2002/259/EC,ECSC: Commission Decision of 28 November 2001 which Germany implemented in favour of the steel company for Georgsmarienhütte Holding GmbH (Text with EEA relevance) (notified under document number C(2001) 3734)
Date: 2001-11-28
Institutions: European Commission
Subjects: European Commission, Germany, State aid, application of EU law, iron and steel industry, privatisation

L 91/24

EN

Official Journal of the European Communities

6.4.2002

COMMISSION

COMMISSION DECISION

of 28 November 2001

which Germany implemented in favour of the steel company for Georgsmarienhütte Holding
GmbH

(notified under document number C(2001) 3734)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/259/EC, ECSC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(1) thereof,

(2)

Having regard to the Treaty establishing the European Coal and
Steel Community, and in particular Article 4(c) thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof read in conjunc-
tion with protocol 14,

Having regard to Commission Decision No 2496/96/ECSC of
18 December 1996 establishing Community rules for State aid
to the steel

industry (1),

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2),

Whereas:

(3)

(4)

(5)

1. PROCEDURE

(hereafter: BvS),
GmbH and its
Holding GmbH.

the company Gröditzer Stahlwerke
subsidiaries and Georgsmarienhütte

By letter dated 29 July 2000, the Commission informed
Germany that it had decided to initiate the procedure
laid down in Article 88(2) of the EC Treaty and Article
6(5) of Commission Decision No 2496/96/ECSC (here-
inafter referred to as the Steel Aid Code) in respect of
the aforementioned measure. The Commission decision
to initiate the procedure was published in the Official
Journal of the European Communities (3). The Commission
invited interested parties to submit their comments on
the measure.

The Commission received no comments from third
parties.

On 11 October 2000, 6 February 2001, 6 June 2001
and 22 August 2001 Germany responded to the
opening of procedure and to letters of the Commission
of 11 December 2000, 12 April 2001 and 14 July
2001.

2. DETAILED DESCRIPTION OF THE MEASURE

Gröditzer Stahlwerke GmbH and its
subsidiaries (4)
(hereafter: Gröditzer) are located in Saxony. Since 1990
Gröditzer has been owned by the Treuhandanstalt (THA)
and its public successors, respectively EREL Verwaltungs
GmbH und Co. Management KG (EREL), Beteiligungs-
Management-Gesellschaft mbH (BMGB) and lastly the
BvS.

(1)

By letter dated 23 July 1999, Germany informed the
Commission that a management service contract was
concluded between the German public
authority
‘Bundesanstalt für vereinigungsbedingte Sonderaufgaben’

(1) OJ L 338, 28.12.1996, p. 42.
(2) OJ C 3, 6.1.2001, p. 31.

(3) See footnote 2.
(4) On 20 April 1999 Gröditzer Stahlwerke GmbH sold its assets and
liabilities — and thus its economic operations — to the newly
created Edelstahl Gröditz GmbH and Stahlwerk Gröditz GmbH
which are subsidiaries of Stahl Gröditz Holding GmbH. The sole
shareholder of Stahl Gröditz Holding GmbH is BvS. In the mean-
time Stahl Gröditz GmbH sold the shares in these two subsidiaries
to Gröditzer Stahlwerke GmbH.

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L 91/25

(6)

(7)

(8)

(9)

On 25 February 1997 BMGB entered into an agreement
‘Kauf- und Abtretungsvertrag über Geschäftsanteile’
(hereafter: privatisation agreement) with the Georgs-
mariënhütte group (5) in order to privatise Gröditzer to
the latter.

Over the years before its privatisation Gröditzer received
important amounts of State aid, mainly from THA and
its successors in the form of guarantees and sharehol-
ders' loans. New aid has been paid under the privatisa-
tion agreement. The privatisation agreement provided
therefore that GMH would obtain legal ownership in
Gröditzer only after approval, by the Commission, of
State aid paid and to be paid to Gröditzer. Article 17 of
the privatisation agreement provided however that GMH
was entitled to manage the affairs of Gröditzer, while
awaiting the transfer of legal ownership.

Under Article 17 of the privatisation agreement, GMH
received an annual concern fee of DEM 232 000 for its
management services. This fee did not include the costs
for the secondment of its managers to Gröditzer.

