2005/90/EC: Commission Decision of 20 April 2004 on the measure implemented by France for Société de Réparation Navale et Industrielle SA (SORENI) (notified under document number C(2004) 1362) (Text with EEA relevance)
Date: 2004-04-20
Institutions: European Commission
Subjects: France, State aid, control of State aid, shipbuilding

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COMMISSION

COMMISSION DECISION

of 20 April 2004

on the measure implemented by France for Société de Réparation Navale et Industrielle SA
(SORENI)

(notified under document number C(2004) 1362)

(Only the French version is authentic)

(Text with EEA relevance)

(2005/90/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

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

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and
having regard to their comments,

Whereas:

(1)

(2)

(3)

(4)

I. PROCEDURE

Following information in the press that France had adopted financial measures to assist ship-repair
activities in Le Havre, the Commission, by letter of 21 December 2001, asked France for clarification.
By letter of 15 March 2002, registered as received on 19 March, France informed the Commission
that the public authorities had supported financially a ship-repair firm, Société de Réparation Navale
et Industrielle (SORENI). The measure was registered as unnotified aid (NN 53/02) since it already
had been granted by the time the information was provided and since, in addition, an amount of
EUR 1 720 000 had been paid out in December 2001.

By letter of 4 April 2002, the Commission asked France for further information. France replied by
letter of 3 June 2002, registered as received on 4 June.

By letter of 12 August 2002, the Commission informed France that it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty in respect of the measure. The case was
registered as C 55/2002. The Commission decision to initiate the procedure was published in the
Official Journal of the European Communities (2) and interested parties were invited to submit comments.

France submitted its comments by letter of 1 October 2002, registered as received on 2 October.
Comments from the United Kingdom were received by letter of 16 October 2002, registered on
24 October. These were forwarded to France, which was given the opportunity to react.

(1) OJ C 222, 18.9.2002, p. 21.
(2) See footnote 1.

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(5)

(6)

(7)

The Commission asked France additional questions by letter of 4 November 2002. France presented
its answers and comments by letter of 14 January 2003, registered as received the same day. It
submitted additional information by letter of 2 October 2003, registered on 3 October 2003, and by
letter of 10 October 2003, registered as received the following day. The Commission addressed
further questions to France by letter of 21 November 2003, to which France replied by letter of
29 December, registered as received on 8 January 2004, and by letter of 29 January 2004, registered
as received the same day.

II. DETAILED DESCRIPTION

A. The undertaking concerned

The recipient of the financial support is SORENI, a ship-repair firm located in Le Havre, i.e. in an area
eligible for aid within the meaning of Article 87(3)(c) of the EC Treaty. SORENI was set up on 1
November 2001 to take over the assets of three ship-repair firms, as explained below.

The shipyard Ateliers et chantiers du Havre — Construction navale (ACH-CN) in Le Havre closed down in
2000 following its bankruptcy. ACH-CN received closure aid that was approved by Commission
decision 2002/132/EC (3). Three subsidiaries of ACH-CN active in ship repair (SIREN, TMTM and
MECA HELIX, hereinafter ‘the three subsidiaries’) survived but, before long,
they experienced
economic problems related to the loss of subcontracting from ACH-CN and of shipowners’
confidence.

(8)

In 2001 twelve local subcontractors to the three subsidiaries decided jointly to set up a new firm,
SORENI, to take over the ship-repair activities from the three subsidiaries.

(9)

The bid was presented on 24 August 2001 by the twelve local subcontractors. SORENI was set up
on 1 November and acquired the assets of the three subsidiaries on 9 November for EUR 1 001 (i.e.
EUR 1 000 for the stocks and one symbolic euro for the assets). According to France, SORENI’s bid
was the only one after the failure of negotiations with a foreign investor earlier in the year.

(10)

Initially, France indicated to the Commission that the three subsidiaries were under judicial reorga-
nisation at the time of the takeover. It corrected this information in the letter of 29 December 2003,
stating that the assets were taken over outside of the judicial reorganisation and that, as at December
2003, the three subsidiaries existed only as empty shells for the purpose of litigation and debt
recovery and did not exercise any economic activity.

(11) Under the French social legislation relative to the cessation of business activities (Article L 122-12,
second subparagraph, of the Labour Code), SORENI was obliged to take over from the three
subsidiaries all the work contracts, the conditions of which were to remain unchanged as to quali-
fications, remuneration and seniority. As a result, according to France, SORENI took over 127
employees from the three subsidiaries. Likewise,
it had to assume wage obligations totalling
EUR 318 164 incurred before the takeover in connection with the early retirement of workers
who had been exposed to asbestos.

(3) OJ L 47, 19.2.2002, p. 37.

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(12)

The Commission notes that by 14 January 2003 the workforce had been reduced to 117 employees
99 of whom were engaged in production. France indicated that,
in the six years preceding the
takeover, the number of production workers had fallen by 47 %, from 188 in total for the three
subsidiaries in 1997 to 99 at SORENI in 2002.

