2002/895/EC: Commission Decision of 30 January 2002 on the State aid granted by Germany to Hirschfelder Leinen und Textil GmbH (Hiltex) (notified under document number C(2002) 310) (Text with EEA relevance)
Date: 2002-01-30
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, aid system, control of State aid, redemption, textile industry

18.11.2002

EN

Official Journal of the European Communities

L 314/45

COMMISSION DECISION

of 30 January 2002

on the State aid granted by Germany to Hirschfelder Leinen und Textil GmbH (Hiltex)

(notified under document number C(2002) 310)

(Only the German text is authentic)

(Text with EEA relevance)

(2002/895/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

the first

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 and
having regard to their comments,

Whereas:

I. PROCEDURE

(1)

(2)

(3)

(4)

(5)

(6)

By letter dated 9 April 1999, registered on 12 April 1999, Germany informed the Commission of
restructuring aid for Hirschfelder Leinen und Textil GmbH (Hiltex).

By letter dated 11 May 2000,
it had initiated the
procedure laid down in Article 88(2) of the EC Treaty in respect of the ad hoc aid granted to
Hiltex. At the same time Germany was asked to provide sufficient information and data to allow
the Commission to assess whether aid of some DEM 60,472 million complied with the terms of
the approved aid schemes under which it was claimed it had been granted.

the Commission informed Germany that

the
The Commission decision to initiate the procedure was published in the Official Journal of
European Communities (1). The Commission invited interested parties to submit their comments on
the aid. The Commission received no comments from interested parties.

On 6 June 2000, Germany informed the Commission that Hiltex had been declared bankrupt and
that no contacts could be established with its owners, Linen Production Ltd and Uniwear Asia.

By letter dated 6 September 2000, Germany responded to the information injunction contained in
the initiation of the formal investigation procedure stating that the aid which it claimed to have
awarded under approved aid schemes had been reduced to DEM 48,53 million and submitting
some information on the aid measures.

By letter dated 7 February 2001, the Commission informed Germany that it had decided to extend
the formal investigation procedure to the aid, which, on the basis of the information submitted, did
not seem to be covered by approved aid schemes.

(1) OJ C 272, 23.9.2000..

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Official Journal of the European Communities

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(7)

(8)

(9)

(10)

The Commission decision to extend the procedure was published in the Official Journal of
the
European Communities (2). The Commission invited interested parties to submit their comments on
the aid. The Commission received no comments from interested parties.

the formal
received on 6 April 2001, Germany responded to the extension of
By letter
investigation procedure. In its letter Germany informed the Commission of the grant of a further
DEM 1 million by way of restructuring aid for the bankrupt company. That amount is not covered
by this Decision.

II. DESCRIPTION

A. The relevant undertakings

Hiltex is a flax and textile spinning mill located in Hirschfelde, Saxony, an assisted area pursuant to
Article 87(3)(a) of the EC Treaty. It produces middle to fine spun linen yarns,
long linen yarn
(100 % linen) and tow yarn (100 % linen). The yarns are used for technical, household and home
textiles as well as outer garments.

The enterprise, founded in 1848, operated in the former German Democratic Republic in form of a
Volkseigener Betrieb (State-owned corporation), VEB Vereinigte Leinenindustrie Grosspostwitz.
According to the information submitted, the Treuhandanstalt (THA) set about restructuring the
company as from 1990/91. On 19 December 1994, Hiltex was incorporated into Schr(cid:246)der &
Partner GmbH & Co. Management KG (S+P MKG) (3). The company was to be privatised once the
most necessary investment had been carried out. During 1994 and 1995, investment totalling DEM
9,4 million was carried out. No indication was given of how the investment was financed.

(11) After the initiation and extension of the formal investigation procedure, Germany informed the
Commission that in 1993 Hiltex had 134 employees, a turnover of DEM 4,4 million and assets of
DEM 33,2 million. In 1994 Hiltex had the same workforce, a turnover of DEM 8,993 million and
assets of DEM 38,321 million.

(12)

Following a call for tender on 21 December 1995, Hiltex was privatised for DEM 25 500 to
Uniwear Trading Ltd (51 %), which belonged to Uniwear SA, Belgium (the Uniwear group) and
whose manager was Mr Jvan Bontognali. MCC-Credit Commercial (cid:224) moyen terme Ltd (MCC)
acquired 49 % of the shares for DEM 24 500. According to the information provided by Germany,
two other potential investors had shown interest, but subsequently withdrew.

1. Structure at the time of privatisation in December 1995

(13)

In 1995, Hiltex employed 113 people, had a turnover of DEM 4,186 million and a balance sheet
total of DEM 11 million. MCC, based in Ireland, employed 140 people, had assets of EUR 565 301
and an annual turnover of EUR 4 167 065 in 1995. On 31 December 1995, the Uniwear group
employed 438 people, had a turnover of EUR 8,754 million and a balance sheet total of EUR
31,811 million.

(2) OJ C 87, 17.3.2001, p. 2.
(3) The THA ended its tasks on 31 December 1994. Since 1995, some of the companies to be privatised were
assembled under the (cid:145)Berlin Management Beteiligungsgesellschaft mbH(cid:146)
(BMGB) grouping another five holdings
named (cid:145)Managementkommanditgesellschaften(cid:146) (MKGs). These held companies from specific industry sectors (textiles,
manufacturing, metal and steel production, etc.). The BMGB was in charge of the restructuring and subsequent
privatisation of the companies. In 1998, those companies which remained in the BMGB were transferred to the
THA’s successor, the BvS.