On 8 July 1999 the Commission adopted Decision
the State aid to
1999/720/EC, ECSC in respect of
Gröditzer Stahlwerke GmbH and its subsidiary Walz-
werk Burg GmbH (6). The Commission decided, inter alia,
that State aid of DEM 239 million was incompatible
with the ECSC and the EC Treaty and had to be recov-
ered.

(10) As a consequence of this decision GMH and the BvS, the
legal successor of initial contractor BMGB, terminated
the privatisation agreement, which thus ceased to exist.

(11) At the same time BvS undertook steps to recover the
incompatible aid from Gröditzer. As this led to a heavy
indebtedness of Gröditzer, insolvency was applied for by
its largest creditor. Gröditzer Stahlwerke GmbH
BvS,
was declared in provisional insolvency by the Dresden
bankruptcy Court on 20 September 1999 and in insol-
vency on 17 January 2000. On the same date its subsi-
diaries Stahlwerke Gröditz GmbH and Edelstahl Gröditz
GmbH were declared in provisional

insolvency.

(5) Legally the parties to the agreement were Georgsmariënhütte GmbH
and Georgsmariënhütte Verwaltungsgesellschaft mbH at Georgsmari-
enhütte, and Bladenhorster Grundstückverwaltungsgesellschaft mbH,
at Castrop-Rauxel. GMH Holding GmbH was created in 1998 as a
holding company after an internal restructuring of the Georgsmari-
ënhütte group. It took over the general coordination tasks of the
Georgsmariënhütte group.
the management service
In context of
contract
to Georgsmariënhütte Holding
GmbH.

the term GMH applies

(6) OJ L 292, 13.11.1999, p. 27.

(12) On 23 July 1999 the German authorities informed the
Commission that,
in view of the termination of the
privatisation agreement, which left Gröditzer without
management and group infrastructure, a new manage-
ment services contract (hereafter: management contract)
was concluded between BvS, Gröditzer and GMH. The
management contract entered into force (retroactively)
as of 1 July 1999.

(13) Under

the management contract GMH provided a
number of management services such as incorporation
in the GMH sales-, purchasing- and distribution network,
insurance and availability of know-how. Therefore:

(a) GMH seconded three managers to Gröditzer. This
involved DEM 80 000 per month of personnel costs
and some DEM 20 000 per month for other costs;

(b) consisted the total fee for the management services

of GMH of two additional elements:

(i) under paragraph 12(2) of

the management
contract GMH received a fee of 1 % of the turn-
over of Gröditzer;

(ii) GMH received a fee calculated on the basis of the
improvement of the operating result of Gröditzer
(paragraph 12(3) of the management contract):
improvements up to
GMH received 15 % of
DEM 1 million and 30 % of
improvements
beyond DEM 1 million;

(c) the BvS agreed a number of complementary obliga-
tions. It agreed to be jointly and individually respon-
sible for payment of all fees that Gröditzer had to
pay under the management contract to GMH (para-
graph 12(5) of the contract);

(d) paragraph 18 of the management contract foresaw
further that BvS would pay the fees for another three
months in case the receiver would exercise its right
to terminate the contract under paragraph 103 of
the German Insolvency Act;

(e) the BvS undertook also to offer the receiver in the
insolvency of Gröditzer an insolvency loan in order
to continue the management contract in case the
receiver would like to terminate the contract for
financial reasons (paragraph 19 of the contract).

(14)

From 1 July until 31 December 1999 the total fees paid
by Gröditzer amounted to DEM 1,7 million These
consisted of DEM 520 000 for the secondment of three
managers,
the turnover
amounting to DEM 738 000 and the result related fee
amounting to DEM 445 000.

the fee based on 1 % of

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(15)

to DEM 685 000. These

From 1 January until 31 March 2000 the total fees
amounted
consisted of
DEM 240 000 for the secondment of three managers
and the fee based on 1 % of the turnover amounting to
DEM 445 000. The receivers and GMH agreed also that
the result related fee was not to be paid in this period, as
an insolvency fee according to paragraph 183 SGB III
was paid (7).

(16)

for Gröditzer Stahlwerke
The management contract
GmbH was terminated with opening of
insolvency
procedure in January 2000 and in respect of its subsidia-
ries on 1 April 2001, when their insolvency proceedings
were opened.

(17) At the same time the receivers concluded a new manage-
ment service agreement with GMH which involves a
total fee of DEM 100 000 for the secondment of three
managers. This agreement was valid until 30 June 2000.
In the meantime it was extended until 31 December
2001.