B. The business plan of the new firm

(13)

The business plan was established in 2001. The viability of SORENI was to be guaranteed by a five-
year business plan. France identified the problems of SORENI as being due in the first place to the
difficulties encountered by its shareholders, which, as subcontractors, previously depended on the
three subsidiaries. Secondly, SORENI is said to have inherited a number of charges and difficulties
linked to the assets taken over, i.e. responsibility for all the work contracts, financing of the asbestos-
related early retirements, and the need to adapt production tools and to rationalise activities. As
SORENI took over the ship-repair activities, it was in all probability going to face similar problems to
those encountered by the three subsidiaries: difficulty in subcontracting for a shipbuilding firm in Le
Havre (such as ACH-CN), loss of markets in general and loss of credibility of ship-repairing in Le
Havre in general.

(14) According to France, the five-year business plan, which it describes as a restructuring plan,

is
designed to tackle these problems by adopting three sets of measures. The first set of measures
consists in adapting the production tools by investing in the renewal of buildings, in transport and in
portable tooling (quantified in Part 1 of Table 1). The second set of measures set out to reorganise
the firm’s commercial policy. According to France, the policy will be targeted both at local ship-
owners and at national and international markets, the general aim being to restore the confidence of
the clients who dealt with the three subsidiaries in the past. SORENI plans to achieve this by
recruiting new managers and by acquiring new technologies allowing it to diversify its activities
and hence to respond to a wider range of demands. The costs of this second set of measures are
itemised in Part 2 of Table 1. The third set of measures focus on reorganising the production at two
levels: management of materials,
inventory and orders (rationalisation and computerisation) and
training of staff. The costs of this third set of measures are itemised in Part 3 of Table 1 below.

(15)

France also considers as restructuring costs charges taken over from the three subsidiaries in
connection with the early retirement of workers who had been exposed to asbestos, on the one
hand, and salaries for the first three months following the takeover, on the other. According to
France, these three months correspond to the period necessary to obtain the first contracts. These
costs are itemised in Part 4 of Table 1 below.

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TABLE 1

Alleged costs of restructuring SORENI

Item

Part 1: Investments and renewals

Renewal of plant (2002)

Renewal of offices/buildings (2002)

Cleaning of courtyard/plant

Movable investments 2002:

Vehicles
IT

Tools

Movable investments 2002-04:

Installation of shot blasting/steel plate processing facility

Lorry

Miscellaneous portable mechanical tools

Subtotal 1

Part 2: Commercial reorganisation

Recruitment 2002-04

2 managers

1 assistant manager

3 engineers
4 production managers

Total salaries and charges

Marketing costs — until end-2002
Brochures/logo, mailing shots, agent network, visits to clients

Costs 2003-05

Acquisition of new licences
Training of staff at SORENI’s licensors
Visit by commercial and international agents
Revision and extension of agent contracts to 3 years

Subtotal 2

Part 3: Reorganisation of production

Organisation and computerisation 2002-03

Acquisition of software specific to ship-repair 2003-04

Training: 37 450 training hours/3 years

Subtotal 3

Part 4: Salaries and other charges

Salaries corresponding to existing contracts for 3 months after
takeover

the

Costs of asbestos-related redundancies incurred before the takeover

Subtotal 4

(EUR)

Amount

[…] (*)

[…]

[…]

[…]
[…]
[…]

[…]
[…]
[…]

[…]

[…]

[…]

[…]
[…]
[…]
[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

(*) Confidential information.

TOTAL (Subtotals 1+2+3+4)

6 495 164

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(16) Accordingly, the costs allegedly needed to launch SORENI total EUR 6 495 164.

(17) According to France, this plan is based on realistic hypotheses of turnover reflecting the existing and
potential demand for ship-repair activities in Le Havre. France points out that the three subsidiaries
possessed recognised ship-repair skills and that
their employees, now with SORENI, possessed
valuable know-how for SORENI. It also notes that the business plan of SORENI and that of the
potential foreign investor were similar, which is the sign of a realistic estimation. The personal
contacts of the president of SORENI should help in the search for clients. According to France,
the ship-repair activities of SORENI are to be viewed in the context of the development of the port of
Le Havre.

C. The financial measures

(18) According to France, the amount of EUR 6 495 164 needed by SORENI is to be financed by grants
and loans provided from the public and private sources specified in Table 2 below. France took a
preliminary decision to grant public support to SORENI on 28 September 2001, i.e. after the bid for
the assets of the three subsidiaries was made but before SORENI was established and before its
establishment became effective. A legally binding decision on the grant of support was adopted on
29 November 2001.

(19)

The French Government provided SORENI with a grant of EUR 3 430 000. Of this amount, two
payments, one of EUR 1 720 000 and one of EUR 730 000, had already been made to SORENI in
September 2003.

(20)

The Haute-Normandie Regional Council, the Seine-Maritime General Council and the City of Le
Havre will each provide SORENI with EUR 380 000 in the form of grants. Of the total amount
of EUR 1 140 000, EUR 1 070 997 has already been paid in September 2003.

