2002/377/EC: Commission Decision of 17 October 2001 on the State aid implemented by Germany for Neue Harzer Werke GmbH (Text with EEA relevance) (notified under document number C(2001) 3018)
Date: 2001-10-17
Institutions: European Commission
Subjects: Germany, State aid, cast-iron, control of State aid, iron and steel industry

22.5.2002

EN

Official Journal of the European Communities

L 134/51

COMMISSION

COMMISSION DECISION

of 17 October 2001

on the State aid implemented by Germany for Neue Harzer Werke GmbH

(notified under document number C(2001) 3018)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/377/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

— a complete restructuring plan, allowing a proper

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 provision(s) cited above and having regard to
their comments,

Whereas:

I. PROCEDURE

(1)

(2)

By letter of 23 February 1999 Germany communicated
information on aid for the second restructuring of Neue
Harzer Werke GmbH (hereinafter NHW) based on a plan
of 1996. As the aid had partly been granted as loan to
the undertaking at the time of the information, the case
was registered as NN 38/99.

By letter dated 13 July 2000 (1),
the Commission
informed Germany that it had initiated the procedure
laid down in Article 88(2) of the EC Treaty in respect of
the Bundesanstalt für vereinigungsbedingte Sonderauf-
gaben (BvS) grant of DM 2 million to NHW. The
Commission also enjoined Germany to provide it with
all such documentation, information and data as neces-
sary in order that it may examine the compatibility of
the aid awarded to NHW with the common market. The
following issues were specifically mentioned:

(3)

(4)

assessment and containing:

— a complete and updated table on investments

and their funding,

— measures to reduce personnel costs,

— a complete and updated market analysis,

— information on the company results from 1996
to 1997, as well as for subsequent years;

— the precise loan conditions of the loans granted by
Nord LB and Kreditanstalt für Wiederaufbau,

— a confirmation that the interest on the loans is paid

by NHW,

— the necessity of the participation of 20 % in Eisen-
guss Torgelow GmbH taken during the restructuring
period,

— full information on the capacity and its utilisation of

the company for the two production lines,

— updated information on the development of

the
company in 1999 and especially the (certified) profit
and loss statement and personnel development.

The opening of the Article 88(2) of the EC Treaty inves-
tigations was published in the Official Journal of the Euro-
pean Communities (2). The Commission invited interested
parties to submit
their comments on the aid. No
from interested parties were however
comments
received.

Germany submitted its comments on the opening of
procedure by letters of 10 October 2000, 22 December
2000, 16 February 2001, 7 June 2001 and 23 July
2001.

(1) SG(2000) D/104924.

(2) OJ C 301, 21.10.2000, p. 16.

L 134/52

EN

Official Journal of the European Communities

22.5.2002

(5)

invest-
The Commission evokes that the opening of
igation concerned only a grant by the BvS. Aim of this
evaluation is to terminate the investigation C 31/2000
as far as this grant is concerned. Note that, aid of DM
2,774 million stated initially to have been granted under
a regime will be treated in an extension of the procedure
C 31/2000 (yet to be confirmed).

parent and unconditional bidding procedure had been
effected and the shares went to the highest bid.

(10) On 1 March 1996, bankruptcy procedure was opened
on the assets of HW. Reasons for the insolvency were
the collapse of the Eastern block sales area, an inade-
quate management and too high overhead expenses.

II. DESCRIPTION OF THE AID

1. RELEVANT UNDERTAKING

The aid beneficiary, NHW, is located in Saxony-Anhalt,
Germany, which is an assisted region in the meaning of
Article 87(3)(a) of
the EC Treaty. With some 177
turnover of
employees,
DEM 20,765 million in 1999 while making an opera-
tional

loss of DEM 2,797 million.

company achieved a

the

(11)

(b) THE SECOND RESTRUCTURING (AS OF MARCH 1996)

In March 1996, the assets of HW in liquidation were
brought into a shell company being incorporated by the
receiver. With the contract of 27 March 1996, this legal
entity was taken over by the new investor, a Mr Brunke,
who renamed it ‘Neue Harzer Werke GmbH’. In March
1998, additional partners came in and since then the
ownership of the undertaking is organised, as indicated
in the table:

Mr Brunke

Mrs M. Brunke

Mrs A. Brunke

Mrs Fröhlich

Allgemeine

AIP
Produktionsgesellschaft mbH (1)

Industriebeteiligungs-

(in %)

21,48

9,92

9,92

9,92

und

24,40

NHW is active in the casting of iron. The undertaking
produces elements of boilers, one piece iron boilers and
heating units for the house construction sector. It has
another production line for high-alloy cylinder liners
with an inner diameter between 130 mm and 450 mm
for ship engines. In 1999 63 % of the turnover was
achieved in the boiler production and 33 % in the liners
production.