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Official Journal of the European Communities

L 314/47

(14)

The figures for December 1995 indicate the following structure:

Uniwear SA
Belgium
Holding company

74,9 %

99,9 %

26 %

99,9 %

100 %

Lys Lieve
Belgium,
Spinning mill

Uniwear Trading
United Kingdom
Trade

Rocke United
New Zealand
Leather

Uniwear Asia (L)
Malaysia
Trade

Walton Holdings
Bahamas

MCC-CrØdit
Commercial
Financing holding
company

51 %

99,9 %

Hiltex GmbH

49 %

Rocke Leather
New Zealand
Leather

2. Structure of the company in 1996

(15)

The structure of the Uniwear group changed during the course of 1996, with an increase in
employees, turnover and assets (4). According to the 1996 management report, in January 1996
the shares of PEX plc (United Kingdom) (5) a sock
the Uniwear group acquired 37,9 % of
manufacturer, and 100 % of the shares of Australia Slinkskins, a company specialising in the
treatment of skins.

(16) On 4 September 1996, with retroactive effect from 1 July 1996, MCC sold its shares in Hiltex to
Uniwear Asia, which then belonged to the Uniwear group, and whose manager was also Mr Jvan
Bontognali. Hiltex was then 100 % owned by the Uniwear group.

(17) According to its 1996 management report, on 2 November 1996, with retroactive effect from 1
January 1996, the Uniwear group sold off Uniwear Trading and Uniwear Asia on the grounds that
(cid:145)Hiltex was not able to receive the subsidies it expected due to the size of Uniwear(cid:146) (6).

3. Structure since May 1999

(18) On 6 June 1997, Uniwear Trading Ltd changed its name to Linen Production Ltd and, together
with Uniwear Asia, was integrated in the Key Corporate Ventures Ltd group, Virgin Islands, whose
main or sole shareholder seems to be Mr Jvan Bontognali. No further data on this group have been
made available. The exact date when both companies joined this group is also unknown.

(19) Germany states

that,

since autumn 1998,

there have been no management or personnel
relationships with the Uniwear group. This would seem to imply that, up to that time, relationships
with the Uniwear group still existed despite the fact that Hiltex’s owners had been sold off in
November 1996. In particular it is to be noted that until 22 July 1997, Mr De Poorter, one of the
managers of the Uniwear group, acted as manager of Hiltex.

(4) The balance sheets as at December 1996 show that the group employed 549 people (as against 438 in 1995), had

a turnover of EUR 23,448 million and a balance sheet total of EUR 41,279 million.

(5) In December 1996, PEX employed 152 people, had a turnover of EUR 8,376 million and assets of EUR 7,048

million.

(6) Management report of Uniwear S.A. for 1996, page 3.

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(20)

In this connection, the Commission also notes the business relationship between Hiltex and the
Uniwear group subsidiary Lys Lieve (7), a wetspun linen producer based in Belgium. Hiltex acted as
sales agent for Lys Lieve’s products in Germany. Lys Lieve has since 1997 stored machinery which
Hiltex acquired in 1996 from the company Mackie International Ltd (8), one of the shareholders of
the Uniwear group. For the payment of these machines Uniwear Asia and the Uniwear group
intended to increase Hiltex’s capital by DEM 6,6 million. The Commission also notes that, in 1998,
Hiltex sold under its own brand name products manufactured by Lys Lieve. According to the
information submitted, Lys Lieve will irreversibly close its plant facilities and Hiltex will take over
its market shares.

(21) According to the information provided, with effect from 30 June 1999, the nominal capital of
Hiltex was to be increased by DEM 6,6 million, to which Uniwear Asia would contribute DEM 6
million and the Uniwear group DEM 0,6 million. A further capital increase of DEM 3,3 million was
planned for the end of 1999. After these capital increases, Uniwear Asia would have a share of
65 % (DEM 6,409 million), the Uniwear group a share of 15 % (DEM 1,5 million) and Linen
Production Ltd a share of 20 % (DEM 1,941 million) in Hiltex.

(22)

In its response to the initiation of the formal investigation procedure, Germany stated that none of
the capital increases took place and that therefore the Uniwear group never held 15 % of Hiltex.
According to Germany, the Uniwear group filed for bankruptcy in June 2000. Hiltex filed for
bankruptcy on 6 July 2000. The manager of Hiltex, Linen Production Ltd, Uniwear Asia and Key
Corporate Ventures Ltd, Mr Jvan Bontognali, seems to have disappeared.

B. The restructuring

still unclear when the restructuring started. The
(23) Despite the information injunction,
the company in
information submitted states
1990/1991, i.e. prior to its privatisation. However, it is also stated that the restructuring started in
1995, when a sharp fall in demand and prices led to a drop in turnover of more than 50 %. A
further amendment to the restructuring plan took place in 1999, when the obligations under the
1995 privatisation contract were revised.

the THA initiated the restructuring of

that

is

it

(24)

The only restructuring plan submitted to the Commission covered the period from 21 December
1995 to 30 June 2000. According to it, Hiltex would closely co-operate with the Uniwear group in
order to become one of the main suppliers of fine linen yarn in Europe. For this purpose, Hiltex
bought machinery from Mackie International Ltd in 1996 and intended to enlarge the range of
nature fibres produced (wool, silk, cotton and linen). Hiltex was to concentrate on the production
on very fine yarns whilst coarse yarns would be imported from China and marketed by Hiltex. For
in China and intended to acquire a
this purpose, the Uniwear group acquired a spinning mill
further spinning mill in Brazil.

