2005/878/EC: Commission Decision of  30 June 2004  on the State aid implemented by Germany for the Herlitz Group  (notified under document number C(2004) 2212)   (Text with EEA relevance)
Date: 2004-06-30
Institutions: European Commission
Subjects: Germany, State aid, aid for restructuring, control of State aid, financial solvency, loan, pulp and paper industry

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COMMISSION

COMMISSION DECISION

of 30 June 2004

on the State aid implemented by Germany for the Herlitz Group

(notified under document number C(2004) 2212)

(Only the German text is authentic)

(Text with EEA relevance)

(2005/878/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 regard to Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for
the application of Article 93 of the EC Treaty (1), and particular Article 7(3) thereof,

Having called on interested parties to submit their comments pursuant to those provisions (2) and having
regard to their comments,

Whereas:

(1)

(2)

I. PROCEDURE
In March 2002 a complaint was lodged by one of Herlitz AG’s main competitors indicating that
Herlitz AG was to receive a guarantee from the Land of Berlin. By letter dated 25 March 2002 the
Commission asked Germany to provide information on the possible aid to Herlitz AG. Germany
replied by letter dated 17 April 2002, registered as received on 18 April 2002, denying such aid.
Following a press article which appeared on 24 April 2002 reporting that a loan of EUR 1 million
had been granted by the Land of Brandenburg to Herlitz AG’s subsidiary Falken Office Products
GmbH (hereinafter referred to as FOP), the Commission again asked Germany, by letter dated 8 May
2002, to provide information on the possible aid to Herlitz AG. Germany replied by letter dated
4 June 2002, registered as received on 5 June 2002, denying once again that any such aid had been
granted.

Finally, by letter dated 17 July 2002, registered as received on 19 July 2002, Germany informed the
Commission that the Investment Bank of the Land of Brandenburg (InvestitionsBank des Landes
Brandenburg, hereinafter referred to as ILB) had granted Herlitz PBS AG a loan of some EUR 1
million. According to the information provided by Germany, the measure had already been put into
effect; the case was therefore registered by the Commission as unnotified aid under case NN 89/02.
Annexes including an insolvency plan were submitted by letter dated 19 July 2002, registered as
received on 25 July 2002, and by letter dated 1 August 2002, registered as received on the same day.
On 8 August 2002 the Commission asked for clarifications on the aid granted. Germany sent
additional information by letter dated 4 September 2002, registered as received on the same day.

(1) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003 Act of Accession.
(2) OJ C 100, 26.4.2003, p. 3.

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(3)

(4)

(5)

(6)

(7)

(8)

By letter dated 29 January 2003, registered as received on the same day, Germany informed the
Commission that the loan granted to Herlitz PBS AG had been fully repaid to the Investment Bank of
the Land of Brandenburg. Germany also informed the Commission that the insolvency proceedings
for Herlitz AG and Herlitz PBS AG had been terminated and that the insolvency plans had been
accepted and carried out.

By letter dated 19 February 2003 the Commission informed Germany that it had decided to initiate
the procedure laid down in Article 88(2) of the Treaty with respect to the loan and accompanying
measures, with the case being registered under C 16/03. Germany submitted observations which were
registered as received on 28 April 2003.

the European Union (3). The Commission called on interested parties to submit

The Commission’s Decision to initiate the formal investigation procedure was published in the Official
their
Journal of
comments. The Commission received comments from one interested party. It forwarded them to
Germany, which was given the opportunity to react. Germany’s comments were received by letter
dated 24 July 2003, registered as received on 27 July 2003.

Germany sent additional
information by letters dated 10, 12 and 28 November 2003, 8 and
26 January, 23 March and 23 and 24 April 2004. A meeting was held on 27 January 2004
between the representatives of the Commission, the German Government, the Herlitz Group and
the administrator in the insolvency proceedings.

II. THE MEASURES

1. The relevant undertaking

Herlitz AG was founded as a stationery shop in Berlin in 1904, expanded to become a group and has
been quoted on the stock exchange since 1977. Within the group, Herlitz AG is the holding
company, owning the shares of the subsidiaries, of which Herlitz PBS AG is the most important.

Before the insolvency proceedings, Herlitz AG was the holding company of Herlitz PBS AG and
Diplomat GmbH (Diplomat). At the same time within the Herlitz Group, Herlitz PBS AG was the
holding company of Falken Office Products GmbH (FOP), Herlitz Kunstoffverarbeitungs GmbH
(HKV), Susy Card Papeterie GmbH (Susy), HGG Verwaltungsgesellschaft mbH (HGG) and foreign
subsidiaries in around 15 countries. In 2002 the Herlitz Group acquired Mercoline Gmbh as well
as eCom Verwaltungs GmbH and eCom Logistik GmbH & Co. KG (eCom). Currently, the Herlitz
Group has the following structure:

(3) See footnote 2.