2. BACKGROUND

Saparmet SA AD (LUX) (2)

24,37

(*) In April 1996 the Wagnisbeteiligungsgesellschaft mbH (hereinafter

WBG), a Land entity, had become a silent partner.

(1) According to the information in the case NN 6/2000, AIP is owned

and managed by a Mr Behrmann.

(2) According to the information in the case NN 6/2000, Saparamet is

likewise controlled by a Mr Behrmann.

(12)

In June 1998, Mr Brunke and NHW took each a 20 %
stake in ‘Eisenguss Torgelow GmbH’, another under-
taking being assessed by the Commission under aid NN
6/2000. In July 2000, the participation in question was
sold to TKU TreuReal Kapital- und Unternehmensbera-
tung GmbH.

(13)

In July 2000 the investor withdrew from the manage-
ment of NHW and, soon after, from the partner's agree-
ment.

(c) BANKRUPTCY PROCEDURE AGAINST NHW (AS OF

(a) PRIVATISATION IN 1991

SEPTEMBER 2000)

In 1870 the undertaking was set up as ‘Berg- und
in
Hüttenwerke AG Werke zu Rübeland und Zorge’
order to produce cast iron equipment. In 1948 it was
converted into ‘VEB Harzer Werke’ and later assigned to
‘Kombinat SKL Madgeburg’. In 1990, the undertaking
became owned by Treuhandanstalt
(hereinafter THA)
and was converted into ‘SKL Harzer Werke GmbH Blan-
kenburg’.

(14)

Insolvency procedure against NHW had to be opened on
1 September 2000 (3). Main grounds for the insolvency
were the recession in the house building industry and
yet again too high overhead costs. The creditor assembly
opted for a maintenance of the business and ordered the
to introduce the ‘Insolvenzplanverfahren’ (4).
receiver

(3) BvS registered a

claim of DEM 2 million and interests of
DEM 0,487 million as part of the bankruptcy estate. Saxony-Anhalt
via the Landesförderinstitut (hereinafter LFI) put in claims totalling
DEM 4,3 million.

(6)

(7)

(8)

(9) With the contract of 28 March 1991, the undertaking
was privatised to Mr
Stöckmann for
DEM 500 000 and was renamed ‘Harzer Werke GmbH’
(hereinafter HW). In line with the privatisation contract,
State aid totalling DEM 53,25 million was granted
under the first Treuhandregime of 1991. An open, trans-

and Mrs

It

can then require

In an early hearing,

(4) The possibility of an ‘Insolvenzplanverfahren’ was introduced by the
new insolvency code of 1999.
the creditor
assembly opts for the liquidation or the maintenance of the busi-
to set up an
the
ness.
‘Insolvenzplan’, which is, in line with the option chosen, a liquida-
tion or a restructuring plan. The plan is to be endorsed by the
creditors, the latter being organised in groups, acting by majority of
votes and of claims. The insolvency tribunal needs to confirm the
plan.
the tribunal
prevails over the rejection of a group.

In line with 245 InsO this confirmation of

administrator

22.5.2002

EN

Official Journal of the European Communities

L 134/53

(15) All the groups of creditors except the one including the ‘Bundesanstalt für vereinigungsbedingte
Sonderaufgaben’ (hereinafter BvS) and the ‘Landesförderinstitut’ (5) (hereinafter LFI) approved the
‘Insolvenzplan’ (hereinafter insolvency plan). At the end of 2000 the insolvency tribunal confirmed,
however, the plan according to German bankruptcy law, namely Article 245 of the Insolvenzord-
nung. It was submitted to the Commission at the beginning of 2001. Key element of the insolvency
plan is a settlement agreement between the creditors waiving liabilities in total of DEM 16,115
million so as to tackle the over-indebtedness of the undertaking.

(16) At the beginning of 2001, the Landgericht Madgeburg cancelled the order of the insolvency tribunal
for grounds of misinterpretation of Article 245 InsO. In line with this judgement, the settlement was
adjusted by reducing the waiver of the group including the BvS and the LFI to 95 % in order to
match with the quota of the other creditor groups. In the hearing of 28 June 2001 this updated plan
was endorsed by all the groups plus the insolvency tribunal. It was submitted to the Commission in
July 2001.

(17)

Pursuant
additional

to the latest
information on the transaction was however received.

information,

‘Asset GmbH’ became the new shareholder of NHW. No

3. THE RESTRUCTURING

(a) THE ORIGINAL PLAN OF 1996, AS SUBMITTED IN 1999 TO THE COMMISSION

(18) A restructuring plan was established on the occasion of the bankruptcy of HW in 1996 and
stretched over 4 years. Profitability was anticipated for 1999. However, by letter of 10 February
2000, Germany indicated that this target would not be met.