(21)

The private
shareholders
(EUR 462 000) and bank loans (EUR 1 300 000) secured by assignment of the working capital.

contributions by SORENI

are described as

contributions

capital

TABLE 2

Financial measures related to the restructuring of SORENI

Source

1. Public

French State

Haute-Normandie Regional Council

Seine-Maritime General Council

City of Le Havre

2. Private

SORENI shareholders
— capital
— bank loans (BNP Paribas)

(EUR)

Amount

3 430 000

380 000

380 000

380 000

Subtotal 1

4 570 000

Subtotal 2

TOTAL (Subtotals 1+2)

462 000

1 300 000

1 762 000

6 332 000

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D. Market information

(22) According to France, development of the port of Le Havre necessitates the presence of ship-repair
activities, which would guarantee it a stable level of activity. France argues that the measures in
question will have a limited impact on competition thanks to three factors. First, the restructuring
plan is said to comprise workforce reductions. Second, France identifies ARNO in Dunkirk and
SOBRENA in Brest as the main competitors of SORENI on the domestic and international
markets. However, these two firms do not,
it is claimed, compete with SORENI as far as local
clients are concerned. In this connection, France States that local clients generate between 40 %
and 45 % of SORENI’s turnover. As a result, SORENI’s interference with its main customers (*) is
said to be reduced. Third, SORENI is an SME within the meaning of Article 2(b) of Commission
Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC
Treaty to State aid to small and medium-sized enterprises (4).

(23)

(24)

E. The decision to initiate the procedure under Article 88(2) of the EC Treaty

In the decision to initiate the formal investigation procedure (hereinafter the decision to initiate the
procedure),
the measures in question were assessed in the light of Council Regulation (EC)
No 1540/98 establishing new rules on aid to shipbuilding (5) (hereinafter the Shipbuilding Regulation)
as well as of
the Community guidelines on State aid for rescuing and restructuring firms in
difficulty (6) (hereinafter the Restructuring Guidelines).

In the decision to initiate the procedure, the Commission expressed doubts as to whether the
financial measures in question could be authorised as restructuring aid, on the one hand, since
SORENI seemed to be a newly created firm emerging from the liquidation of the three subsidiaries
and, on the other, in the light of point 7 of the Restructuring Guidelines, according to which a newly
created firm is not eligible for rescue or restructuring aid even if its initial financial position is
insecure.

(25)

The Commission also had doubts whether the business plan for SORENI would be such as to deliver
long-term viability within a reasonable timescale and whether it was based on realistic assumptions,
as required by the Restructuring Guidelines. It considered in particular that the plan submitted to it
by France lacked a market survey as well as sales and cost estimates for the years ahead.

(26)

The Commission moreover noted that the foreign investor mentioned in paragraph 9, basing himself
on a similar plan, had declined to take over the ship-repair activities. Lastly, it wondered whether the
financial contribution from public sources was limited to the minimum needed to enable the business
plan to be undertaken and in particular whether the contribution of the beneficiary was significant, as
required by the Restructuring Guidelines.

III. COMMENTS FROM INTERESTED PARTIES

(27)

The United Kingdom submitted the following comments. Firstly, it had difficulty in understanding
how the proposed package could be considered as restructuring aid when the shipyard will carry on
the same activity as its predecessors, apparently without any significant reductions in either capacity
or the workforce. Secondly, it is of the opinion that certain investments and costs are not eligible for
restructuring aid. Thirdly, it notes that SORENI is a direct competitor for the UK ship-repair industry.

(*) Substantive error: instead of ‘customers’, read ‘competitors’.
(4) OJ L 10, 13.1.2001, p. 33. (Regulation amended by Regulation (EC) No 364/2004: OJ L 63, 28.2.2004, p. 22).
(5) OJ L 202, 18.7.1998, p. 1.
(6) OJ C 288, 9.10.1999, p. 2.

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(28)

In response to the decision to initiate the procedure, France submitted the following additional
information and comments.

IV. COMMENTS FROM FRANCE

(29) As to the question of whether SORENI is a firm eligible for restructuring aid, France argues that
SORENI, although being a new legal entity, constitutes in fact a continuation of the previous ship-
repair activities and should therefore be eligible for restructuring aid. To support this view, it argues
that the takeover of the assets, of the type of activity and of the goodwill of the three subsidiaries as
well as of their material and human resources, and in particular of the charges resulting from social
security legislation (i.e. the asbestos-related early retirements), makes it possible to liken SORENI to
the three subsidiaries, i.e. to an existing firm.

(30)

Furthermore, France claims that, even if SORENI were to be viewed as a new firm, it still remained a
firm in difficulty within the meaning of the Restructuring Guidelines owing to the charges (work
contracts, asbestos-related early retirements) and difficulties (need to adapt production tools and need
for rationalisation) associated with the assets.

(31) As to the doubts surrounding the viability of the business plan, and specifically the lack of market
information, France describes the market in which SORENI operates as comprising the following
activities: repair works for minor damages, preventive maintenance works and major repair works.
The main competitors of SORENI, ARNO in Dunkirk and SOBRENA in Brest, are said to compete
with SORENI for national and international clients, but not for local clients, which account for
between 40 % and 45 % of SORENI’s turnover. France also argues that the existence of a ship-
repair activity in a port the size of Le Havre is an indispensable element for the proper functioning
of the port as a whole. Since SORENI is the only ship repairer in Le Havre, its existence is, according
to France, vital to the port.