3. THE INVESTIGATION PROCEDURE

(18)

The formal investigation procedure was initiated as the
Commission had doubts whether BvS and Gröditzer
concluded the terms of the management contract at
market conditions. The doubts applied in particular to
the fees, as it appeared that they were in comparison 10
times as high as the fee paid by Gröditzer to GMH under
the privatisation contract. The Commission had there-
fore doubts whether the terms of
the management
contract might not contain State aid to GMH and
whether such aid would be compatible with the EC
Treaty and the ECSC Treaty.

4. COMMENTS FROM GERMANY AND OTHER INTER-

ESTED PARTIES

(19)

that

the BvS agreed the terms of

In its reply to the opening of procedure, Germany reiter-
ates its position already transmitted in the preliminary
the
investigation,
management contract on market conditions. The conclu-
sion of the management contract, without tender proce-
dure for interim management, was justified by circum-
stances: urgent action was required as the company
found itself, due to the termination of the privatisation
agreement, without management. As it was difficult to
interim management providing
find an available

(7) According to Germany,

the insolvency fee would otherwise have

improved the result, thereby unduly favouring GMH.

comparable service, the only alternative to the concluded
contract would have been to close the company and
liquidate it in the insolvency proceedings. This altern-
ative would have resulted in a reduction of turnover and
in consequence to a lower return for the creditors,
including BvS (8).

(20) Germany also submitted information indicating that a
comparison of the terms of the management contract
with the privatisation agreement is not possible. The
privatisation agreement was signed under the perspec-
tive
that GMH would obtain legal ownership in
Gröditzer. It did not include the costs for the second-
ment of managers. The pre-existing fee was therefore
not based on actual costs. An additional return was
expected to materialise with the improvement of the
operating result of Gröditzer. The management contract
was concluded after the privatisation agreement ceased
to exist. GMH could not foresee whether it could acquire
Gröditzer at a later stage. Therefore the fees were nego-
tiated at arms length. In the interest of all parties, the fee
also had to include a bonus for improvements in result
and turnover.

(21) Moreover, an expert appraisal, conducted on the request
of GMH, was submitted on the question whether a
private investor would have agreed to the management
agreement under comparable conditions. The experts
confirmed in their appraisal that, after the privatisation
agreement ceased to exist, an interim management was
necessary in order not
the
company. They concluded that the management agree-
ment with GMH was the best solution available to BvS.
As to the fees and accessory obligations, the experts
found that the total remuneration of GMH, including the
result-related fee, is comparable to the remuneration of
other interim managers in the same sector (9).

to reduce the value of

(22) As

the

to the accessory BvS obligations

experts
confirmed that,
in cases where a company is facing
insolvency proceedings, an interim manager would
always request a guarantee from the shareholder or the
creditors of the company. The risk of default of receiving
payment for its service would otherwise be, due to the
imminent insolvency, too high.

(23) Germany stated further that the other accessory obliga-
tions agreed by BvS in form of the loan to the receiver
and payment of the fee for another three months after
termination of the contract would not be implemented
in favour of GMH. It also informed the Commission that
GMH decided on 18 October 2000 that it would not
make use of the joint and individual liability as provided
under paragraph 12(5) of the management contract or
any other accessory BvS obligations as provided with the
management contract (10).

(24) No comments
received.

from other

interested parties were

(8) This was supported by an expert appraisal conducted on behalf of
the receiver who had to decide whether he would try to sell the
company as a going concern or in parts. The value of the assets
was estimated with DEM 17 million whereas their value in a going
concern sale would be DEM 103 million.

(9) McKinsey & Company; 1 August 2001.
(10) Although some of the fees were not paid to GMH before the insol-
vency proceedings of Gröditzer were opened. These fees were regi-
stered by GMH as claims in the insolvency proceedings.

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5. ASSESSMENT OF THE MEASURE

conditions. Both the fees and the accessory BvS obliga-
tions must therefore be examined under State aid rules.

(25)

(26)

(27)

(28)

The Commission considers that GMH Holding GmbH is
it is a mere
not an ECSC steel company. However,
holding company of a group of which the majority of
the turnover is generated by ECSC steel companies. It
cannot be excluded that the ultimate beneficiaries of the
measures may be ECSC steel companies. The measure is
therefore assessed according to Article 88(3) EC Treaty
and Article 6 of the Steel Aid Code.