(i) Organisational aspects

(19) According to the 1996 plan, the restructuring consisted of various elements:

— adjustment of the product-mix: the production of radiators and liners up to an inner diameter of
130 mm was ended. The undertaking concentrated on the manufacture of heaters and boilers as
well as of liners above 130 mm. Additionally, the production of liners for car engines was
started,

— reduction of the number of employees from an average of over 200 before the take-over in 1996
to an average of under 160 in 2000 so as to improve the low productivity of the undertaking:

1996

from 5/1996

1997

Total

203

173

177

1998

177

1999

161

2000

157

the Commission notes however that,
employees,

in 1999, the undertaking had still an average of 177

— substitution of outdated machinery and equipment: investment of DEM 10,7 million was to be
effected between 1996 and 1999, hereof around 52 % for the boiler production and around
48 % for the liners production. The Commission notes that, according to the insolvency plan,
investment of DEM 12,813 million was effected between 1996 and mid-2000.

(20)

Regarding the production capacity, it was assessed on the basis of maximum production hours per
year for the total workforce. Germany opted for this kind of assessment as the production of NHW
varies according to the specifications by the individual client. Information on the effective capacity
utilisation was not received.

(5) The LFI, a Land entity,

is in charge of the programme N 74/95 Konsolidierungsfond des Landes Saxony-Anhalt.

L 134/54

EN

Official Journal of the European Communities

22.5.2002

(21) Overview (in maximum production hours per annum):

1991 (HW)

1996 (HW)

5/1996 (NHW)

1997 (NHW)

1998 (NHW)

947 568

203 728

174 624

174 624

172 912

(22) NHW has currently three ovens. Regarding the heater production, two ovens with a capacity of four
tons per hour each, had been replaced by one oven with a capacity of four tons per hour in 1995.
Regarding the liners' production, two ovens with a capacity of 1,5 tons per hour each were replaced
by two ovens with a capacity of three tons per hour each in 1999. Germany stated that these can
only produce alternatively and that capacity would therefore not be increased.

(ii) Costs of the restructuring

(23) According to the 1996 plan, the costs of the restructuring included:

Investments 1997-1999

Acquisition of raw material and inventory

Loss compensation 1996 and 1997

Marketing

Penetration of export markets

(in million DEM)

10,740

4,091

1,346

0,213

0,100

Total

16,490

(24)

The restructuring was to be supported by public entities and the investor, as laid down in the table
below:

Origin

No

Resource

Measure

Public

1

2

Land

Land

3 (*)

WBG

Subsidy; GEMEINSCHAFTSAUFGABE, 26th plan,
N 123/97

Investment tax refund; PROGRAMME N 494/A/95

0,531

Equity
N 337/96

loan; CONSOLIDATION PROGRAMME

2,000

(in million DEM)

Sum

4,402

4 (*)

LFI

Loan; CONSOLIDATION PROGRAMME N 74/95

0,774

Investor

5

6

7

8

9

10

BvS

Grant

Investor

Capital

injection

Loan ‘Kreditanstalt für Wiederaufbau’

Investment loan ‘Norddeutsche Landesbank’

Leasing agreement

Cash flow

(*) Note that this aid will be treated in the extension of the procedure C 31/2000.

2,000

= 9,707

0,500

2,750

2,000

1,179

0,354

= 6,783

= 16,490

22.5.2002

EN

Official Journal of the European Communities

L 134/55

(25)

The total restructuring costs were indicated as being DEM 16,49 million. According to the plan
State entities would contribute DEM 9,707 million and the investor DEM 6,783 million.

(b) THE INSOLVENCY PLAN, AS SUBMITTED IN 2001

(26) During the investigation, the Commission received the insolvency plan. It is to be noted that, in July
2001, a slightly updated version of the insolvency plan was endorsed by the creditors and the
insolvency tribunal.

(27)

(28)

(29)

The aim of the insolvency plan is to continue the business of NHW in order to prepare it for its
resale. Key element of the insolvency plan is a settlement agreement waiving liabilities in total of
DEM 13,749 million so as to tackle the over-indebtedness of the undertaking. The production of
heaters and liners is maintained, the company will however give more emphasis to liners. For the
year 2001, a turnover of DEM 10,155 million is anticipated for the heaters and of DEM 9,412
million for liners; for the year 2002 an increase in turnover of 5,6 % is envisaged. Overhead costs
would be adjusted, especially personnel costs would be cut back by DEM 2,436 million per annum
by way of reducing the number of employees from 160 to 133. NHW is supposed to achieve an
operational profit of DEM 0,507 million in 2001. Regarding production capacity, it is still assessed
on the basis of maximum production hours and 108 750 hours are envisaged for 2001.