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(9)

(10)

The Herlitz Group is active in the markets for products such as stationery, office equipment and
greeting cards. Herlitz AG and Herlitz PBS AG are based in Berlin. The production sites of the Herlitz
Group are based in Berlin, Falkensee (Brandenburg), Peitz (Brandenburg), Cunewald (Saxony), Poznan
(Poland) and Most (Czech Republic). FOP is the group’s main producer of office supplies.

Since July 2001, approximately 67 % the shares of Herlitz AG have been held by a banking
consortium consisting of DB Industrial Holding (Deutsche Bank), Landesbank Berlin, Berliner
Bank (4), Hypovereinsbank, Bayerische Landesbank, DZ Bank AG, Dresdner Bank, HSBC,
IKB
Deutsche Industriebank AG and West LB. The remaining 35 % are dispersed among many share-
holders (5).

(11)

The economic development of the group is summarised in Table 1 below:

Table 1

1997

1998

1999

2000

2001

2002
total

2002
1.1.2002
to
16.9.2002

2002
17.10.2002
to
31.12.2002

714

630

567

490

438

376

255

121

– 51

– 37

– 46

– 51

– 134

99

51

48

2003

347

1,7

Turnover in EUR
million (*)

Net
income/loss
in EUR million (*)

Employees (*)

5 420

4 483

4 228

3 380

2 984

3 096

3 181
average

3 109
average

No major
change

Capital in EUR
million (*)

Bank liabilities in
EUR million (*)

171

123

70

18

– 55

43

– 6

172

365

373

356

297

89

250

43

89

43

63

(*) All figures refer to the status at the end of each indicated year or period except where average is indicated.

(12) Due to the non-prolongation of bank credits in March 2002 Herlitz AG, Herlitz PBS AG and other
group subsidiaries such as Diplomat, HKV and Susy faced imminent insolvency or were already
insolvent. On 3 April 2002, Herlitz AG and Herlitz PBS AG applied for insolvency proceedings.
On 5 June 2002, the insolvency proceedings were opened by the court for both companies.

(13)

(14)

Separate insolvency proceedings have taken place for some of
the Herlitz Group subsidiaries.
Diplomat, HKV and Susy applied for bankruptcy on 12 April 2002 and were later liquidated. In
the course of their liquidation, all their creditors received an equal percentage of their claims from the
proceeds. No creditors waived any claims on these companies or on FOP. FOP’s insolvency was
avoided through a rescue aid loan granted to Herlitz PBS AG.

The insolvency proceedings for Herlitz AG and Herlitz PBS AG were terminated on 16 September
2002 when the court approved the insolvency plans. Previously, on 15 July 2002, the insolvency
plans for both Herlitz AG and Herlitz PBS AG had been approved unanimously and unconditionally
by the creditors. The fulfilment of the insolvency plans was monitored by the insolvency adminis-
trator and the creditors until 31 March 2004.

(4) On 1 July 2003 the Berliner Bank became a subsidiary of Landesbank Berlin.
(5) See the website of

the Herlitz Group: http://www.herlitz.de/index.php?id=347&backPID=348&begin_at=5&pS=

1041375600&pL=31535999&arc=1&tt_news=81

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(15) Germany submitted that the financial difficulties of the Herlitz Group were the result of a series of
mistaken investment decisions made in the 1990s outside the core activity of the group. After
German reunification, due to huge profit expectations, the Herlitz Group decided to enter the real
estate business in Berlin and Brandenburg. However, real estate prices did not subsequently live up to
expectations, so the Herlitz Group had to set aside reserves and provide for depreciation for an
amount of some EUR 95 million. The buildings constructed for the Herlitz Group’s own use in
Berlin-Tegel and Falkensee proved to be too large. Since no suitable external use could be found for
these buildings, vacancy costs of EUR 20 million accrued.

(16)

(17)

The real estate investments were the main loss-making factor for the company. Despite efforts to sell
the real estate properties, the Herlitz Group was not able to divest itself of them. Accordingly, at the
end of 2001, two special-purpose real estate companies were founded by the Herlitz Group: GGB
Grundstückgesellschaft Am Borsighafen mbH Co. KG (GGB) for the buildings owned by the group in
Berlin-Tegel and GGF Grundstückgesellschaft Falkensee mbH Co. KG (GGF)
for the real estate
property in Falkensee. The Herlitz Group exercised majority control over GGB and GGF through
Herlitz PBS AG and HGG. Herlitz PBS AG was the majority partner (Kommanditistin), while HGG was
the minority partner (Komplementärin) in GGB and GGF.