It

signed the management

BvS is a public institution, which is part of the German
administration.
service
contract not only in its quality as public shareholder and
representative of Gröditzer, but, at the moment of signa-
ture, also as largest creditor of Gröditzer and under an
obligation to recover debts from Gröditzer pursuant to
Decision 1999/720/EC, ECSC.

The fee for the management service provided by GMH
under the management contract was to be paid by
Gröditzer. The Commission notes therefore that the fees
insofar a
derive from State resources and represent
transfer of State resources to GMH.

In view of
the above the Commission must assess
whether the terms of the management service contract
are comparable to the terms of such a contract in a
market economy or whether they involve State aid in
favour of GMH. This applies to both the fees and the
accessory BvS obligations (individual liability of BvS; the
BvS commitment on three months payment in case of
insolvency and the BvS commitment for an insolvency
loan to continue the management contract).

(29) As far as the reason to enter into the contract

is
concerned, the German authorities contend that, due to
the termination of the privatisation contract after adop-
tion of Decision 1999/720/EC, ECSC, an urgent solution
needed to be found in order to continue Gröditzer's
business. Interim management was not readily available
and the need to decide, at short notice, necessitated
entering into the management service contract. The
alternative to the concluded contract would have been
to close the company and liquidate it in the insolvency
proceedings.

5.1. Fees agreed by BvS under the management

contract

(31) As for the remuneration of GMH for its management
services, the Commission noted in the opening of proce-
dure that the fees appeared to be 10 times higher as the
pre-existing fee under the privatisation agreement. It was
therefore doubtful whether
the fees complied with
market conditions.

(32)

The doubts of the Commission did not apply to the
costs for the secondment of the three managers (para-
graph 12(1) of the management contract). By also taking
into account the size of the company and the services
provided by the managers, this part of the fee appeared
to be appropriate. The market conformity of this fee was
confirmed by the information submitted in the invest-
igation procedure. The receivers of Gröditzer also
in April 2000, a new
confirmed it by concluding,
management contract with GMH, which involves the
same fee for the secondment of three managers.

(33)

The Commission notes that the fee for the secondment
of three managers appears to be in conformity with the
market.

(34)

From the information submitted by Germany in the
investigation procedure it appears that a fixed fee of 1 %
of turnover is comparable to the fees a company would
pay to a sales agent in the same sector. Paragraph 6 of
the management contract foresees that GMH had to
provide Gröditzer, among other management tasks, with
excess to its purchase-, distribution and sales services.
Insofar GMH took over the task of a sales agent for
Gröditzer.

(35) As to the result-related fee according to paragraph 12(3)
of the management contract it appears from the infor-
mation submitted that a rate up to 30 % on the annual
improvement of the result would be in conformity with
the market. The total rate paid by Gröditzer for July
1999 to December 1999 amounted to DEM 445 000
which represents 28 % of the improvements in results
for this period.

(30)

The Commission notes that concluding the management
contract was a favourable alternative for BvS and
Gröditzer in comparison to the option of closing and
liquidating the company. Nevertheless, considering the
absence of any call for tenders for the management
contract the Commission must scrutinise whether the
is in conformity with market
management contract

(36)

The Commission notes that a result-related fee would be
normally based on Ebitda (earnings before interest, tax,
depreciation and amortisation) or cash flow and not, as
in this case, on a pure improvement of results. Other-
wise the fee could be payable on the sole basis of
increase in turnover.

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(37)

(38)

(39)

(40)

(41)

(42)

(43)

The Commission also notes that the result-related fee is,
in its amount, not exceeding the fees paid under altern-
ative
the
interim management. The difficulties of
company at the point in time when the contract was
concluded and the improvements of cash flow and
Ebitda under the management of GMH must also be
taken into account.

the managers from GMH to Gröditzer.

the pre-existing
The Commission notes further that
situation under the privatisation agreement was different
to the situation under the management contract. Under
the privatisation agreement GMH was to obtain legal
ownership in Gröditzer. The fees for
the provided
management did not include the costs for the second-
ment of
It
appears therefore that the concern fee was not based on
full costs. On the contrary, when the management
contract was concluded,
insolvency of Gröditzer was
foresee whether it could
imminent. GMH could not
acquire Gröditzer at a later stage at all. It could not
expect an additional return by obtaining legal ownership
of Gröditzer under the management contract. The pre-
existing fees can therefore not be used as a benchmark
for the fees paid by Gröditzer under the management
contract.