4. MARKET INFORMATION

The liners belong to the product market of casting of iron (NACE Rev.1 27.51). Germany asserted
that the market for liners was stable in 1997 and will remain like this for the years to come. The
liners for big diesel engines are mainly sold to Caterpillar MAK in Kiel.

Regarding the heaters, the product market of casting of iron is likewise applicable. Germany
informed that 70 % of boiler production is used in the house construction industry. For 1996, the
market was shrinking in West Germany. In the New German Länder, an increase of 5 % was
expected. The Commission was told that the outlook was rather good as new obligatory environ-
mental standards had been be introduced and adaptation became urgent. About 70 % of the boiler
market is concentrated in five major companies: Buderus, Viessmann, Junkers, Vaillant, and Wolf.
Main customers are Stiebel Eltron, Rapido Wärmetechnik, August Brötje and Klöckner.

5. GROUNDS FOR OPENING PROCEDURE

(30)

In the opening proceedings, the Commission established that the public measures Nos 1 to 5
totalling DEM 9,707 million qualify as aid in the sense of Article 87(1) of the EC Treaty. Of this,
DEM 2 million was judged as new aid. As it was intended to be restructuring aid, it had to be
examined under Article 88(3)(c) of the EC Treaty and the Community Guidelines on State aid for
restructuring of 1994 (6).

(31)

The Commission had serious reservations about the ability of the 1996 plan to establish the viability
of NHW. The letter from the German authorities was quoted, in which it asserted that the target of
reaching viability in 1999, as envisaged in 1996 plan, had not been met.

(32) As to the proportionality of the aid, the Commission noted in its opening proceedings that it was
unable to evaluate whether the investor contribution was significant. Particularly, it was unable to
evaluate whether the bank loans of NordLB and KfW were granted at market terms. Besides, it had
been unclear whether all the investment was essential for the restructuring and the aid hence limited
to the minimum as the company had taken a 20 % stake in ‘Eisenguss Torgelow GmbH’ in 1998
which was not included in the plan.

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

L 134/56

EN

Official Journal of the European Communities

22.5.2002

(33) Moreover, the Commission questioned whether the 1996 plan was implemented given that NHW

seemed to have more workers than envisaged by the 1996 plan.

(34)

Likewise, the Commission stated that not enough information had been provided in order to judge
whether the transfer of HW to the investor in 1996 involved aid.

III. COMMENTS FROM GERMANY

(35)

The Commission was informed that the undertaking had filed for bankruptcy on 21 July 2000 (7).
Germany underlined that when the plan was set up in 1996, it had been convinced of its ability to
establish the viability of NHW.

(36) Germany stated that the creditor assembly had opted for a maintenance of the business and ordered
the receiver to introduce the ‘Insolvenzplanverfahren’ (8). According to Germany the insolvency plan
is to be judged as modification of the 1996 plan and would, together with the latter, satisfy the
viability criterion.

IV. ASSESSMENT

(37) Within the opening of the Article 88(2) of the EC Treaty procedure, Germany was requested by
means of an injunction to provide the Commission with enough information so as to assess the
measures under investigation. The information provided afterwards remains however inadequate. The
Commission shall therefore base its evaluation on the information available (9).

1. AID BENEFICIARY

(38) Germany claims the undertaking qualifies as SME in the meaning of the Community recommenda-
tion of 3 April 1996 (10) (hereinafter Recommendation). When Mr Brunke took over the undertaking
in March 1996, it qualified as SME according to the information provided (11). Based on information
in the case NN 6/2000 Eisenguss Torgelow GmbH, it is however questionable whether NHW has
adhered to the independence criterion since 1998. This issue is however of no relevance, as the aid
under investigation was granted at a time when the undertaking qualified as SME.

2. AID IN THE SENSE OF ARTICLE 87(1) OF THE EC TREATY

(39)

(40)

In the opening of the proceedings the Commission expressed the preliminary view that the measures
Nos 1 to 5 granted to NHW qualify as aid. This evaluation remained undisputed by Germany in its
comments. Indeed, the measures were financed by State resources, provided a specific advantage to
the beneficiary, affected trade between Member States since the beneficiary is active in a sector where
intra-Community trade takes place, and thereby distorted or threatened to distort competition.

In its opening proceedings the Commission raised likewise the question whether the sale of HW to
the investor Mr Brunke in 1996 involved aid elements. However, the Commission notes that the
transfer was effected by the receiver of HW in liquidation. No public entity was among the
shareholders of HW in 1996, as it was already privatised in 1991. On the basis of the available
information, the Commission is of the opinion that no aid was involved in the sale of HW by the
receiver to the investor in 1996.