(32)

To illustrate the viability of the business plan, France provided an estimation of turnover and costs
for the five years during which the restructuring plan is to be implemented. These data are given in
Table 3 below.

TABLE 3

Estimates of SORENI’s turnover and costs of SORENI

Turnover (EUR m)

Annual increase (%)

Costs (EUR m)

Annual increase (%)

[…]

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[…]

[…]

[…]

[…]

[…]

[…]

[…]

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[…]

[…]

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[…]

Year

2001

2002

2003

2004

2005

2006

(33)

France further States that the reasons for which the foreign investor declined to take over the
activities of the three subsidiaries were independent of the quality of the business plan. They
stemmed from the difficulty of concluding agreements with the workforce and the port authorities,
as well as from the financial difficulties of the investor himself.

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(34) As to the proportionality of the measures in question, France claims that the amount corresponds to
the minimum necessary for relaunching ship-repair activities in Le Havre. It points out that the
contribution of SORENI’s shareholders has to be assessed in light of the fact that they themselves
are in a difficult financial situation.

(35)

Furthermore, France asked the Commission to consider the compatibility of the financial measures in
question with the common market directly on the basis of Article 87(3)(c) of the EC Treaty if the aid
were not compatible under the Restructuring Guidelines. It argues that ship-repair activity is essential
for the proper functioning of the port of Le Havre, i.e. it is necessary in order to ensure the admission
of ships, the maintenance of ships indispensable for the port’s activity, services related to maritime
safety and services related to tourism (repair of pleasure craft). France goes on to argue that the
continuation of ship-repair in Le Havre is of Community interest since it is in line with the common
It stresses historical and strategic
transport policy, which promotes maritime transport. Finally,
reasons for safeguarding ship repair in the port of Le Havre.

V. ASSESSMENT

A. State aid

(36) According to Article 87(1) of the EC Treaty, any aid granted by a Member State or through State
resources in any form whatsoever which distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods shall, in so far as it affects trade between
Member States, be incompatible with the common market.

(37)

Firstly, the grant of EUR 3 430 000 to SORENI from the French Government constitutes a financial
advantage granted through State resources. Moreover, the criterion of State resources also applies to
economic advantages granted by regional or local bodies in the Member States. Accordingly, the first
criterion determining the applicability of Article 87(1) of the EC Treaty is met as regards the grants
received by SORENI from the Region of Haute-Normandie, the Department of Seine-Maritime and
the City of Le Havre (each amounting to EUR 380 000).

(38)

Secondly, since the grants in question were intended for one firm in particular, SORENI, the selec-
tivity criterion determining the applicability of Article 87(1) is met.

(39)

Thirdly, the financial measures in question confer on SORENI an economic benefit which it would
not have received from the private sector. Hence, by their very nature, such measures are such as to
distort competition.

(40)

Fourthly, the criterion of trade being affected is met if the beneficiary carries out an economic activity
involving trade between Member States. This is indeed the case of ship-repair carried out by SORENI.
This point is not contradicted by France, which argues simply that the ‘main’ competitors of SORENI
are French. It is also clearly confirmed by the United Kingdom, which notes that SORENI is a direct
competitor for is domestic ship-repair industry.

(41)

The Commission thus concludes that the grants to SORENI, as described in Section II, constitute
State aid within the meaning of Article 87(1).

(42)

The Commission also notes that France failed to comply with its obligation under Article 88(3) of the
EC Treaty to inform the Commission, in sufficient time to enable it to submit its comments, of its
plans to grant the aid. The aid therefore is considered to be unlawful.

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B. Derogation under the Treaty

(43)

in accordance with the Commission notice on the determination of

Since SORENI is active in ship-repair, aid granted to support its activities falls within the scope of the
special rules on State aid applicable to shipbuilding. Since 1 January 2004 these rules have been
enshrined in the Framework on State aid to shipbuilding (7), which replaced the Shipbuilding Regu-
the
lation. Nevertheless,
applicable rules for the assessment of unlawful State aid (8), unlawful State aid,
i.e. aid put into
effect in contravention of Article 88(3) of the EC Treaty, is assessed in accordance with the texts
in force at the time when the aid was granted. The Shipbuilding Regulation is, therefore, applicable.
irrespective of whether the Commission applies the Shipbuilding
For the sake of completeness,
Regulation or the Framework on State aid to shipbuilding, which replaced it, it must be pointed
out that this does not affect the conclusions reached in the assessment of compatibility since the
substantive criteria for assessing rescue and restructuring aid, regional aid and training aid are
identical (9).

(44) Article 2 of the Shipbuilding Regulation stipulates that aid granted for ship-repair may be considered
compatible with the common market only if it complies with the provisions of that Regulation.

1. Restructuring aid

(45) According to France, the purpose of the aid in question is to restructure the activities of SORENI. Aid
for the restructuring of firms active in the ship-repair sector may be considered compatible with the
common market provided that it complies with Article 5 of the Shipbuilding Regulation, which not
only refers to the Restructuring Guidelines but also lays down specific conditions applicable to the
shipbuilding sector.