The Herlitz Group planned to relieve its balance sheet from the burden of the real estate investments.
Accordingly, in January 2002, it sold the two properties as well as the associated emphyteusis right
to GGB and GGF, which subsequently leased back the parts of these real properties necessary for the
group. However, GGB and GGF could not be separated from the Herlitz Group before the insolvency
proceedings. Finally, with the agreement of the insolvency administrator, on 30 September 2002
HGG, the minority partner of GGB and GGF, was taken out of the Herlitz Group and the majority
partnership rights of Herlitz PBS AG were turned into minority ownership shares of EUR 1 million in
both GGB and GGF. Accordingly, under German law (6), the Herlitz Group is no longer the majority
owner of these real estate companies.

(18) Another investment misjudgement by the Herlitz Group was entering the paper and paper processing
business through the acquisition of a Russian paper factory. However, due to the collapse of the
paper market in the Commonwealth of Independent States, the investment led to losses of about
EUR 50 million. Further investments in western Europe such as the distribution businesses in
Portugal, France and Austria were unsuccessful and resulted in losses of some EUR 10 to 15
million. The total
loss from all the failed investments thus amounts to about EUR 175 to 180
million. It is worth noting that throughout this period the core business of the Herlitz Group was
still producing positive results, although not enough to cover the losses from the other investments.

(a) The ‘old’ measures

2. The financial measures

(19)

In 1989, the Land of Berlin, through Liegenschaftsfonds Berlin GmbH & Co. KG (Liegenschaftsfonds),
offered Herlitz AG the use of real estate in Berlin-Tegel on the former industrial premises of Borsig.
Liegenschaftsfonds is a fully owned company of the Land of Berlin entrusted with the administration
of State-owned real estate properties. The Land of Berlin remained the owner of the real estate but
granted an emphyteutic lease (Erbbaurecht) on the land to the Herlitz Group, which undertook to pay
a ground rent (Erbbauzinsen) to the Land of Berlin until 30 April 2053.

(20)

The ground rent amounted to 3 % of the value of the land, which could vary throughout the
the contract. The Herlitz Group built an office building and a production plant
duration of
designed to meet the group’s needs on the Berlin-Tegel site. The buildings erected on the leased
land were the property of the Herlitz Group and when they were sold to GGB, the emphyteusis on
the land was transferred with them.

(6) See paragraph 290 of the German Commercial Code, Handelsgesetzbuch of 10 May 1897 (RGBl. I S. 219).

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(21)

The contract between the Liegenschaftsfonds and the Herlitz Group contained a clause for increasing
the ground rent from 3 to 7,5 % in the event that the use of the land changed and if the new form of
use were against the interests of the owner. Nevertheless, when the Herlitz Group sold the emphy-
teusis on the Berlin-Tegel property to GGB, the Liegenschaftsfonds did not increase the ground rent.
The ground rent was paid as agreed by the Herlitz Group until March 2002 and by GGB as of (a)
October 2002.

(22) Moreover, in 1989 Herlitz AG received an unsecured and interest-free loan of EUR 3,07 million
(DEM 6 million) for 10 years from the Land of Berlin linked to the transfer of its plants from Berlin-
Moabit and Berlin-Spandau to the Berlin-Tegel site (hereinafter referred to as the loan for the move)
(Umzugsdarlehen). On 17 November 1999, shortly before the deadline for the repayment of the loan
for the move, the Land of Berlin deferred the repayment of the loan until 31 December 2004. In
return for the deferral the Land of Berlin applied an interest rate on the loan amounting to the base
rate of the European Central Bank plus 2 %.

in favour of

the Land of Berlin for

(23) As security, on 23 November 1999, Herlitz AG signed a notarial deed containing an acknow-
the amount of EUR 3,67 million
ledgment of debt
(DEM 7,185 million) which equals the original amount of
the loan for the move plus the
expected amount of the cumulated interest, EUR 0,606 million (DEM 1,185 million). Furthermore,
the notarial deed established a land charge (Grundschuld) only for the amount of the cumulated
interest, on the emphyteusis that Herlitz AG enjoyed on the land in Berlin-Tegel. Nevertheless,
this land charge was lower-ranking to the land charge registered for banks on the same emphyteusis
right. Neither the granting of the loan for the move in 1989 nor its deferral in 1999 are covered by
an aid scheme and neither measure was notified to the Commission.

(b) The rescue aid loan

(24)

By contract of 10 May 2002 between the insolvency administrator of Herlitz PBS AG and ILB, the
bank granted Herlitz PBS AG a loan amounting to some EUR 930 232 (hereinafter referred to as the
rescue aid loan). By letter dated 29 May 2002 this amount was increased to EUR 963 855,42.

(25)

The rescue aid loan was intended to ensure the fulfilment of a sales contract between Herlitz PBS AG
and FOP. FOP had delivered goods to Herlitz PBS AG but received no payment, which threatened its
liquidity.

(26)

The rescue aid loan was granted at an annual interest rate of 7,5 % and had to be reimbursed within
six months after its disbursement. The full amount of the loan was disbursed on 24 July 2002. The
loan was secured by assignment of claims (Abtretung der Rückgewährungsansprüche) of FOP amounting
to EUR 2,5 million as well as land charges (auf dem Betriebsgrundstück eingetragene Grundschulden)
amounting to EUR 13 549 234,85 on the real estate of FOP. The loan was fully repaid with
interest to ILB on 24 January 2003.