3. COMPATIBILITY

(a) EXISTING AID

(41) Aid Nos 1 to 4 totalling DEM 7,707 million was claimed to have been granted under schemes
endorsed by the Commission. In the opening the Commission had reservations about whether the
aid complied with the terms of the schemes on the basis upon which they had purportedly been
granted.

(7) See letter of 12.8.2001.
(8) See letter of 27.12.2000.
(9) Article 13(1) of Council Regulation (EC) No 659/1999 of 22.3.1999, laying down detailed rules for Article 88 of the

EC Treaty (OJ L 83, 27.3.1999).

(10) OJ L 107, 30.4.1996, p. 4.
(11) In the year 1995 it had 203 employees and achieved a turnover of some DEM 21 million. The independence

criterion pursuant to Article 1(3) of the Recommendation was likewise met.

22.5.2002

EN

Official Journal of the European Communities

L 134/57

(42) Aid No 1 of DEM 4,402 million was provided under a regional scheme endorsed by the Commis-
sion (12). The investment project is located in Article 87(3)(a) of the EC Treaty, region in which the
maximum aid intensity for SMEs totals 50 % gross. According to the insolvency plan, investments of
DEM 12,132 million were carried out between 1996 and 1999 (13). As the total regional aid,
including aid No 1 and No 2, comes to DEM 4,933 million, the intensity equals 40,7 %. The
requirements of the scheme were therefore adhered to. On the basis of the available information, the
aid is hence judged as existing and will not be reviewed by the Commission. It will however be
considered for the proportionality assessment under the restructuring Guidelines.

(43) Aid No 2 of DEM 0,531 million was likewise provided under a scheme approved by the Commis-
sion (14). The requirements, especially the maximum aid intensity of 10 % gross for SMEs located in
the ex-GDR, were met (15). Therefore, on the basis of the available information, the aid qualifies as
existing and will not be reviewed by the Commission. It will however be taken into account for the
proportionality evaluation.

(44) Aid No 3 was purportedly granted under a scheme endorsed by the Commission (16). Aid No 4 of
DEM 0,774 million was invoked to be have been likewise granted under a scheme (17). Note that aid
Nos 3 and 4 will however be treated in the extension of procedure C 31/2000.

(b) NEW AID

(45) As previously stated, the aid No 5 of DEM 2 million is regarded as new aid.

Such aid is generally incompatible with the common market. It should however be examined
whether the aid measures could be exempted from the basic interdiction in Article 87(1) of the EC
Treaty. Hence, the Commission has assessed if the exemptions set out in Article 87(2) and (3) of the
EC Treaty apply.

(46)

The exemptions in Article 87(2) of the EC Treaty could serve as a basis to render aid compatible with
the common market. However, the aid measures (a) do not have a social character and are granted to
individual consumers, (b) do not make good the damages caused by natural disasters or exceptional
occurrences and (c) are not required in order to compensate for the economic disadvantages caused
by the division of Germany. Neither apply the exemptions of Article 87(3)(b) and (d) of the EC
Treaty that refer to projects of common European interest and to the promotion of culture and
conservation. Neither did the German authorities attempt
to justify the aid on the grounds
enumerated above.

(47) As to the exemption of Article 87(3)(a) of the EC Treaty, the Commission has taken into account
that the new German Länder belong to the assisted regions in the meaning of Article 87(3)(a) of the
EC Treaty, where the standard of living is abnormally low and where there is a high unemployment
rate. Nevertheless, it should be evoked that, in accordance with point 2 of the Guidelines on national
regional aid (18) (hereinafter regional guidelines), individual ad hoc aid payment made to a single
undertaking may have a major impact on competition in the market in question, and its effects on
regional development are likely to be too limited. Therefore, the Commission thinks that, unless it

(12) N 123/97 ‘Gemeinschaftsaufgabe, Förderung der regionalen Wirtschaftsaufgabe,’ 26th plan; measures under this law

qualify as regional

investment aid.
(13) See p. 16 of the insolvency plan.
(14) N 494/A/95 Investitionszulagengesetz 1993,

in the version of 1996; measures under this law qualify as regional

investment aid.
(15) Since investment

8,03 %.

totalling DEM 6,607 million was effected until 31 December 1998,

the intensity amounts to

(16) N 337/96 Richtlinie zur Förderung von Konsolidierungsbeteiligungen im Mittelstand (Saxony-Anhalt).
(17) N 74/95 Konsolidierungsfond des Landes Sachsen-Anhalt.
(18) OJ C 74, 10.3.1998, p. 9.