(25)

The core element of the restructuring plan was the moving of the current production site from a
150-year-old building to a modern industrial park. This was intended to reduce internal transport
costs and optimise the operational activities. The machinery acquired was supposed to improve
efficiency and help reduce material costs as well as personnel and energy expenditure. Facilities to
treat waste water were to reduce energy and water expenditure by 10-15 %.

(26) Hiltex expected to increase sales from some 400 tonnes/year up to 1 343 tonnes/year as from
2000 which, according to Germany, would be realised without
increasing capacities. The
Commission notes that Hiltex was supposed to take over the market shares of Lys Lieve, which in
1999 produced 600 tonnes/year.

(7) In 1998, Lys Lieve had a turnover of EUR 4,806 million, a balance sheet total of EUR 7,743 million and employed

86 persons.

(8) Now Bridge Mackie Textile International.

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Official Journal of the European Communities

L 314/49

(27)

Table 1 shows the investment measures included in the plan and the position regarding their
realisation:

Table 1

Investment

Total project

Realised

Land and buildings

Machinery and spinning facilities

Water treatment

Humidification

Looms machinery

Informatics (including software)

15,275

12,392

0,380

0,410

0,361

0,161

Total

28,980

0,025

4,898

0

0

0,111

0,096

5,130

(in DEM million)

To be realised
in 1999/2000

15,250

7,494

0,380

0,410

0,250

0,065

23,850

(28)

In its decision to initiate the formal
investigation procedure, the Commission noted that the
planned restructuring measures had not been implemented in 1999 as intended. According to
Germany, this was due to financial problems on the part of the acquirers, as a result of which the
construction of the new production site could not be started. Germany conceded that this meant a
the break-even point was still deemed to be
one-year delay in Hiltex’s sales forecasts, but
1999/2000.

(29) According to Germany, Hiltex reduced its capacities for both long flax yarn and tow yarn between
1995 and 1999 from 606 tonnes/year to 595 tonnes/year. A further reduction to 577 tonnes/year
was planned in 2000. During the implementation of the plan for the period 1996-2000, the
capacities were to be increased with regard to long flax, but reduced with regard to tow yarn.
According to Germany, total production capacity was reduced.

(30)

The information submitted by Germany indicated that as from 1992 Hiltex acquired 47 machines,
at least some of which were purchased from the Uniwear group, and scrapped 76 machines. The
information indicated the existence of some 21 machines for different production purposes. A
further 12 machines were to be acquired in 1999-2000.

(31) Germany drew particular attention to the cost reduction to be achieved by the restructuring. The
expansion to international markets as well as the specialisation in fine-spun yarns were expected to
lead in the medium term to improved operating results, with the break-even point being reached in
1999/2000. According to Germany, Hiltex would then be able to compete in the market on its
own merits.

(32)

The Commission notes that on 6 July 2000 Hiltex filed for bankruptcy. The Commission has never
been informed on the state of implementation of the above measures. The break-even point was
never achieved.

C. The costs of the restructuring

(33)

The overall costs of the restructuring for the period 1996(cid:150)2000 and the financial measures planned
for the covering of these costs are detailed in the following table presented by Germany:

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Official Journal of the European Communities

18.11.2002

Restructuring measures

Amount

Public measures

Amount

Private measures

Amount

Table 2

(in DEM million)

Investments 1996-2000

28,980 Direct investment

10,820 Cash/kind

grants (Land)

Investment allowance
(Land)

Loan (BvS)

3,430 Investment loan

3,000 Waiver of loan

repayment

6,000

3,100

0,499

Interest on Uniwear group
loan

0,101

Waiver of interests

0,101

Interest on BvS loan

0,136 Underwriting (BvS)

Environmental liabilities
(Altlasten)

0,250 Underwriting (BvS)

0,136

0,250

Negative cash-flow
1996-1999

5,903 Loan (BvS)

3,000 Cash

Loan

Remaining

1,140

3,300

0,549

Total

35,370

Total

20,636

Total

14,734

D. The financial commitment from the public authorities

(34) According to the information submitted by Germany, Hiltex benefited from four sets of financial
measures. The following tables provided by Germany show the financial measures taken to assist
Hiltex (the amounts have been rounded).

(35)

Financial measures granted from 1991 to 1995:

Table 3

1

2

3

4

5

6

7

8

9

Granting entity

Description

1991

1992

1993

1994

1995

(in DEM million)

Zittau tax office

Investment allow-
ance

S(cid:228)chsische Aufbau-
bank

Direct investment
grants

THA/BvS

THA/BvS

Waiver of loans

Grants for social
plan

0,003

0,228

1,260

1,504

0,136

0,317

0,079

0,185

23,938

THA/BvS

Grant for loss cover

1,751

0,658

Federal Ministry of
Food and Agriculture

Grants

Federal Ministry of
Research and
Technology

Grants

Saxon Ministry of
Food and Agriculture

Promotion of
projects

SMWA, Dresden

Promotion of
employment

0,249

0,022

0,025

0,820

0,230

0,149

0,132

Total

Total

1,504

1,205

0,699

3,472

24,806

31,686

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Official Journal of the European Communities

L 314/51

(36)

Financial measures granted upon privatisation:

Table 4

(in DEM million)

Granting entity

Description

1995

1996

1997

1998

1999

10

THA/BvS

11

THA/BvS

12

THA/BvS

Grants for covering
of liabilities

Grants for personnel
reduction

Waiver of liabilities,
cash-pool

1,867

0,070

0,241

0,001

13

THA/BvS

Loss compensation

1,125

1,184

0,607

0,083

14

THA/BvS

Waiver of loans

15

S+P MKG

16

S+P MKG

Guarantee for
Deutsche Bank credit

Guarantee for
Deutsche Bank credit

0,820

3,000

3,000

Total

Total

8,687

1,366

1,255

0,607

0,083

11,998

(37)