(46)

The Commission examined therefore whether the criteria laid down in the Restructuring Guidelines
were met.

1.1. E l i g i b i l i t y o f

t h e f i r m

(47) According to the Restructuring Guidelines, in order to be eligible for restructuring aid, the firm must
qualify as a firm in difficulty within the meaning of
that a
Community definition does not exist, the Commission regards a firm as being in difficulty where
it is unable, whether through its own resources or with the funds it is able to obtain from its
owner/shareholders or creditors, to stem losses which, without outside intervention by the public
authorities, will almost certainly condemn it to go out of business in the short or medium term
(point 4 of the Restructuring Guidelines). These difficulties are manifested, for instance, by increasing
losses, diminishing turnover, growing stock inventories, excess capacity, declining cash flow,
mounting debt, rising interest charges and falling or nil net asset value.

the Guidelines. Despite the fact

(48) However, point 7 of the Restructuring Guidelines stipulates that a newly created firm is not eligible
for restructuring aid, even if its initial financial position is insecure. This is the case, for instance,
where a new firm emerges from the liquidation of a previous firm or merely takes over such firm’s
assets.

(49)

The rationale for excluding newly created firms from the eligibility for restructuring aid derives from
the principle that the creation of a firm should be a market-situation-driven decision. Therefore, a
firm should be created only if it has a chance to operate on the market concerned, in other words if
it is capitalised and viable ab initio.

(7) OJ C 317, 30.12.2003, p. 11.
(8) OJ C 119, 22.5.2002, p. 22.
(9) See points 12(b), 12(f) and 26 of the Framework on State aid to shipbuilding.

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(50) A new firm is not eligible for restructuring aid because, although it might well face start-up diffi-
culties, it could not encounter such difficulties as those described in the Restructuring Guidelines.
These difficulties (specified in recital 47) are linked to the history of a firm, i.e. they stem from its
operation. A new firm could not, by its very nature, encounter this type of difficulties.

(51) A new firm can, on the other hand, face start-up losses as it has to finance investments and operating
costs that initially may not be covered by the revenues from its activity. These costs are, however,
associated with the start of a business activity and not with its restructuring. They cannot therefore be
addressed by restructuring aid without depriving the latter of its specific purpose and limited scope.

(52)

This limitation of the scope of the Restructuring Guidelines applies to new companies that emerge
out of bankruptcy proceedings involving other companies or that take over only their assets. The
new firm in such cases does not, in principle, take over the debts of its predecessors, i.e. it does not
encounter the difficulties described in the Restructuring Guidelines.

(53)

In the decision to initiate the procedure, the Commission raised doubts as to whether SORENI was a
new firm.

(54)

(55)

In this connection, the Commission notes, and France admits, that SORENI represents a new legal
entity with a legal personality distinct from that of the three subsidiaries. France nevertheless claims
that SORENI, although being a legal entity distinct from its predecessors, constitutes an economic
continuation of the three subsidiaries, since the activity, the assets and the goodwill of the three
subsidiaries, and in particular some liabilities related to social security legislation, have been passed on
to SORENI, which cannot therefore be considered to be a new firm. France further argues that, even
if SORENI is to be viewed as a new firm, it remains a firm in difficulty because it exercises the same
type of activity as the three subsidiaries and because it is bound by the financial liabilities stemming
from social security legislation.

The Commission does not agree with France that SORENI is an economic continuation of the three
It should be noted that, even though SORENI took over the activities, assets and
subsidiaries.
goodwill of the three subsidiaries as well as their workforces and some liabilities stemming from
social security legislation (early retirement of workers who had been exposed to asbestos), the
takeover marked a discontinuity between the old and the new activity. This is illustrated by the
fact that the creditors of the three subsidiaries are paid out of the revenues from the sale and do not
have any recourse against SORENI as buyers of the assets.

(56) As to the claim by France that the work contracts taken over and the related social security charges
(asbestos-related early retirements) represent liabilities that allow SORENI to be likened to the three
subsidiaries, the Commission considers that these social charges are simply a legal consequence of
French social legislation (comparable in this respect to that in many other countries), which was
known to the investor and was quantifiable. Any cost associated with the acquired assets should
therefore have been taken into account when setting the purchase price.

(57) As to France’s argument that, even if SORENI were to be viewed as a new firm, it would still be a
firm in difficulty, the Commission notes that SORENI does not display the signs of a firm in difficulty
within the meaning of the Restructuring Guidelines, as described in recital 47. It simply faces normal
set-up costs and normal start-up losses attributable to the embryonic nature of the investment
project.

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(58)

The costs of launching a commercial activity are inevitable and are not related to the history of a
firm. SORENI would have had to face the same type of costs had its shareholders decided to create a
firm entirely independent of the previous ship-repair activities. This hypothesis would inevitably
involve start-up costs, such as the purchase of machinery, hiring and training of staff, etc.