L 134/58

EN

Official Journal of the European Communities

22.5.2002

can be shown otherwise, such aid does not meet the terms of the regional guidelines. Hence, the
exemption in question will normally be granted only for multisectoral aid schemes open, in a given
region, to all undertakings in the sectors concerned. Germany did not show that the equilibrium
between the resulting distortions of competition and the advantages of the aid in terms of the
development of a less-favoured region can be guaranteed. Moreover, point 4 of the regional
guidelines foresees that the beneficiary's contribution must be at least 25 % to ensure that the
productive investment aid is viable and sound. In the present case this requirement was not satisfied,
either.

(48)

The aid measures were described as restructuring aid given in order to establish the viability of an
undertaking in difficulty. Therefore, the Commission considers,
in particular, the exception as
foreseen by Article 87(3)(c) of the EC Treaty, according to which aid to facilitate the development of
certain economic activities, where such aid does not affect trading conditions to an extent contrary
to the common interest may be seen as compatible. Hence, the Commission evaluates the measures
in question according to the conditions laid down in its Community Guidelines on State aid for
rescue and restructuring of firms in difficulties (hereinafter Guidelines) in the version of 1994 (19).
The latter remain applicable in case of unnotified aid, if the aid is granted before the publication of
the 1999 version (20). This is the case regarding the aid granted under the 1996 plan.

(i) Eligibility

(49)

In the opening proceedings, the Commission stated that NHW is eligible for restructuring aid under
the Guidelines.

(ii) Viability

(50) According to point 3.2.2(i) of the Guidelines, the plan must establish the long-term viability of the
company within an adequate time scale and on the basis of realistic assumptions as to its future
operating terms.

(1) The plan of 1996

(51) According to the original plan of 1996, viability of NHW was to be achieved in 1999, as laid down

in the table:

Overall sales

Material costs

Personnel costs

Operational results

Earnings before tax

(*) Provisionally.
(**) Expected.

4-12/1996

14,471

1997

19,835

1998 (*)

21,352

(in million DEM)

1999 (**)

26,711

6,977

5,787

0,155

0,343

10,193

10,064

12,889

8,967

9,264

– 2,103

– 1,375

– 0,671

– 0,473

8,648

1,294

2,075

(52)

In the opening proceedings, reservations had been expressed about the viability criterion because of
the only slight increase of turnover for the years 1997 and 1998, the high personnel costs and the
growing losses.

(53)

The Commission believes that the sales were overestimated in the 1996 plan.

(19) OJ C 368, 23.12.1994, p. 12.
(20) See chapter 7.5. of the 1999 Restructuring Guidelines (OJ C 288, 9.10.1999, p. 2).

22.5.2002

EN

Official Journal of the European Communities

L 134/59

(54)

The operational result continued to be negative in 1998 with DEM 1,375 million. As to achieve
viability in 1999, an increase in turnover of almost 30 % was envisaged by the 1996 plan. The
operational profit of 1999 was supposed to come to DEM 1,294 million which represented an
increase of more than 200 %.

(55) Almost 50 % of the 1999 turnover was intended to be achieved in the German building market and
especially in the German house-building sector, which is under high competitive pressure since
1995. The German overall building activities have been undergoing a crisis since 1995, which has
not yet ended (21). Regarding the new house-building sector, the production has declined, apart from
a growth in 1997, with 3,4 % in 1995, with 4,3 % in 1996, 1,6 % in 1998 and 1,8 % in 1999. The
quantity of constructed houses has been falling in Germany since 1995. It is chiefly the new German
Länder, where the number of houses built declined by more than one third within 3 years, which
have been affected. In view of this, the increase in turnover as anticipated in the 1996 plan, seems
too optimistic.

(56) Moreover, the Commission is of the view that the overhead costs as the one of grounds for the

insolvency of HW in 1996 were not adequately tackled in the 1996 plan.

(57)

Concerning staff expenses, it appears that the reduction from 203 to 177 staff with effect from
mid-1996, as anticipated in the plan, was insufficient. The share of personnel expenses could not be
reduced, on the contrary:

Personnel

207

203

177

176

177

1995

1996 (*)

1997

1998

1999

Overall sales (in DEM)

20,939

14,709

19,835

21,352

17,427

Sales/employees (in DEM)

0,101

0,072

0,112

0,121

0,098

Personnel costs (in %)

52

40

45

43

52

(*) The year 1996 covers only a period of 8 months, starting from May 1996.

(58)

The share of the expenses continued to be much too high throughout the restructuring, with 40 % at
the beginning of the restructuring in 1996 to over 50 % in 1999. Moreover, although the income
per employee increased from DEM 72 000 per annum in 1996 to around DEM 100 000 per
annum in 1999, it is nevertheless significantly below the average of DEM 160 000 in a comparable
undertaking in the market (22). The cut back of 25 workers, as anticipated in the 1996 plan, was
insufficient to improve the efficiency of the undertaking.