(c) Restructuring through insolvency plans (Insolvenzpläne)

G e n e r a l d e s c r i p t i o n o f

t h e i n s o l v e n c y p l a n s

(27) Germany has provided two parallel insolvency plans: one for Herlitz PBS AG and another for Herlitz
AG, both dated 15 July 2002. These insolvency plans are the restructuring or rather the recapita-
lisation plans (Sanierungspläne) of the Herlitz Group. The plans provide for the reduction of capacities,
the hive-off of company property, the closing of unprofitable subsidiaries, the reduction of negative
operating results, measures to reduce costs and optimise distribution and the search for a strategic
partner. In addition, the plans aim to reduce both companies’ pending debts through partial and full
waivers of non-secured debts and a contribution from the workforce.

(a) Substantive error.

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(28)

Both insolvency plans applied the methodology of maintaining the going concern through an
insolvency plan (Sanierung durch Insolvenzplan),
in accordance with the German Insolvency
Statute (7). The Insolvency Statute,
in force since 1 January 1999, provides for the option of
rescuing a company by keeping the existing management and satisfying the creditors from the
In the Herlitz AG and
income created after the insolvency proceedings have been terminated.
this appeared to be the solution best suited to satisfying the
Herlitz PBS AG proceedings,
creditors. Accordingly,
the insolvency administrator and the creditors rejected the options of
selling the entire company (übertragende Sanierung) or liquidating the company and selling assets
separately (Zerschlagung).

(29)

The two plans have a similar methodology but apply different solutions, due to the different asset
structure of Herlitz PBS AG and Herlitz AG. However, the restructuring through the insolvency plan
of Herlitz AG was conditional upon the fulfilment of the insolvency plan for Herlitz PBS AG. Both
plans divided the creditors of each company into groups that were supposed to contain creditors
with comparable claims.

(30) According to Article 222 of the Insolvency Statute, there are three types of creditors that take part in

insolvency proceedings:

(a)

the creditors entitled to separate satisfaction if their rights are encroached upon by the plan;

(b) the non-lower-ranking creditors;

(c)

lower-ranking creditors unless their claims are deemed to be waived.

(31)

These are further divided into groups of creditors with equal rights. Once groups have been created,
no individual settlements can take place that would differentiate between parts of each creditor
group.

(32)

In the insolvency proceedings of both Herlitz AG and Herlitz PBS AG, creditors with a right to
separate satisfaction participated, but their claims were satisfied to the extent that they were covered
by such a right.

(33) Germany submitted that in the insolvency proceedings of Herlitz AG and Herlitz PBS AG all
insolvency costs (Massekosten) and debts of the insolvency assets (Masseverbindlichkeiten) were paid
in full. A part of these claims were public sales tax claims (Umsatzsteuer). In insolvency proceedings of
the going-concern type, the payment of all these privileged claims is a precondition for the successful
closure of the procedure. The debts of the insolvency assets were paid immediately as they arose and
no separate list of these claims was made. Only hypothetical lists of insolvency costs and debts of the
insolvency assets were prepared to illustrate the possible outcomes of liquidation and asset sale
procedures.

C r e d i t o r g r o u p s i n t h e i n s o l v e n c y p l a n f o r H e r l i t z A G

(34)

In the insolvency proceedings for Herlitz AG, the classification of the insolvency claims was as
follows:

(a) creditors entitled to separate satisfaction: no formal group of these creditors was drawn up.
Nevertheless, a right to separate satisfaction secured the full claims of the mortgage banks
Hypovereinsbank and Eurohypo (8), but only a part of the claims of group HAG 1 below;

(7) Insolvenzordnung of 5 October 1994, (BGB II 1994, 2866).
(8) See recital 42.

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(b) insolvency costs and debts of the insolvency assets: no formal group of these creditors was drawn

up and these claims were paid in full as soon as they arose;

(c) non-lower-ranking creditors:

— group HAG 1: group of banks with a right to separate satisfaction on part of their claims

from the movable property and shareholdings of Herlitz AG,

— group HAG 2: other non-lower-ranking creditors not belonging to group HAG 1,

— group HAG 3: tax authority of Berlin,

— group HAG 4: connected undertakings;

(d) lower-ranking creditors:

— group HAG 5: interests, costs, fines etc.

