount (DEM 332 000). In addition, the
loan was refinanced under an approved aid programme.

an approved guarantee

The Commission notes that the public guarantee was
scheme (12).
granted under
According to the provisions of this scheme, guarantees
to companies in difficulties can reach an aid intensity of
100 %. It is noted that, in its comments on the opening
of the procedure, Germany changed its position as set
out in the notification by stating that the aid element of
the loan in question amounted to a maximum of 80 %
of
i.e. DEM 332 000. Germany
counted only the remaining DEM 83 000 as an investor
contribution.

the loan amount,

(41)

In view of this and given the fact that KHK was a
company in difficulties when the loan was granted and
the public guarantee was required by the bank granting
the loan, the Commission is of the opinion that the
public guarantee of 80 % of the loan, representing an
amount of DEM 332 000,

is to be regarded as aid.

(11) Personal guarantee of the investors, mortgage on the premises of
installations and

the company,
inventory, and transfer of accounts receivable on clients.

title on machines,

transfer of

(12) Bürgschaftsrichtlinie Aufbaubank Thüringen, N 117/96.

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(42)

(43)

(44)

In addition to the guarantee, it is also noted that, even if
the loan is provided by a private bank, it is refinanced by
the KfW under its ERP reconstruction programme. This
programme is an approved aid scheme. The scheme
provides loans at lower interest rates to individuals for
the takeover of companies provided that the continua-
tion of the companies' activities is thereby ensured and
that the individuals concerned would otherwise not have
the necessary financial resources available.

The Commission notes that the loan was granted for 12
years (1997 to 2009). The interest rate is 5 % per
annum until 31 March 2007. The loan is to be paid
back in equal instalments over the period 2000 to 2009.
It is noted that the reference rate for March 1997 when
the loan was granted was 6,86 %. Since the company
was at the time a company in difficulties and since a
condition of the loan according to the approved scheme
was that no other financing should be available,
it is
assumed that no bank would have been willing to grant
an equivalent loan to the company under market condi-
tions.

For this reason, since comparison with a market rate is
not possible,
the comparison is made between the
granted interest rate of 5 % and the reference rate of
6,86 % + 4 % in accordance with the Commission
notice on the method for setting the reference and
discount rates (13). The difference between these rates,
5,86 %, is considered aid to the company for the 20 %
of the loan not covered by the guarantee. When calcu-
lated for the loan period and discounted to its 1997
value, the aid resulting from the subsidised interest rate
amounts to DEM 24 966.

3. Current-account credit facility of DEM 213 000

(with a ceiling of DEM 300 000)

(45)

In its decision opening the procedure, the Commission
raised doubts as to whether the DEM 213 000 current-
account credit facility was granted under market condi-
tions and could therefore be considered an investor
contribution since it was secured by assets bought with
State aid.

(46)

The Commission notes that, when assessing whether a
loan is granted on market terms, it normally looks at the
conditions of the loan and the situation from the point
of view of the bank granting the loan. Provided that the
bank is a private bank, the interest rate corresponds to

(13) OJ C 273, 9.9.1997, p. 3.

(47)

(48)

(49)

(50)

(51)

market terms, the securities correspond to the normal
practice of the bank and those securities are provided by
the beneficiary of the loan, the Commission concludes
that the loan is granted on market terms.

The Commission notes that companies normally use
their assets/future business income as collateral
for
commercial loans. This is the most common form of
collateral and banks also require it. Without using their
business assets as security, further financing of business
activities,

investments, etc. would not be possible.

The Commission also notes that in previous cases falling
under the guidelines it has approved the use of State aid
for buying the assets of the company in difficulties (14). It
acknowledges Germany's comment that the objective,
and very essence, of the restructuring aid is to enable the
beneficiary to take part in commercial business under
market conditions. It also acknowledges the fact that
companies normally use their assets, claims, etc. as
collateral for continuous commercial financing of their
operations and/or loans needed for further investments.