(59)

In this respect, the Commission is of the opinion that the charges related to the asbestos-related early
retirements, being the only liabilities taken over from the three subsidiaries, are not such as to lead
SORENI into difficulties within the meaning of the Restructuring Guidelines.

(60)

Finally, the workers taken over by SORENI represent a source of know-how which, according to
France, is one of the prerequisites for the viability of SORENI’s business plan. It can therefore be
considered as part of the assets taken over by SORENI and not as a liability. In fact, the takeover
should ease SORENI’s entry into market since it relieves the firm of the need to incur further costs of
recruiting and training new staff.

(61)

To sum up, the Commission notes that no financial liabilities were taken over by SORENI from the
three subsidiaries that would represent a continuation of the former ship-repair activity. SORENI is a
the
newly created firm that, moreover, does not encounter difficulties within the meaning of
Restructuring Guidelines.

(62) According to the Commission’s practice after the entry into force of the Restructuring Guidelines in
1999, a firm is considered as ‘new’ for the first two years after its creation. The Commission notes
that SORENI was created as a new firm on 1 November 2001. Therefore, it was not eligible for
restructuring aid within the first two years after its creation, i.e. until 1 November 2003. As the
legally binding decision to grant the aid to SORENI was taken on 29 November 2001, this condition
is met.

(63)

The Commission concludes that SORENI is not eligible for restructuring aid.

(64)

The Commission considers below whether its other doubts expressed in the decision to initiate the
procedure as to whether the other conditions for restructuring aid were fulfilled could be allayed by
the information submitted by France.

1.2. R e s t o r a t i o n o f v i a b i l i t y

(65) According to the Restructuring Guidelines, the grant of the aid is conditional on implementation of a
restructuring plan able to restore the long-term viability of the firm within a reasonable timescale and
on the basis of realistic assumptions as to future operating conditions, enabling the firm to stand on
its own feet. This has to be achieved primarily by internal measures involving in particular the
abandonment of activities which would remain structurally loss-making even after restructuring.

(66)

The Commission’s doubts on this point arose because of the fact that the foreign investor had
declined to take over the ship-repair activities in question and especially because of the Commission’s
lack of information concerning the market survey and the turnover and cost estimates for the years
covered by SORENI’s business plan.

(67)

France explained that the foreign investor had withdrawn its bid on account of difficulties related not
to the nature of the restructuring plan but to the financial problems it itself faced.

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(68) More importantly, France has provided the Commission with detailed information on estimated

operating conditions, such as turnover and costs during the period concerned.

(69) On the basis of this information, the Commission’s doubts as to the viability of the business plan

were allayed.

1.3. A i d l i m i t e d t o t h e m i n i m u m

(70)

Pursuant to the Restructuring Guidelines, the amount and intensity of the aid must be limited to the
strict minimum needed to enable restructuring to be undertaken in the light of the existing financial
resources of the firm. Aid beneficiaries are expected to make a significant contribution to the
restructuring plan from their own resources or from external financing at market conditions.

(71) According to France, the restructuring costs amount to EUR 6 495 164, of which EUR […] is for
investments and renewals, commercial reorganisation and reorganisation of production, EUR […] is
for salaries for the first three months of operation of SORENI and EUR […] is for asbestos-related
early retirements.

(72)

The Commission considers that the costs of salaries for the first three months of SORENI’s operation
and of compensation for workers who had been exposed to asbestos before the takeover cannot be
regarded as restructuring costs. They are operating costs that a firm has to meet from its own
resources.

(73)

The Commission therefore regards as restructuring costs only the costs related to the restructuring
plan proper, i.e. EUR 3 900 000.

(74)

SORENI was granted EUR 4 570 000 from different public sources.

(75)

The Commission takes the view that the proportionality requirement was not met since the amount
of aid is higher than the costs eligible for restructuring aid. Consequently, even if SORENI were
the aid would not have been compatible with the Restructuring
eligible for restructuring aid,
Guidelines.

1.4. 1 9 9 4 r e s t r u c t u r i n g g u i d e l i n e s

(76)

In the decision to initiate the procedure, the Commission examined the measures in the light of the
Restructuring Guidelines (adopted in 1999). This was not disputed by France in its response to the
decision.
It should be noted that the Shipbuilding Regulation refers in Article 5 to the 1994
Community guidelines on State aid for rescuing and restructuring firms in difficulty (10) (hereinafter
the ‘1994 Restructuring Guidelines’), which were replaced in 1999 by the Restructuring Guidelines.
The Commission, however, concludes that, even if the 1994 Restructuring Guidelines were applied,
the above reasoning would be unaffected. Firstly, a new firm cannot, by its very nature, be a firm in
difficulty. Even though less explicit, the 1994 Restructuring Guidelines are, particularly as regards
their definition of a firm in difficulty, clearly designed to rescue and restructure existing firms and not
newly created firms. Secondly, the criterion of ‘aid limited to the minimum’ already existed in the
1994 Restructuring Guidelines (11) and is not met in the present case.

(77)

The aid would not, therefore, be compatible under the 1994 Restructuring Guidelines.

(10) OJ C 368, 23.12.1994, p. 12.
(11) See point 3.2.2. (C).