(35)

The lower-ranking claims in group HAG 5 were cancelled by the insolvency plan in accordance with
Article 225 of the Insolvency Statute. The non-lower-ranking groups HAG 3 and HAG 4 waived all
their claims with effect from 15 July 2002 (9). The claims and the amounts waived by creditors are
set out in rounded figures in the following table:

Group

HAG 1

Table 2

Creditors of
Herlitz AG
(public or private
creditor)

Description of claim

Security of claim

Claims in EUR
million

Waived
claims in EUR
million

Banks with right to
separate satis-
faction (public and
private)

Credits dating from
before 3 April
2002

Right to separate
satisfaction from
movables

[130 to 140] (*)

[up to 135] *

HAG 2

Former
management and
employees (private)

Future pension
claims, salary for
the period before
3 April 2002,
redundancy
payment

None

[35,91] *

[…] *

Lessor of grounds
at Spandau
(private)

Rent, damages for
termination of
contract

None

[…] *

Suppliers (private)

None

Claims from
supplies and
services before
3 April 2002,
damages for termi-
nation of contract

(9) The only exception was that Herlitz PBS AG received a compensation payment of EUR 1 million for the termination

of an affiliation agreement between Herlitz AG and Herlitz PBS AG.

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Group

Creditors of
Herlitz AG
(public or private
creditor)

Mutual Insurance
Association
(public)

Federal
Employment
Agency (public)

Health Insurance
Funds (public)

Tax authority of
Alfeld (public)

Description of claim

Security of claim

Claims in EUR
million

Waived
claims in EUR
million

Future pension
claims

None

[8,43] *

None

None

None

Claim for compen-
sation of the
insolvency benefit
paid to employees
(1 January 2002 to
4 June 2002)

Contributions for
the period (5
March 2002 to
4 June 2002)

Tax on the sale of
real estate from the
sale of an
ownership share
before 2002

Liegenschaftsfonds
(public)

Rent interest for
Berlin-Spandau

None

Overall waivers in group HAG 2: EUR 0,5 million quota was distributed according to the size of the claims, and
the remaining part of the claims was waived

HAG 3

Tax authority of
Berlin (public)

Trade tax,
corporate income
tax and sales tax
for the period
ending 5 June
2002

None

[2,0] * (a)

[2,0] * (a)

Overall waivers in group HAG 3: 100 % of the claims was waived

HAG 4

Connected under-
takings (private)

All claims against
Herlitz AG

HAG 5

Lower-ranking
creditors (private
or public)

Interests, costs,
fines etc.

None

None

109

108

Not specified

Not specified

(a) Substantive error.
(*) Parts of this text have been edited to ensure that confidential information is not disclosed; those parts are enclosed in square

brackets and marked with an asterisk.

C r e d i t o r g r o u p s i n t h e i n s o l v e n c y p l a n f o r H e r l i t z P B S A G

(36)

The classification of the creditors in the insolvency proceedings for Herlitz PBS AG was as follows:

(a) creditors entitled to separate satisfaction:

— group PBS 1: a right to separate satisfaction secured the full claims of certain suppliers,

— group PBS 6: banks with right to separate satisfaction on part of their claims. The mortgage
banks Hypovereinsbank and Eurohypo had also rights to separate satisfaction but were not
included in group PBS 6;

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(b) insolvency costs and debts of the insolvency assets: no formal group of these creditors was drawn

up and these claims were paid in full as soon as they arose;

(c) non-lower-ranking creditors:

— group PBS 2: employees

— group PBS 3: some of the public creditors such as tax authorities, Federal Employment

Agency, Health Insurance Funds (Krankenkassen), Land of Berlin

— group PBS 4: connected undertakings

— group PBS 5: other non-lower-ranking creditors such as former management and executive
employees, the Employer’s Liability Insurance Association (Berufsgenossenschaft), the Mutual
Insurance Association (Pensionssicherungsverein), private leasing banks, Austrian Post, Main
Customs Office etc.;

(d) lower-ranking creditors:

— group PBS 7: interests, costs, fines etc.

(37)

The lower-ranking claims in group PBS 7 were cancelled by the insolvency plan in accordance with
Article 225 of the Insolvency Statute. The non-lower-ranking groups PBS 3 and PBS 4 waived all
their claims with effect from 15 July 2002. The non-lower-ranking claims and the amounts waived
by creditors are set out in rounded figures in the following table:

Table 3

Group

PBS 1

Creditors of
Herlitz PBS AG
(public or private
creditor)

Description of claim

Security of claim

Claims in EUR
million

Waived claims in
EUR million

Suppliers with
right to separate
satisfaction
(private)

Claims from
supplies and
services before
3 April 2002

Right to separate
satisfaction from
movables

[3 to 6] *

0

[40 to 50] */
year

[2 to 4] * in
2002 [4 to 5] */
year from 2003

[11,50] *

[…] *

PBS 2

Employees (private)

Future salary
claims

PBS 3

Tax authority of
Berlin (public)

Corporate income
tax March 2002

Tax authority of
Berlin (public)

Real estate tax for
the period January
-March 2002

None

None

None

Tax authority of
Berlin (public)

Real estate tax for
1996

None

Federal
Employment
Agency (public)