Financial measures granted from 1996 to 1999:

Table 5

(in DEM million)

Granting entity

Description

1996

1997

1998

1999

17

18

Zittau tax office

Investment allowance

S(cid:228)chsische Aufbaubank

Direct investment
grants

0,687

0,966

0,172

0,631

19

Land of Saxony

20

SMWA

Promotion of
employment

Promotion of
technology

0,065

0,009

0,001

21

22

23

Federal Ministry of
Economic Affairs

Grant for certification
fees

0,007

S(cid:228)chsische Landesanstalt
f. Landwirtschaft

Promotion of projects

0,020

Regierungspr(cid:228)sidium
Chemnitz

Grant

0,009

24

BAW, Eschborn

Grant for participation
in fairs

0,002

0,003

0,004

25

Federal Labour Office

26

Bautzen labour office

Promotion of
employment

Promotion of
employment

0,021

0,027

0,003

0,013

0,002

Total

Total

1,682

0,904

0,054

0,002

2,642

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(38)

In its decision to initiate the formal investigation procedure, the Commission also noted that, in
1996, Hiltex received financial assistance for the promotion of projects from the Federal Ministry of
Food, Agriculture and Forestry amounting to DEM 479 (measure 27). Due to its small amount this
measure is not included in Table 5.

(39)

Financial measures granted in 1999, within the context of
obligations deriving from the 1995 purchase contract:

the amendment of

the financial

Table 6

(in DEM million)

Granting entity

Description

1999

27(a)

Tax office

Investment allowance

S(cid:228)chsische Aufbaubank

Direct investment grants

28

29

BvS

30

BvS

31

BvS

Waiver of repayment of (cid:145)Altlasten(cid:146)
grant

Redemption of guaranteed bank dues
(Deutsche Bank)

Redemption of loan interest (Deutsche
Bank)

Total

0,710

(cid:151)

(cid:151)

(cid:151)

0,136

2,444

(40)

In its response to the information injunction, Germany explained that, since Hiltex had been
declared bankrupt, measure 27(a) (originally amounting to DEM 3,430 million) and measure 28
(originally amounting to DEM 10,820 million) had been only partially paid out. In its response to
the extension of the formal investigation procedure, Germany explained that measures 28, 29 and
30 had not been implemented and that their amount is therefore not included in the total. Table 6
has been modified to reflect the actual payments.

E. The private commitment

(41)

in view of

The Commission first notes that,
the changing corporate relationships and the
insufficient information provided, it is impossible to determine who should be considered to be
Hiltex’s investor. The information submitted on this point is contradictory sometimes describing the
Uniwear group as the investor, but at other times including Uniwear Asia and Linen Production Ltd
as investors. The information on the form, amount and origin of the investor’s contribution is both
contradictory and misleading. From the terms of
the investor’s
contribution to the restructuring of Hiltex seems to consist of the following items:

the information submitted,

(42) A capital

increase of DEM 6 million, originally described as cash and contribution in kind
(machinery) from the Uniwear group, but subsequently as cash from Uniwear Asia, was to be
directly transmitted by Hiltex to Idra Consult as payment for eight machines acquired in 1996 from
Mackie International Ltd. According to the information submitted after the initiation of the formal
in the Bahamas, with
this amount was paid into a bank account
investigation procedure,
instructions that it be transferred to Idra Consult. According to the information submitted by
Germany, the capital increase never took place. The Commission has not been informed on the
current location of this money.

(43) A capital increase by the Uniwear group of DEM 0,6 million, including interest of DEM 0,101
million. This is described by Germany as a waiver of a corporate loan originally amounting to
some DEM 1 million granted to Hiltex by the group in 1997. The information submitted states that
the loan was directly transmitted to Mackie International Ltd. In return, three machines stated to be
the property of the Uniwear group were leased to Hiltex.

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(44) A further capital increase in the form of a grant of DEM 3,3 million, from which DEM 0,385
million was to be provided by Uniwear Asia, DEM 1 million by the Uniwear group and DEM 1,915
million by Linen Production Ltd. According to Germany, from the total amount, DEM 1,592
million has effectively been paid in.

(45) An investment credit of DEM 3,1 million. According to Germany, although the contract for the

award of this credit was signed, it was never paid.

(46) A loan for the covering of

liabilities amounting to DEM 1,14 million, which, according to

Germany, was actually granted.

(47)

The information submitted further mentions a loss cover originally amounting to DEM 0,927
million, later to DEM 0,594 million. There is no indication as to its origin or effectiveness.

(48)

In view of the above, it seems that DEM 3,332 million has been effectively paid in favour of Hiltex.

F. Market analysis

(49)

The market for linen yarn comprises weaving plants for dress fabrics, weaving mills for home
textiles and manufacturers of technical articles. The first segment influences the second one insofar
as dress fashion trends raise the price of linen yarns, and home textile manufacturers then switch to
other yarns. According to the information provided by Germany, Hiltex sells 20 % of its production
in Germany and the remaining 80 % in the other Member States.

(50) Germany supported its assumptions on the restoration of long-term viability with a short market
for linen yarn is currently undergoing a
analysis, according to which the European market
restructuring process. The rate of capacity utilisation currently fluctuates between 60 % and 70 % as
against almost 100 % in previous years of high demand. The trend shows a preference for
high-quality fine-spun yarns, the market segment in which Hiltex is operating.