For these reasons, the Commission considers that the
fact that assets bought with State aid have been used as
collateral for a loan is not sufficient as such to lead to
the conclusion that the loan was not granted under
market
an aid
and therefore
element.

conditions

contains

The Commission notes that, in addition to the real estate
and machinery, the credit is also secured by a transfer of
claims and unsold products to the bank and by a
personal guarantee of the four shareholders. The interest
rate is 9 %. Therefore, there are no indications in the
terms of the credit line that the credit was not granted
under market conditions. Consequently, the Commission
financing within the
considers it
meaning of the guidelines.

to be commercial

In addition, the Commission notes Germany's comment
to the effect that the current-account credit facility with
a ceiling of DEM 300 000 granted to KHK by Deutsche
Bank should be considered an investor contribution in
its entirety since, even if the company has so far drawn
only DEM 213 000 of
amount of
DEM 300 000 is available to the company and was
granted to it by the bank for the liquidity needs of the
restructuring process.

full

the

it,

(14) Sysma Antriebstechnik GmbH (State aid N 220/98), FINOW Rohr-
leitungssystem- und Anlagenbau (State aid NN 3/98), Schiess Wema
GmbH (State aid NN 68/98), Auerbach Maschinenfabrik GmbH
(State aid NN 46/98) and Thüringer Pianoforte GmbH (State aid
N 18/2000).

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(52)

a

the aid.

restructuring

The Commission notes that the notified restructuring
plan provided for
cost of
total
DEM 2 291 000. A restructuring plan must set forth all
the costs of the restructuring and indicate how these
costs are to be allocated between the public authorities
In the notification
and the beneficiary of
containing this allocation, only DEM 213 000 of the
current-account credit line was indicated as an investor
contribution. Given that a change to the restructuring
plan can be considered only under specific circum-
stances and that the restructuring period ended in 1999,
the Commission considers that there are no grounds for
retroactively changing the notified restructuring plan.
Therefore, the total of DEM 2 291 000 is considered to
be the total cost of the restructuring and DEM 213 000
is considered to be the investor contribution consisting
of the current-account credit line from Deutsche Bank
towards the financing of that cost.

4. Proportionality of the aid

(53)

In the light of recitals 39 to 52, the Commission notes
that the public financing of the restructuring is consid-
ered to be as follows:

Public financing (in DEM):

Recources from the joint federal/Länder
programme (approved scheme) (1)

DEM 344 000

Investment
scheme) (2)

allowances

(approved

DEM 39 000

SME programme (3)

DEM 140 000

Subsidy for personnel costs (4)

DEM 130 000

BvS loan repayable under certain condi-
tions

DEM 960 000

Public guarantee of 80% of the invest-
ment loan (5) and an interest subsidy (6)

DEM 356 966

Total

DEM 1 969 966

(1) Twenty-sixth framework plan, State aid N 123/97, Commission
authorisation of 30 July 1997 (joint federal/Länder programme).

(2) Special tax depreciation 1997 to 1999, State aid NN 47/94.
(3) SME programme Thuringia, State aid N 480/94.
(4) Under Section 10 of the Social code (Sozialgesetzbuch) III, approved
by the Commission on 8 December 1997, State aid NN 10797.
(5) Approved scheme, State aid N 111/96, approved by the Commission

on 1 December 1996.

(6) ERP reconstruction programme,

approved scheme N 563/c/94,

approved by the Commission on 1 December 1994.

(54)

(55)

(56)

(57)

(58)

(59)

(60)

The Commission notes that the DEM 356 966 of aid
resulting from the public guarantee and the interest
subsidy is based on approved aid schemes. Therefore,
these aid measures are considered existing aid within the
meaning of Article 1(b)(ii) of Regulation (EC) No 659/
1999 and their compatibility with the common market
does not therefore need to be assessed by the Commis-
sion in this Decision. However, these existing aid meas-
ures are taken into account in assessing the proportion-
ality of the aid pursuant to point 3.2.2(iii) of the guide-
lines.