None

Claim for compen-
sation of the
insolvency benefit
paid to employees
(1 April 2002 to
4 June 2002)

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Group

Creditors of
Herlitz PBS AG
(public or private
creditor)

Health Insurance
Funds (public)

Description of claim

Security of claim

Claims in EUR
million

Waived claims in
EUR million

None

Contributions for
the period 5 March
2002 to 4 June
2002

Liegenschaftsfonds
(public)

Ground rent for
the period April to
June 2002

Lower-ranking land
charge

Land of Berlin
(public)

Claim for
repayment of loan
for the move

None

Overall waivers in group PBS 3: 100 % of the claims was waived

PBS 4

Connected under-
takings (private)

PBS 5

Former
management and
executive
employees
(private) (a)

All remaining
claims from
connected under-
takings in the
Herlitz Group

Future pension
claims, salary for
the period before
3 April 2002,
redundancy
payment

None

139

139

None

[…] *

[private
creditors 22,61;
public creditors
19,56] *

Mutual Insurance
Association
(public)

Future pension
claims

None

Private Leasing
Banks (private)

Unpaid and capi-
talised future
leasing payments

Austrian Post
(private for this
case)

Complaint credit
note and returned
bonus

None

None

Employer's Liability
Insurance Asso-
ciation (public)

Accident insurance
fees

None

Main Customs
Office (public)

Import sales tax,
customs duty

Duales System
Deutschland
(private)

Fees for ‘Der Grüne
Punkt’ recycling
system

Health Insurance
Funds (public)

Contributions for
the period (1 to
4 March 2002)

None

None

None

Liegenschaftsfonds
(public)

Ground rent for
the period July to
September 2002

Lower-ranking land
charge

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Group

Creditors of
Herlitz PBS AG
(public or private
creditor)

Other private
suppliers without
securities (private)

Description of claim

Security of claim

Claims in EUR
million

Waived claims in
EUR million

None

Claims from
supplies and
services before
3 April 2002,
damages for termi-
nation of contract

Overall waivers in group PBS 5: 90 % of the claims was waived

PBS 6

PBS 7

Banks with right to
separate satis-
faction (private and
public)

Lower-ranking
creditors (private
or public)

Credits dating from
before 3 April
2003

Right to separate
satisfaction from
movables

[100-120] * (b)

(waived all but
EUR 76,75
million)

Interests, costs,
fines etc.

None

Not specified

Not specified

(a) This amount results after discounting double claims made against Herlitz AG and Herlitz PBS AG.
(b) See note (a).

A d d i t i o n a l

i n f o r m a t i o n o n d e b t s w i t h p u b l i c c r e d i t o r s

(38)

Public creditors declared claims in several groups of the insolvency proceedings. It is worth noting
that none of the public or private creditors in groups HAG 2, HAG 3, PBS 3 and PBS 5 had any
securities on their claims. Despite this fact, the non-lower-ranking claims within groups HAG 3 and
PBS 3 were waived completely, while the non-lower-ranking creditors in groups HAG 2 and PBS 5
received a proportional share of payment.

(39)

In accordance with the insolvency plans, the creditors within group HAG 2 received by 31 March
2004 a share of a total amount of EUR 0,5 million, corresponding to the relative size of their claims.
The creditors of group PBS 5 received 10 % of their claims by 31 December 2003. Tables 2 and 3
above show the amounts of the public claims and the respective waivers.

(40)

(41)

A d d i t i o n a l
s e t t l e m e n t a g r e e m e n t

i n f o r m a t i o n

o n

f i n a n c i a l

i n s t i t u t i o n s

c o v e r e d

b y

t h e

Both insolvency plans mention a pending credit granted to Herlitz PBS AG by a bank consortium
(hereinafter referred to as the consortium credit). The composition of the consortium is very similar
to that of the shareholder banks described in recital 10. The consortium credit was granted by the
whole consortium to Herlitz PBS AG in order to enable the full repayment of a convertible loan of
EUR 100 million. On 3 April 2002, EUR 53,9 million of the EUR 65,4 million consortium credit
was used up. Furthermore, before July 2001 most of these same banks granted the entire Herlitz
Group other credits (lines of credit) totalling EUR 156,6 million, EUR 134,11 million of which was
used up on 3 April 2003.

In group PBS 6 the banks uniformly waived the repayment of the consortium credit and the lines of
credit exceeding a total amount of EUR 76,714 million with respect to Herlitz PBS AG. The same
credit claims were uniformly waived in group HAG 1 with regard to Herlitz AG regarding amounts
exceeding in total EUR 5 million. The parts of the credits that were not waived represent prolonged
credits to the Herlitz Group. However, despite the fact that the banks waived the credits with respect
to Herlitz PBS AG and Herlitz AG, these liabilities were simultaneously assumed by the real estate
companies GGB and GGF.