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2. Regional investment aid

(78)

In the decision to initiate the procedure, the Commission suggested that the measures in question
could be regarded as regional investment aid.

(79)

The conditions governing compatibility of regional investment aid with the common market are laid
down in Article 7 of the Shipbuilding Regulation. First, the measures must concern a region referred
to in Article 87(3)(a) or (c) of the EC Treaty. Second, the intensity of the aid must not exceed the
ceiling determined by the Shipbuilding Regulation. Third, the measures are designed to support
investment in upgrading or modernising existing yards with the objective of improving the produc-
tivity of existing installations. Fourth, the aid cannot be linked to financial restructuring of the yard.
Fifth, the aid is limited to supporting expenditure eligible under the guidelines on national regional
aid (12).

(80)

The region of Le Havre is an assisted area under Article 87(3)(c). According to the Shipbuilding
Regulation and pursuant to the regional map approved by the Commission, the aid intensity for this
region cannot exceed 12,5 % net (13).

(81)

In accordance with point 4.5 of the guidelines on national regional aid, eligible expenditure is defined
as a uniform set of items of expenditure: land, buildings and plant/machinery. In accordance with
point 4.6, eligible expenditure may also include certain categories of intangible investment.

(82)

The total presented by SORENI as restructuring costs are specified in Table 1 above. The Commission
reconsidered these costs in the light of their eligibility for regional investment aid and concluded that
only the expenditure shown in Table 4 fulfils the criteria described in recital 81.

TABLE 4

Expenditure eligible for regional investment aid

Item

Buildings:

1. Renewal of plant (2002)

2. Renewal of offices/buildings (2002)

Machinery:

2002:

3. Vehicles

4. IT

5. Tools

2002-04:

6. Installation of shot blasting/steel plate processing facility

7. Lorry

8. Miscellaneous portable mechanical tools

Intangible investment:

9. Acquisition of new licences (2003-2005)

10. Acquisition of software specific to ship-repair (2003-2004)

(EUR)

Amount

[…]
[…]

[…]
[…]
[…]

[…]
[…]
[…]

[…]
[…]

(12) OJ C 74, 10.3.1998, p. 9.
(13) Net grant equivalent (nge).

TOTAL

1 550 000

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(83)

these investments contribute to the attainment of

the goals of
The Commission accepts that
SORENI’s business plan as described in point 14 and hence to the upgrading and modernisation
of the yard with the objective of improving productivity. These investments moreover correspond to
the uniform set of investments: investment in buildings (items 1 and 2 of Table 4) and investment in
plant/machinery (items 3 to 8 of Table 4). The items 9 and 10 of Table 4 constitute intangible
investment (acquisition of patents and software).

(84)

The Commission observes that the remaining investment items specified in Table 1 are not eligible
for regional investment aid because they are simply operating expenditure or expenditure on training.
As to the item Organisation and computerisation (EUR […]; see Table 1), the Commission cannot
conclude from the information provided by France that it satisfies the criterion of eligibility for
regional investment aid.

(85)

To conclude, the total expenditure eligible for regional investment aid amounts to EUR 1 550 000
(EUR 1 412 560 at present value, base year 2001, discount rate of 6,33 %).

(86)

The maximum allowable aid intensity is 12,5 % net (corresponding in this case to 18,9 % gross (14).
Admissible aid thus amounts to EUR 266 691.

(87)

The Commission concludes that the aid for SORENI can be partially approved as regional investment
aid to the extent of EUR 266 691.

(88)

(89)

3. Training aid
The Commission noted that some of the expenditure listed in SORENI’s business plan relates to
training. The aid was granted after the entry into force of Commission Regulation (EC) No 68/2001
of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to training aid (15)
(hereinafter the ‘Training Aid Regulation’).

The Training Aid Regulation was adopted by the Commission pursuant to Council Regulation (EC)
No 994/98 of 7 May 1998 on the application of Articles 92 and 93 of the Treaty establishing the
European Community to certain categories of horizontal State aid (16). As lex posteriori, it amends the
Shipbuilding Regulation, which itself does not provide for the possibility of granting training aid to
shipbuilding. It stipulates in Article 1 that it applies to training aid granted in all sectors, shipbuilding
thus being included.

(90)

Pursuant to the Training Aid Regulation, individual aid is compatible with the common market if it
fulfils all the conditions laid down in the Regulation, i.e. it does not exceed the relevant maximum
allowable aid intensity and covers costs eligible under Article 4(7) of the Regulation.

(91)

The training costs eligible for aid are given in Table 5 below and amount to EUR 700 000. They fulfil
the conditions laid down in Article 4(7) of the Training Aid Regulation.

(14) Gross grant equivalent (gge).
(15) OJ L 10, 13.1.2001, p. 20. Regulation amended by Regulation (EC) No 363/2004 (OJ L 63, 28.2.2004, p. 20).
(16) OJ L 142, 14.5.1998, p. 1.