(51)

The development of capacities in Europe is described by Germany as follows:

Year

1990

1995

2000

Table 7

Middle fineness Nm

Capacities (t/a)

10,2

13,9

22,6

1 098

606

536

(52) Hitherto, upturns and downturns alternated in seven-year cycles. The last boom in demand took
place in 1993/1994, and the suppliers thus expect a similar development in 2000/2001. With
regard to technical articles, the information provided by Germany indicates that the market has
been declining for years.

III. COMMENTS FROM GERMANY

(53)

In its response to the initiation of the formal
investigation procedure, Germany stated that all
relevant information concerning Hiltex’s SME status had already been submitted. Germany gave
details on some aid measures and informed the Commission that some of these had not been
actually implemented. Germany stated that all the measures made available to Hiltex either did not
constitute aid or were covered by aid schemes approved by the Commission.

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(54)

In its response to the extension of the formal investigation procedure, Germany submitted some
data on the company for the years 1993 and 1994 and provided further information on the aid
allegedly granted under approved aid schemes.

IV. ASSESSMENT

(55) As part of the initiation of the formal investigation procedure, Germany was requested by means of
an information injunction to provide the Commission within one month with enough information
to allow it to assess the measures under investigation. The decision on the extension of the formal
investigation procedure noted that most of the questions contained in the information injunction
remained unanswered. In spite of these measures, the information submitted in response to the
information injunction remains insufficient to dispel the doubts expressed by the Commission in
the opening of the formal investigation procedure and its extension. The Commission therefore
bases the assessment on the information available (9).

A. Aid beneficiary

(56) According to the latest information submitted, Hiltex qualified as an SME in 1993 and 1994.
However, despite the information injunction,
in view of Hiltex’s relationship with the Uniwear
group and subsequently with the Key Corporate Ventures group, the Commission cannot conclude
that the immediate aid beneficiary, Hiltex, qualified as an SME after its privatisation.

(57) At the time of its privatisation in December 1995, Hiltex considered on its own might have
qualified as an SME within the meaning of the Commission recommendation of 3 April 1996
concerning the definition of SMEs (10). However, since the Uniwear group holding 49 % of its
shares at that time was a large undertaking, the independence criterion was not fulfilled and Hiltex
did not qualify as an SME.

(58)

In its decision to initiate the formal investigation procedure, the Commission pointed out that the
retroactive sale of Hiltex in November 1996,
in order to enable the company to benefit from
regional aid up to the ceilings allowed for SMEs, was likely to constitute a circumvention of the
SME criteria.

(59) According to the Commission recommendation of 3 April 1996 concerning the definition of SMEs,
in order to verify the fulfilment of the thresholds laid down for qualifying as an SME, the reference
year to be considered is that of the last approved accounting period. Since in 1996 Hiltex benefited
from aid granted up to the ceilings allowed for SMEs (measures 17 and 18), the reference year for
clarifying its status would then be 1995. As explained above, as at 31 December 1995 Hiltex,
having been integrated in the Uniwear group, did not qualify as an SME.

(60) As regards its current status, since 1997 Linen Production Ltd and Uniwear Asia have been
integrated into the Key Corporate Ventures Ltd group. In the absence of data on this group, it
cannot be determined whether Hiltex qualifies as an SME since its two owners Linen Production
Ltd and Uniwear Asia were sold off in November 1996.

B. State aid within the meaning of Article 87(1) of the EC Treaty

(61)

In its decision to initiate the formal investigation procedure, the Commission took the view that all
the above financial measures constituted State aid. The measures derived directly or indirectly from
State resources, threatened to distort competition and affect trade between Member States and had
conferred on the company advantages which it would not have obtained from a private investor in
the light of its difficulties.

(9) Article 13(1) 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, OJ L 83, 27.3.1999, p. 1.

(10) OJ L 104, 30.4.1996, p. 4.

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investigation procedure,

(62) Germany contested this with regard to measures 4 and 6 to 9. However, in its decision to extend
through the State
the formal
interventions under measures 4, 6, 7 and 8 the company was liberated from charges which it
would otherwise have borne from its own resources. Hiltex thus obtained an advantage with
respect to its competitors which in view of its difficulties it would not have received from a private
investor. Such advantages threaten to distort competition and affect trade within the common
market and are therefore to be regarded as aid within the meaning of Article 87(1) of the EC
Treaty.

the Commission pointed out

that

(63) As regards measure 9, the Commission noted in its decision to extend the formal investigation
procedure that it had not been provided with sufficient information to allow it to determine
whether the State had any discretionary power in selecting the companies benefiting from such
grants. Since Germany has not provided any further information in this respect, the Commission
cannot conclude that this was a general measure. Consequently, measure 9 will be regarded as State
aid within the meaning of Article 87(1).

C. Aid which Germany claims was granted under approved aid schemes

(64) Germany claims that measures 1-28 were granted under aid schemes approved by the Commission.
Since the Commission seriously doubted that these measures complied with the terms of the
approved aid schemes under which, according to Germany, they had been granted, it issued an
information injunction on the basis of Article 10(3) of Council Regulation (EC) No 659/1999
calling on Germany to submit all data, documentation and information necessary to enable the
Commission to decide whether the aid which Germany claimed was granted under approved aid
schemes effectively complied with the terms of those schemes.