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A d d i t i o n a l

i n f o r m a t i o n o n o t h e r d e b t s w i t h f i n a n c i a l

i n s t i t u t i o n s

(42) At the time of the approval of the insolvency plans by the creditors, further bank liabilities existed
within the Herlitz Group, which were not covered by the consortium credit and the lines of credit.
Firstly, Hypovereinsbank (Ireland), the Bayerische Landesbank and the Landesbank Berlin banks fully
waived the repayment of their non-secured credits in order not to endanger the recovery of their
partly secured claims within the consortium credit. Secondly, the Herlitz Group also received credits
that were fully secured through a first-ranking land charge on the Berlin-Tegel property: a credit of
EUR 15,4 million from Hypovereinsbank and a credit of EUR 30,8 million from Eurohypo. These
two credits did not enter into the settlement agreement but could be waived against Herlitz AG and
Herlitz PBS AG, because the securing Berlin-Tegel property was sold to GGB.

(43)

Furthermore, on 15 April 2002 the consortium of banks granted a liquidity loan to the Herlitz
Group (liquidity loan). The liquidity loan of EUR 15 million was granted in order to enable the
the group’s operative business. The loan was twice prolonged (renewed) until
continuation of
17 November 2003, when it was fully repaid. This loan covered the seasonal
liquidity needs of
the group and may be granted again in June 2004.

A d d i t i o n a l

i n f o r m a t i o n o n d e b t s w i t h s u p p l i e r s

(44) Herlitz AG’s debts with the suppliers amounted to EUR 9,30 million in group HAG 2. The suppliers
of Herlitz PBS AG can be divided into those with securities (in group PBS 1) and those without any
securities (in group PBS 5). The suppliers in group PBS 1 had a right of separate satisfaction on 35 %
of each Herlitz PBS AG’s current assets and therefore made no waivers. By contrast, the unsecured
suppliers in group PBS 5 relinquished 90 % of their claims like the other non-lower-ranking creditors
in that group.

A d d i t i o n a l
u n d e r t a k i n g s

i n f o r m a t i o n o n d e b t s w i t h t h e w o r k f o r c e a n d c o n n e c t e d

(45) Under German insolvency law, employees and connected undertakings can also participate and
receive quotas on their claims in insolvency proceedings. This is why separate ‘creditor’ groups
were created for these (HAG 4, PBS 4) or they were included in mixed groups (HAG 2, PBS 5).

A l t e r n a t i v e s t o t h e i n s o l v e n c y p l a n s

(46)

In the Herlitz AG and Herlitz PBS AG proceedings, the insolvency administrator and the creditors
opted for maintaining the going concern through insolvency plans. As explained in recital 33, under
the going-concern procedure all the insolvency costs and the debts of the insolvency assets were paid.
Furthermore, EUR 0,5 million was distributed as a quota to some non-lower ranking creditors of
Herlitz AG, while some non-lower ranking creditors of Herlitz PBS AG received 10 % of their claims
as a quota. As explained in recital 47, the expected value of the insolvency mass was much lower in
the option of liquidating the company. Selling the entire company in an asset deal was expected to
produce better satisfaction of creditors, but no investor was willing to take over the totality of the
assets of the group.

(47) According to an evaluation prepared by the firm Roland Berger and also in the opinion of the
independent auctioneer, a liquidation would have reduced the value of movable assets from
EUR 84,2 million to EUR [10-30] * million. This amount would have been first used to satisfy
the claims with a right to separate satisfaction, leaving free insolvency assets of only EUR [0-5] *
million. The revenues of the Herlitz Group during the insolvency proceedings would have amounted
to approximately EUR 1 million. After adding this amount to the free assets, the result would have
been total free insolvency assets of EUR [1-6] * million.

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(48)

The free insolvency assets would have been used to settle, in advance, the insolvency costs and the
debts of the insolvency assets, such as those created through the administration and disposition of
insolvency assets. After deduction of the insolvency costs, the final amount of free assets would have
been only EUR [0-1] * million. This amount could not cover the debts of the insolvency assets of the
company and therefore was insufficient for even a proportional satisfaction of the non-lower-ranking
creditors.

(49) According to the insolvency plans, a restructuring whereby all assets of the Herlitz Group would have
been sold in an asset deal to a new owner was not practicable. Offers were made for the takeover of
certain areas of activity and stocks, but the price offered corresponded to the liquidation value.
Therefore, the option promising best satisfaction to creditors was the going-concern restructuring
through insolvency plan.

(50)

(51)

(d) The decision to initiate proceedings under Article 88(2) of the Treaty

The Commission decided on 19 February 2003 to initiate proceedings under Article 88(2) of the
Treaty for three main reasons based on its review of the compatibility of the measures with the
Community guidelines on rescue and restructuring aid for firms in difficulty (10) (hereinafter referred
to as the Guidelines).