For assessing the market conformity of the total remu-
neration of GMH, the Commission compares the total
remuneration of GMH with the remuneration of other
interim management
for a similar company in a
comparable situation.

The Commission notes that, according to the submitted
expert appraisal, interim management are typically reim-
bursed either by a daily fee for the managers, by a total
fixed fee (comparable to the remuneration of a receiver)
or, as in this case, by a combination of a turnover- and
result related fee.

The experts established that remuneration of GMH on
the basis of a daily fee would have led to an annual fee
of some DEM 2,8 million. Remuneration on the basis of
a fixed fee would have led to an annual fee of at least
DEM 3,6 million. The remuneration of GMH on the
basis of the concluded management contract amounted
for the period 1 July 1999 to 31 December 1999 to
DEM 1,7 million which amount to an annual fee of
DEM 3,4 million.

The Commission notes that a fee solely based on a daily
less costly for
fee would have been in its amount
Gröditzer. However, it also notes that a fixed fee would
not have involved a bonus for the improvements of
results or turnover.

The Commission notes further that GMH took over a
number of additional responsibilities in order to manage
Gröditzer. It was to provide Gröditzer with management
tasks such as planning, budgeting and controlling. It also
was to provide know-how, access to its purchasing

network (with better conditions for Gröditzer) and
marketing support. Furthermore, it was to act as a sales
agent for Gröditzer.

(44)

the management

services
By taking into account
provided, the imminent insolvency of Gröditzer and the
improvements of results the Commission considers the
total remuneration of GMH under the management
contract as being in conformity with the market.

5.2. Accessory obligations agreed by BvS under the

management agreement

(45)

In its opening procedure the Commission also expressed
doubts as to the accessory BvS obligations, as the priva-
tisation agreement did not comprise any obligation of
BvS to guarantee fees like the concern fee.
It was
doubtful to the Commission whether such an onerous
accessory obligation was granted at market conditions.
The same reasoning applied to the BvS obligations under
Article 18 of the management contract (to pay the fees
three months after termination of the agreement, by the
receiver, pursuant to paragraph 103 German insolvency
act) and to the third accessory BvS obligation under
paragraph 19 of the management contract (offer of an
insolvency loan to the receiver in order to finance the
continuation of the contract, should the receiver decide
to terminate the contract for financial reasons).

(46)

The individual BvS liability: The Commission notes that
GMH renounced its entire claim under the individual
BvS liability. As stated by GMH, it will not hold BvS
liable for any unpaid amounts
resulting from the
management contract. The Commission notes therefore
on the basis of
the submitted information that no
payments will be made under the individual BvS liability.

(47) According to Germany the guarantee of BvS was
requested by GMH in order to make sure that it would
finally be remunerated for its services provided under
the management agreement. The guarantee did insofar
only effect the decision of GMH whether or not to take
up the management contract.

(48) On the basis of the submitted information the Commis-
sion notes that the claims of GMH under the manage-
ment contract needed to be secured. Otherwise the risk
of default, due to the imminent insolvency of Gröditzer
at
the time when the management contract was
concluded, was very high. A company not securing its
claims in the same situation would otherwise incur the
risk of providing management without payment.

(49)

The Commission notes
the other
accessory BvS obligations were finally not implemented
in favour of GMH.

furthermore that

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(50)

(51)

By also taking into account the total remuneration and
the specific circumstances of the contract the Commis-
sion comes to the conclusion that the accessory BvS
obligations did not favour GMH.

6. CONCLUSION

The Commission finds that the measure assessed above
does not constitute State aid in the meaning of Article
87(1) of the EC Treaty or Article 4(c) of the ECSC
Treaty,

HAS ADOPTED THIS DECISION:

Article 1

The measure, which Germany has implemented for Georgs-
marienhütte Holding GmbH in relation to the management
contract with Gröditzer Stahlwerke GmbH and its subsidiaries,

does not constitute aid within the meaning of Article 87(1) of
the EC Treaty or Article 4(c) of the ECSC Treaty.

Article 2

This Decision is addressed to the Federal Republic of Germany.

Done at Brussels, 28 November 2001.

For the Commission

Mario MONTI

Member of the Commission