(65)

investigation procedure,

In its decision to extend the formal
the Commission concluded that
measures 12, 14, 15 and 16 granted during the privatisation were covered by the THA-Regime N
768/94 (11). This scheme states that when the liquidation of a company is the less costly option
from an economic point of view, but the THA/BvS decides to sell the company (negative price), the
sale must be notified to and assessed by the Commission only if the company employs more than
250 employees. Hiltex employed 113 people at the time of its privatisation and the price of DEM
0,5 million paid for it must be deemed negative in view of the financial engagement of some DEM
10 million by the public authorities. Thus, the sale itself did not need to be notified and the aid
measures granted during the privatisation must be deemed to be covered by this scheme.

(66)

The Commission also found that measure 19 complied with the terms of an approved aid scheme
for the promotion of employment within the context of R&D projects and thus constituted existing
aid which did not need to be re-assessed (12).

(67)

The remaining measures which Germany claimed had been awarded under approved aid schemes
were found to constitute new aid, since the Commission could not conclude that the terms of the
schemes under which they allegedly had been awarded had been complied with. This was the case
with measures 1 to 11, 13, 17, 18 and 20 to 23. After the extension of the formal investigation
procedure, Germany submitted information which prompted the Commission to revise its view in
part.

(68) Measures 1 and 2, direct investment grants and investment allowances awarded under regional
investment aid schemes up to the ceilings for SMEs: According to the latest information submitted,
Hiltex qualified as an SME before its privatisation. However, Germany has conceded that Hiltex
received excessive regional aid up to its privatisation. Germany has also stated that the excess was

(11) THA-Regime N 768/94 (SG (95) D/1062).
(12) N 493/97, SG (98) D/1836, 3.3.1998.

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partially repaid through the grants under measure 10. However, the Commission has not been
informed on the amount of aid that exceeded the provisions of the approved aid schemes. No
evidence has been provided that the excess amount of regional aid was fully reimbursed. It has not
been indicated whether interest was paid for the period until the excess was allegedly repaid.
Consequently,
the total amount of aid complied with
approved aid schemes.

the Commission cannot conclude that

(69) Measure 3, a waiver of the repayment of loans: Germany has stated that this waiver related to loans
of DEM 23,938 million granted by S+P MKG before privatisation. The loans did not need to be
notified to the Commission under the provisions of THA-Regime N 768/94 (13). Germany states
that in order to prepare for privatisation their repayment was waived in April 1995 until such time
as profits were achieved (Besserungsschein). Upon privatisation, since no profits had been yet
achieved, repayment was completely waived. The Commission acknowledges that these loans had
been granted to a company in difficulty. In view of the high risk of default in such cases combined
with the specific circumstances of the new L(cid:228)nder, the potential aid element in these loans was
100 % (14). Consequently, the waiver of their repayment does not constitute new aid (15).

(70) Measure 5: grants to cover losses were allegedly awarded in 1994 and 1995 under the relevant
THA-Regimes. However, as already established in the initiation of
investigation
procedure and its extension, the THA-Regimes do not cover grants before the privatisation of
companies (16). Consequently, these grants cannot be considered to be covered by the relevant
THA-Regime.

the formal

(71) Measure 10: Germany states that according to the privatisation contract, if excessive regional aid
had been awarded in the run-up to privatisation and part had to be paid back, the THA should pay
50 % of the amount to be returned, with a maximum of DEM 70 000. Germany admits that Hiltex
received excessive regional aid in the run-up to privatisation, so that measure 10 is to be regarded
as the THA’s payment of the excessive aid received by Hiltex. The Commission considers that, if
such an agreement took place, it would imply awarding aid to return part of aid falling outside
approved aid schemes. Such an agreement would circumvent the Commission’s regional aid policy
and cannot be the subject of Commission approval.

(72) Measure 11: according to Germany, investors agreed, upon privatisation, to employ 70 people.
Germany states that since the workforce had to be given notice before dismissal, over 70
employees had to be provisionally taken over. The THA agreed to compensate for any personnel
reduction exceeding 70 people. The Commission concludes that this compensation derived from
engagements undertaken upon privatisation and was covered by the relevant THA-Regime.

(73) Measure 13: Germany states that the privatisation contract stipulated that the State would take over
the losses for the period 1996 to 1998. Measure 13 is claimed to constitute partial payments
covering the losses during those years. However, the privatisation contract established limits for the
coverage of those losses which were exceeded by DEM 0,184 million in 1997 and by DEM 0,107

(13) This scheme, cited in footnote 13, allows for loans granted before privatisation to companies employing less than

250 employees when the amount of the loans does not exceed DEM 50 million.

(14) Commission communication to the Member States (OJ C 307, 13.11.1993)

in relation with the Directive
80/723/EEC of 25 June 1980 on the transparency of financial relations between Member States and public
undertakings (OJ L 195, 29.7.1980). Point 33 of the Commission communication on the application of Articles 92
and 93 of the EC Treaty and Article 61 of the EEA Agreement to state aids in the aviation sector (OJ C 350,
10.12.1994). See also cases Chemieanlagenbau Sta(cid:223)furt (OJ L 130, 26.5.1999), C 30/98 Wildauer Kubelwelle, NN
4/99 Esda Feinstrumpffabrik, Lautex Weberei und Veredlung (OJ C 387, 12.12.1998).

(15) See also point 3.4 of the abovementioned THA-Regime (cid:145)when the THA or its succeeding institutions renounce to
its rights within the context of the Vertragsmanagement, a notification is needed in case the company employs more
than 250 employees and the obligations surpass DEM 50 million(cid:146).

(16) See footnote 12.

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million in 1998. Moreover,
the loss cover for the year 1999 was not provided for in the
privatisation contract. Consequently, the Commission concludes that the amounts exceeding the
provisions of the privatisation contract are not covered by the relevant THA-Regime.