(59)

Regarding the likewise excessive other operational costs, specially the high maintenance costs, the
latter were not tackled in the 1996 plan. The share of these costs amounted to 9 % at the beginning
of the restructuring, before increasing to 13 % in 2000 notwithstanding a lower turnover.

(60)

The Commission is therefore of the opinion that the 1996 plan could not establish the viability of
NHW.

(61) As mentioned, Germany informed the Commission before the opening of proceedings, that the
break-even of NHW had not been achieved in 1999, as envisaged in the 1996 plan. Later the
Commission was informed about the insolvency procedure against NHW. All of this confirms the
evaluation of the Commission under recital 57.

(21) See European Construction Industry Association,
(22) See insolvency plan, p. 13.

‘Construction activity in Europe’, 2000, p. 33.

L 134/60

EN

Official Journal of the European Communities

22.5.2002

(2) The insolvency plan of 2000

(62) Germany argues that the insolvency plan of 2000 is to be considered as element of the restructuring
operation of 1996. In its opinion, the 1996 plan and the insolvency plan need to be seen together
when evaluating the viability criterion.

(63)

(64)

(65)

(66)

In the opinion of the Commission the insolvency plan can, however, not be judged as element of the
1996 restructuring operation.

The Commission notes that the investor Mr Brunke withdrew from the undertaking in July 2000.
With the withdrawal of the investor, the very basis of the 1996 plan was altered. In the New German
Länder cases, the Commission has accepted that a restructuring operation might involve the with-
drawal of an investor (23). However, this interpretation was only justified in connection with the
transformation from a planned to a market economy, which the new German Länder were under-
going, as being unpredictable and market-exogenous for the undertakings under restructuring. It
appears that the insolvency of NHW in 2000 was not linked to the transformation process being
external to the company but was instead generated by the management which responded inade-
quately or belatedly to the stagnation in the house-building industry. This assessment is confirmed
by the insolvency plan (24).

The Commission notes also that insolvency procedure had to be opened in September 2000. As a
result of the bankruptcy, the initial legal personality (NHW GmbH) ceases to exist in accordance with
the German corporation law (25). In its practice, the Commission has accepted that a restructuring
operation might involve the bankruptcy of the undertaking and its resale, the so-called ‘Auffanglö-
sung’. However, this line was equally justified with the transformation from a planned to a market
economy, which the new German Länder were undergoing. As concluded under recital 61, it seems
that the insolvency of undertaking in 2000 was rather generated by errors of the management and
therefore inside the company.

In view of the above, the Commission thinks that the withdrawal of the investor and the opening of
the insolvency procedure signifies a break in the restructuring process of 1996 (26). Hence, the
Commission is of the opinion that the 1996 plan and the insolvency plan should not be evaluated as
one consistent action. The restructuring therefore includes two terms: the first term, stretching from
March 1996 until the bankruptcy of NHW in 2000 and covered by the 1996 plan, and the second
term, as of the bankruptcy and enclosed by the insolvency plan.

(67)

The insolvency plan is hence not included in the current evaluation in order to assess whether
viability was to be restored. As stated before, the 1996 plan on its own was unable to restore the
viability of NHW.

(iii) Proportionality of the aid

(68) According to 3.2.2.(iii) of the Guidelines, the aid shall be in proportion to the restructuring costs and

benefits.

(1) Significance of the investor contribution

(69) Aid beneficiaries should make a significant contribution of their own to the restructuring plan. In the

opening, the Commission questioned the significance of the investor participation.

(70) According to the investigation of the Commission, the second restructuring is supported by both

public entities and the investor.

(71) As mentioned, State entities contribute DEM 9,707 million.

(23) See C 42/97 Everts GmbH,
(24) See page 18 of the insolvency plan.
(25) No 1, point 4 of Article 60 GmbHG.
(26) See also C 36/2000, Graf v. Henneberg,

letter of 4.10.1999, SG (99) D/7944, p. 10.

letter of 27.4.2001, SG (2001) D/288186, p. 23.

22.5.2002

EN

Official Journal of the European Communities

L 134/61

(72) On the basis of the information available,

it can be established that the investor contributes
DEM 0,5 million. As no supplementary information was provided on the terms of the lease of
DEM 1,179 million during the procedure, the Commission was generally unable to judge whether it
was agreed upon under market
to Article 10 of Council
Regulation (EC) No 659/1999 (27) in the opening of proceedings did not embrace the lease, it will
however need to be accepted as investor contribution in this evaluation. As it can be seen below, the
qualification of the lease has no effects on the assumption whether the investor contribution was
significant.

terms. As the injunction pursuant

(73)

The other contributions cannot be considered as investor contribution:

Resource

Measure

KfW

Nord LB

Undertaking

Loan

Investment loan

Cash flow

(in million DEM)

Sum

2,750

2,000

0,354

= 5,104

— as, notwithstanding the information injunction, no supplementary information was provided on
the terms on the loans of KfW, the Commission was unable to judge whether the loan was
granted under market terms,

— the same reasoning applies to the investment loan of NordLB,

— regarding the cash flow, this element is not to be accepted as investor contribution (28). The cash
flow is to a large extent to be realised on the basis of State interventions in the past. Additionally,
at the time the plan was established in 1996, the cash flow was still to be generated and was
therefore conditional.