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TABLE 5

Expenditure eligible for training aid

Item

Training: 37 450 training hours/3 years

Training of staff at SORENI’s licensors

(EUR)

Amount

600 000

100 000

700 000

TOTAL

(92)

In accordance with Article 4 of the Training Aid Regulation, aid intensity cannot, in the case of small
and medium-sized enterprises in areas qualifying for regional aid under Article 87(3)(c) of the Treaty,
exceed 40 % for projects involving specific training. In the present case, the French authorities have
not specified which part of the training could be considered as ‘general’ within the meaning of Article
2(e) of the Training Aid Regulation.

(93) As a result, the total amount of training aid is EUR 280 000.

(94)

The Commission concludes that the aid for SORENI can be partially approved as training aid to the
extent of EUR 280 000.

4. Direct application of Article 87(3) (c) of the Treaty

(95)

France asked the Commission to examine the compatibility of the financial measures in question with
the common market directly on the basis of Article 87(3)(c) of the Treaty, arguing that ship-repair is
an activity essential for the proper functioning of a port the size of Le Havre.

(96)

The Commission firstly notes that, in so far as the repair services offered by SORENI would indeed be
essential for the functioning of the port, these activities should, in principle, be secured by the own
resources of the port, without the need for recourse to State aid. In addition, it approves part of the
aid as regional investment aid and thereby takes into account the regional problems involved.

(97) Moreover, the Shipbuilding Regulation constitutes a specific and exhaustive set of rules applicable to
the sector, i.e. ship-repair, which ranks as lex specialis in relation to the Treaty. Authorisation of the
aid by way of direct application of the Treaty would circumvent the objectives pursued by laying
down specific and restrictive rules applicable to the sector.

(98)

The Commission cannot, therefore, assess the aid in question directly on the basis of the Treaty.

VI. CONCLUSION

(99)

The Commission finds that France has unlawfully implemented aid amounting to EUR 4 570 000 in
breach of Article 88(3) of the Treaty. On the basis of the assessment of this aid, it concludes that, as
restructuring aid for SORENI, it is incompatible with the common market since it does not meet the
conditions set out in the Shipbuilding Regulation and the Restructuring Guidelines. However, the
Commission considers that the aid is partly compatible with the common market as regional
investment aid within the meaning of Article 7 of the Shipbuilding Regulation and as training aid
within the meaning of the Training Aid Regulation. The difference between the amount already
disbursed (EUR 3 520 997) and the compatible amount (EUR 266 691 + EUR 280 000 = EUR
546 691) has to be recovered (EUR 2 974 306). The difference between the incompatible amount
granted (EUR 4 023 309) and the amount to be recovered (EUR 2 974 306) cannot be disbursed
(EUR 1 049 003),

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HAS ADOPTED THIS DECISION:

Of the aid totalling EUR 4 570 000 granted by France to Société de réparation navale et industrielle
(SORENI):

Article 1

(a) EUR 266 691 is compatible with the common market as regional investment aid under Article 87(3)(e)

of the Treaty;

(b) EUR 280 000 is compatible with the common market as training aid under Article 87(3)(e) of the

Treaty;

(c) EUR 4 023 309 is incompatible with the common market, of which EUR 1 049 003 has not been

disbursed and EUR 2 974 306 has been made available.

France shall take all necessary measures to recover from the beneficiary the aid referred to in Article 1

1.
and unlawfully made available to the beneficiary. This amounts to EUR 2 974 306.

Article 2

Recovery shall be put into effect without delay and in accordance with the procedures of national law

2.
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

3.
beneficiary until the date of its recovery.

Interest shall be calculated on the basis of the reference rate used for calculating the grant equivalent

4.
of regional aid.

This reference rate shall be applied on a composite basis throughout the period referred to in

5.
paragraph 3.

France shall inform the Commission, within two months of notification of this Decision, of the measures
planned and taken to comply with it. It shall provide the information using the information sheet annexed
hereto.

Article 3

This Decision is addressed to the French Republic.

Article 4

Done at Brussels, 20 April 2004.

For the Commission

Mario MONTI
Member of the Commission

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Information regarding the implementation of the Commission Decision of 20 April 2004

ANNEX

1. Calculation of the amount to be recovered

1.1. Please provide the following details on the amount of unlawful State aid that has been put at the disposal of the

beneficiary:

Date(s) (*)

Amount of aid (**)

Currency

(*) Date(s) on which (individual instalments of) the aid has been put at the disposal of the beneficiary.
(**) Amount of aid put at the disposal of the beneficiary (in gross aid equivalents).

Comments:

1.2. Please explain in detail how the interests to be paid on the amount of aid to be recovered will be calculated?

2. Measures planned and already taken to recover the aid

2.1. Please describe in detail what measures are planned and what measures have already been taken to effect an
immediate and effective recovery of the aid. Please also indicate where relevant the legal basis for the measures
taken/planned.

2.2. What is the timetable for the recovery process? When will the recovery of the aid be completed?

3. Recovery already effected

3.1. Please provide the following details on the amounts of aid that have been recovered from the beneficiary:

Date(s) (*)

Amount of aids repaid

Currency

(*) Date(s) on which the aid has been repaid.

3.2. Please attach proof of the repayment of the aid amounts specified in the table under point 3.1 above.