D. New aid

(74) After an assessment of the information submitted in response to the initiation of the formal
investigation procedure to those
investigation procedure, the Commission extended the formal
measures which, on the basis of the information available, still did not seem to be covered by
approved aid schemes.

(75)

(76)

The Commission has reviewed its assessment with respect to part of measures 1-3 and measures 11
and 13, which according to the latest information, are covered by approved aid schemes. Their
amount must nevertheless be taken into account in assessing the proportionality of the aid. The
remaining measures continue to be regarded as new aid.

Part of the new aid was claimed to fall under the de minimis rule. The de minimis rule provides that
the ceiling for such aid is EUR 100 000 over a three-year period. This ceiling applies to the total of
public assistance considered to be de minimis aid and does not affect the possibility of the recipient
obtaining aid under schemes approved by the Commission.

(77) Germany states that measures 7 (amount paid in 1995), measures 21, 22, 23, 24 (amounts paid in
1996 and 1997), 25 (amount paid in 1997) and 26 (amount paid in 1997) totalling DEM 90 000,
i.e. EUR 46 016, do not exceed the limit allowed under the de minimis rule.

(78) Germany further states that measures 20, 24 (amount paid in 1998), 25 (amount paid in 1998)
and 26 (amounts paid in 1998 and 1999) totalling DEM 47 000, i.e. EUR 24 030, do not exceed
the limit allowed under the de minimis rule.

(79) Germany has stated that the conditions for application of the de minimis rule have been complied

with. The Commission therefore regards these amounts as de minimis aid.

E. Derogation under Article 87 of the EC Treaty

(80)

(81)

In view of the above, aid of at least DEM 9,978 million falls to be assessed as new aid by the
Commission. The aid is in principle incompatible with the common market, but might fall within
the scope of the derogations of Article 87 of the EC Treaty. The exemptions in Article 87(2) of the
EC Treaty do not apply in the present case because the aid measures neither have a social character
and are not granted to individual consumers, nor do they make good the damage caused by natural
disasters or exceptional occurrences, nor is the aid granted to the economy of certain areas of the
Federal Republic of Germany affected by its division.

the EC Treaty is relevant, because the main objective of

Further exemptions are set out in Article 87(3)(a) and (c) of the EC Treaty. In this case, Article
87(3)(c) of
the aid is not regional
development, but the restoration of the long-term viability of an undertaking in difficulty. Article
87(3)(c) gives the Commission discretion to permit State aid granted to facilitate the development
of certain economic activities, where such aid does not adversely affect trading conditions to an
extent contrary to the common interest. In the Community guidelines on State aid for rescuing and
restructuring firms in difficulty (17), the Commission spelled out the conditions governing the
exercise of its discretionary powers. The Commission considers that none of the other Community
guidelines, such as those for research and development, the environment, small and medium-sized
enterprises, or for employment and training, is applicable.

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

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1. Restoration of viability

(82)

The award of restructuring aid requires a feasible, coherent and far-reaching restructuring plan
capable of restoring the long-term viability and health of the firm within a reasonable time span. It
is therefore necessary to consider the exact time span of the restructuring plan.

(83) Despite an information injunction, the Commission still cannot determine when the restructuring
it is impossible to ascertain whether the long-term viability would be
of Hiltex started. Thus,
restored within a reasonable period. Furthermore, in view of the numerous grants of State aid to
Hiltex since 1991 and the negative operating results achieved by the undertaking, the Commission
has grounds to believe that Hiltex was kept artificially alive.

(84)

(85)

Restructuring usually involves the reorganisation and rationalisation of the firm’s activities on to a
more efficient basis typically involving the withdrawal from activities that are no longer viable or
are already loss-making. In addition, those existing activities that can be made competitive again
should be restructured and, possibly, new viable activities should be developed or diversified into.
Financial restructuring usually has to accompany the physical restructuring.

The Commission first notes that the core element of the restructuring plan, the construction of the
new production site in a nearby park, was postponed until 2000, thus impeding the installation of
the new machinery bought
intended to contribute to the planned
concentration of production on very fine yarns. In these circumstances, it was unrealistic to expect
that Hiltex would restore its viability or reach break-even point in 2000.

in 1996, which was

(86)

The following table shows the development of the actual and expected economic results of Hiltex:

Table 8

(in DEM million)

1995 (*)

1996 (*)

1997 (*)

1998 (*)

1999 (*)

2000 (*)

2001 (*)

Turnover

4,186

3,433

7,212

5,942

9,968

20,647

21,814

Operating result

ﬂ3,023

ﬂ2,024

ﬂ3,566

ﬂ3,130

ﬂ2,799

ﬂ0,365

0,709

(*) final figures

(87) Hiltex expected a turnover increase of 370 % by the year 2001 in relation to the operating result
achieved in 1998. However, the Commission notes that the market analysis provided by Germany
showed a declining market. In addition, most of the necessary investments could not be realised
during the first three years of the restructuring and it did not seem realistic that they would be
realised within the following two years. In its initiation of the formal investigation procedure, the
Commission concluded that such an increase in turnover did not correspond to economic reality
and did not seem to be based on realistic assumptions.

(88)

The Commission’s doubts are confirmed by the fact that the company filed for bankruptcy in July
2000. It is thus clear that long-term viability will not be achieved.

2. No undue distortions of competition

(89)

The restructuring must contain measures taken to offset as far as possible adverse effects on
competitors, otherwise the aid involved is contrary to the common interest and not eligible for
exemption pursuant to Article 87(3)(c) of the EC Treaty.