(74)

Therefore, these contributions shall not qualify as investor contribution and shall hence not be taken
into account for the proportionality.

(75) Accordingly, total costs of the restructuring amount to DEM 16,49 million, of which the State
bodies contribute DEM 9,707 million or 58,9 % and the investor DEM 1,679 million or 10,2 % (or
possibly only DEM 0,5 million, representing 3 %). In view of all the circumstances of this case, this
investor contribution cannot be regarded significant as established in the Guidelines.

(2) Limitation to the minimum

(76)

(77)

Pursuant to the guidelines, investment can only be supported if it is essential for the restructuring.
Otherwise the aid is not limited to the strict minimum.

In the opening of the proceedings, the Commission expressed reservations whether the aid is limited
to the strict minimum given that the undertaking took a participation of 20 % in Eisenguss Torgelow
GmbH during the restructuring.

(78) As it can be seen from the information in the case NN 6/2000, Mr Brunke acquired a 40 %
participation with the contract of 4 April 1998, hereof 20 % directly and 20 % via NHW (29). In July
2000, at the time NHW went bankrupt, the 40 % participation had been taken over by TKU
TreuReal Kapital- und Unternehmensberatung (30). As, notwithstanding the information injunction,
no information on the aim of this stake was provided, the Commission is however unable to judge
whether the latter was essential for the 1996 restructuring of NHW.

(79)

The Commission is hence of the opinion that aid was not limited to the strict minimum.

(27) OJ L 83, 27.3.1999, p. 1.
(28) NN 5/2000 Messacon GmbH, letter of 27.10.2000, SG (2000) D/107934; N 4/2000 Schiffsanlagenbau Barth GmbH,

letter of 8.1.2001, SG (2001) D/200101.

(29) NN 6/2000 Eisenguss Torgelow GmbH,
(30) NN 6/2000 Eisenguss Torgelow GmbH,

letter of 3.3.2000.
letter of 4.7.2000.

L 134/62

EN

Official Journal of the European Communities

22.5.2002

(iv) Implementation of the plan

(80) According to 3.2.2.(iv) of the Guidelines the beneficiary must completely implement the restruc-

turing plan.

(81)

(82)

The Commission in its opening proceedings, questioned whether this requirement is met given that
NHW seemed to have more employees than envisaged by the 1996 plan.

The Commission notes that the undertaking had 177 staff in 1999 meaning that the reduction of
staff between 1998 and 1999 as envisaged in the plan was not carried out in time. The cut back of
staff from 177 to about 160 in 2000 was effected in order to address the threatening insolvency of
the undertaking rather than in implementation of the plan.

(83) Hence, the Commission is of the opinion that the plan had not been entirely implemented by NHW.

V. CONCLUSION

(84)

(85)

The BvS grant of DEM 2 million qualifies as new aid. Since the criteria established in the guidelines
were not met, the aid is thought to be incompatible with the common market.

The Commission states that Germany has unlawfully implemented the aid in question in breach of
Article 88(3) of the EC Treaty. The DEM 2 million grant by the BvS, together with interests, is to be
recovered by Germany in accordance with its applicable national

legal provisions.

(86) As to the aid Nos 3 and 4 invoked to be granted under schemes, the Commission notes that they

will be treated in the extension of the procedure C 31/2000,

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany has
EUR 1 022 588 (DEM 2 million) is incompatible with the common market.

implemented for Neue Harzer Werke GmbH amounting to

Article 2

Germany shall take all necessary measures to recover, from the beneficiary, the aid referred to in

1.
Article 1 and unlawfully made available to the beneficiary.

2.
Recovery shall be effected without delay and in accordance with the procedures of national law
provided that they allow the immediate and effective execution of the decision. The aid to be recovered
shall include interest from the date on which it was at the disposal of the beneficiary until the date of its
recovery. Interest shall be calculated on the basis of the reference rate used for calculating the grant-equiva-
lent of regional aid.

3.
For the purposes of this Article the term ‘beneficiary’ comprises not only NHW but any other
undertaking to which assets have been transferred in such a way as to deprive paragraph 1 of effect.

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

Article 3

This Decision is addressed to the Federal Republic of Germany.

Article 4

Done at Brussels, 17 October 2001.

For the Commission

Mario MONTI

Member of the Commission