Considering that the aid element of the DEM 415 000
loan amounts to DEM 356 966,
to be
assessed whether the remaining DEM 58 034 can be
considered an investor contribution within the meaning
of the guidelines.

it has still

The guidelines state that aid beneficiaries will normally
be expected to make a significant contribution to the
restructuring plan from their own resources or from
external commercial financing. The notion of ‘external
commercial
financing’ has been interpreted in the
Commission's practice as being equivalent to financing
under market conditions.

If

in the same loan.

The Commission notes that in the present case several
the
aid elements are present
Commission were to assess the loan with only a public
guarantee or with only an interest subsidy present, the
assessment could lead to the conclusion that the part of
the measure not covered by public resources and for
which the risk is covered by the private bank/other
collateral would be considered an investor contribution,
provided that the other conditions of the loan corre-
sponded to market conditions.

In the present case, however,
the above conclusion
cannot be reached. Firstly, for the part not covered by
the guarantee, market conditions do not obtain because
the interest rate is subsidised by the State. Secondly, after
the interest
having considered the aid element of
subsidy, the rest of the loan cannot be regarded as being
subject to market conditions owing to the public guar-
antee.

For these reasons, the Commission is of the opinion that
the combined effect of the various aid elements prevents
the remaining amount of DEM 58 034 from being
considered financing under market conditions.

In the light of recitals 55 to 59, the Commission notes
that the investor contribution to the restructuring is as
follows:

Investor contribution:

Paid-in capital upon incorporation of
KHK

DEM 50 000

Current-account credit facility

DEM 213 000

1.2.2002

EN

Official Journal of the European Communities

L 31/87

The Commission notes that the aid intensity of the
restructuring is 86 % and the investor contribution
11,5 % (15).

(65)

(61)

(62)

(63)

(64)

The Commission notes that KHK is an SME currently
employing 27 people in an assisted area. In line with its
previous practice, the Commission has approved aid to
SMEs with a correspondingly high investor contribution
in cases concerning eastern German companies (16). In
these cases the aid granted had a limited liquidity effect
which prevented the companies from receiving surplus
cash that could be used to fund aggressive, distortive
behaviour
the
competitors.
investors had themselves contributed to the restruc-
turing with their own private property.

In addition,

towards

In the present case, most of the aid (DEM 1,01 million)
is provided under approved schemes. The ad hoc aid, a
conditionally repayable loan of DEM 960 000, was used
to purchase the company's assets. The aid thereby had a
limited liquidity effect. In addition, the two credit lines
granted to the company have been secured by personal
guarantees of
the four investors. The investors have
therefore contributed to the restructuring with their own
private property.

For these reasons, the Commission considers that the
beneficiary contribution can be considered significant
within the meaning of the guidelines. It therefore takes
the view that
the aid fulfils the condition in point
3.2.2(iii) of the guidelines, according to which the aid
must be in proportion to the restructuring costs and
benefits.

VI. CONCLUSION

The Commission finds that Germany has unlawfully
implemented the aid in question in breach of Article
88(3) of the Treaty. However, it notes that, since the aid
complies with the 1994 Community guidelines on State
aid for rescuing and restructuring firms in difficulty, it is
compatible with Article 87(3)(c) of the EC Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany has implemented for KHK
amounting
Verbindetechnik
to
EUR 491 000 (DEM 960 000),
compatible with the
common market within the meaning of Article 87(3)(c) of the
Treaty.

Brotterode,
is

GmbH

Article 2

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 3 July 2001.

For the Commission

Mario MONTI

Member of the Commission

(15) The remainder of the loan, DEM 58 034, representing 2,5 % of the
is considered neither an investor contribution

restructuring costs,
nor aid.

(16) Cases NN 131/96 GMB Magnete Bitterfeld (12 %), NN 61/98 Stahl-
und Maschinenbau Rostock (12 %) and C 27/98 Draiswerke (11 %).