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(90)

(91)

(92)

If the undertaking is situated in a relevant market in the EU where an objective assessment of
demand and supply shows that there is a structural excess of production capacity, the restructuring
plan must make a significant contribution, proportionate to the amount of aid received, to the
restructuring of
the industry serving the relevant market by irreversibly reducing or closing
capacity.

The market on which Hiltex operates is currently undergoing a significant restructuring phase.
According to the information available, Hiltex intended to expand its capacities in the (cid:145)long linen
yarns(cid:146) segment and to increase its market shares. A company in receipt of restructuring aid is not
allowed to increase its production capacity unless its survival depends on it. Such an exception
must be explicitly invoked and justified. In the present case, no explanation on the necessity of the
intended increase in capacities and market shares was provided.

In addition, Hiltex acquired new and more modern machinery, intended to improve efficiency and
increase production capacity. Although it was claimed that several machines had been scrapped, the
Commission believed that they may have been reallocated within the Uniwear group. The total
capacities within the group, which de facto seems to have controlled Hiltex, would then remain
unaltered.

(93) Germany has submitted no information to dispel

the Commission’s doubts. The Commission
cannot therefore conclude that the intended restructuring, which was never carried out, contained
sufficient measures to counterbalance possible negative effects on competitors.

3. Proportionality to restructuring costs and benefits

(94)

(95)

The amount and intensity of the aid must be limited to the strict minimum needed to enable the
restructuring to be carried out and must be related to the benefits anticipated from the
Community’s viewpoint. Therefore, the investors must make a contribution to the restructuring
plan from their own resources. Moreover, the way in which the aid is granted must be such as to
avoid providing the
cash which would be used for aggressive,
market-distorting activities not linked to the restructuring process.

company with surplus

In its initiation of the formal investigation procedure, the Commission noted that in the absence of
a precise starting date for the restructuring, it was impossible to determine the overall amount of
the restructuring costs. Without an account of the overall restructuring costs throughout the whole
restructuring period, it could not be determined whether the aid granted to cover those costs was
the strict minimum required for the restructuring or whether the alleged investor contribution
could be considered substantial within the meaning of
the lack of
information prevented the Commission from determining who should be considered to be the
investor in Hiltex. In addition, no explanation was provided as to why the different shareholders
could not finance the restructuring from their own resources. In the absence of full information on
the investor groups,
the Commission could not assess whether the aid was really necessary.
Furthermore, the Commission doubted that the purported capital increases in the form of loans
directly transmitted to one of the shareholders in the Uniwear group could be considered to be an
investor contribution within the meaning of the guidelines.

the guidelines. Moreover,

(96)

These doubts were not dispelled after the initiation and extension of the investigation procedure.
Moreover, the information submitted indicates that a substantial part of the purported investor
contribution was never paid in. Since Uniwear Asia filed for bankruptcy and Mr Bontognali seems
to have disappeared, it is highly doubtful that any outstanding contributions will be paid. In view
of the foregoing, the Commission cannot conclude that the investor contribution criterion is met.

4. Full implementation of the restructuring plan

(97)

Finally, a company in receipt of restructuring aid must fully implement the plan submitted and
approved by the Commission. In the present case, the different changes in the ownership of Hiltex,

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entailing subsequent amendments to the restructuring plan, raised doubts that any plan would be
fully implemented. These doubts were confirmed by the fact that the company filed for bankruptcy
and the restructuring plan was not fully implemented.

(98)

The Commission finds that Germany has unlawfully implemented the aid in question in breach of
Article 88(3) of the EC Treaty,

V. CONCLUSION

HAS ADOPTED THIS DECISION:

Article 1

The State aid which Germany has granted to Hirschfelder Leinen und Textil GmbH (Hiltex), amounting to
at least DEM 9,978 million, is incompatible with the common market.

The aid consists of the following measures:

(cid:151) the amount of measures 1 and 2 (direct investment grants and investment allowances) exceeding the
the schemes under which they were granted and which may have not yet been
their full

provisions of
reimbursed, as well as the interest generated from the time they were granted until
reimbursement,

(cid:151) measure 4, grants for the social plan of DEM 2,221 million,

(cid:151) measure 5, grants to cover losses of DEM 2,409 million,

(cid:151) measure 6, grants of DEM 0,249 million,

(cid:151) measure 7, amount paid in 1994, grants of DEM 0,022 million,

(cid:151) measure 8, grants for the promotion of projects of DEM 1,050 million,

(cid:151) measure 9, grants for the promotion of employment of DEM 0,281 million,

(cid:151) measure 10, grants to cover liabilities of DEM 0,070 million,

(cid:151) the amount of measure 13 exceeding the provisions of the privatisation contract, i.e. DEM 0,374

million,

(cid:151) measure 17, investment allowance of DEM 0,859 million,

(cid:151) measure 18, direct investment grants of DEM 1,597 million,

(cid:151) measure 27, grants of DEM 479,

(cid:151) measure 27(a), investment allowance stated to have only been paid in an amount of DEM 0,710

million,

(cid:151) measure 31, redemption of interest of DEM 0,136 million.

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.

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2.
law
Recovery shall be effected without delay and in accordance with the procedures of national
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.
the reference rate used for calculating the
grant-equivalent of regional aid.

Interest shall be calculated on the basis of

Germany shall
measures taken to comply with it.

inform the Commission, within two months of notification of this Decision, of the

Article 3

This Decision is addressed to the Federal Republic of Germany.

Article 4

Done at Brussels, 30 January 2002.

For the Commission

Mario MONTI

Member of the Commission