First, the Commission found that the loan granted by ILB to Herlitz PBS AG contained elements of
state aid within the meaning of Article 87(1) of the Treaty which needed to be analysed further. As
regards compatibility of the aid with the Guidelines, Germany did not submit sufficient information
for establishing who the real beneficiary of the aid was.

(52)

Second, the Commission wondered whether the waivers of several public creditors (tax authorities,
institutions) in the insolvency plans
employment institutions, social security and public financial
constituted aid.

(53)

Third, as regards the Herlitz Group’s use of the Berlin-Tegel real estate belonging to the Land of
Berlin, the Commission expressed doubts as to whether the lease contract was concluded under
market conditions. Since more than 10 years had passed since the contract, the granting of the lease
was regarded as existing aid. However, the Commission considered that the Land of Berlin’s waivers
of ground rent claims (Erbbauzinsen) and the fact that the rent was not increased could constituted
new aid. It also took the view that the granting and subsequent waiver of the interest-free loan of
DEM 6 million by the Land of Berlin could constitute State aid.

III. COMMENTS FROM INTERESTED PARTIES

(54)

investigation
The only interested party that commented on the decision initiating the formal
the beneficiary Herlitz Group. Herlitz PBS AG
procedure was Herlitz PBS AG on behalf of
expressed its support
the facts underlying the allegation of
unlawful State aid. It informed the Commission that it had provided all the relevant documents to
the German authorities.

for a thorough examination of

(55) As regards the rescue aid loan, Herlitz PBS AG submitted that it had been repaid and that it fulfilled
the conditions for approving rescue aid. With respect to the waivers in the insolvency proceedings,
Herlitz PBS AG stated that the public creditors had acted in a comparable manner to private ones,
furthermore the waived claims were worthless. Herlitz PBS AG stressed that all creditors had voted
unanimously to adopt the insolvency plans. Herlitz PBS AG reiterated that any aid elements the
Commission might find in the waivers of claims would be eligible for approval as restructuring aid
under the Guidelines. To avoid repetition, Herlitz PBS AG simply supported the legal arguments put
forward by Germany.

(10) OJ C 288, 9.10.1999, p. 2.

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IV. COMMENTS FROM GERMANY

(56)

In its response to the decision to initiate the formal investigation procedure, Germany stated that the
only measure it considered to be State aid was the rescue aid loan granted by ILB. Germany
submitted that this aid was compatible with the common market under Article 87(3)(c) of the Treaty.

(57) Germany stated that

the remaining measures and in particular the waivers in the insolvency
the Treaty.
proceedings did not constitute State aid within the meaning of Article 87(1) of
Germany submitted that the public creditors in the insolvency proceedings had waived worthless
claims and that otherwise their actions were compatible with the private creditor principle.
Furthermore, according to Germany even if some of the other measures might constitute aid, they
would be eligible for approval as restructuring aid under Article 87(3)(c) of the Treaty.

1. Germany’s comments on the rescue aid loan

(58) With respect to the rescue aid loan, Germany pointed out that the decision to grant the loan on
10 May 2002 preceded the final adoption of the insolvency plan on 15 June 2002. The fact that the
loan was only paid out on 24 July 2002 was due to certain ‘unresolved questions’ which could not
be settled with ILB before 24 July 2002. For the period between the contract and the disbursement,
the liquidity loan ensured the liquidity of Herlitz PBS AG. However, the liquidity loan was not
sufficient to cover the increased liquidity needs in August 2003, which arose because of the start
of the school term.

(59)

Therefore, according to Germany, the rescue aid loan was necessary to cover the period until the
adoption of the insolvency plan. Germany submitted that the rescue aid loan was limited to the
minimum, as demonstrated by the very low liquidity level of Herlitz PBS AG between August and
December 2002.

(60) Germany stated that the beneficiary of the rescue aid loan was not FOP but Herlitz PBS AG. Firstly,
the credit agreement of 10 May 2002 was concluded between the insolvency administrator and
Herlitz PBS AG. Secondly, Germany pointed out that FOP could not be regarded as the de facto
beneficiary either because FOP only received due payments in accordance with its supply contract
with Herlitz PBS AG.

2. Germany’s comments on the restructuring through insolvency plans

(61) Germany submitted that the waivers of certain public creditors did not lead to loss of revenue by the
State since the relevant claims were worthless. According to Germany, the assets of Herlitz AG and
Herlitz PBS AG were only sufficient to cover the claims of creditors with a right to separate
satisfaction. The public creditors outside this group had no securities or only a lower-ranking land
charge.

(62) Germany pointed out that in a liquidation scenario little or no payment would have resulted to
public creditors, including the ones secured by a lower-ranking land charge. According to paragraph
168 of the judgment of the Court of First Instance in Case T-152/99 (HAMSA v Commission) (11), a
creditor with an unsecured claim that would be worthless in a liquidation scenario does not make a
real sacrifice by waiving a substantial part of his claim.

(11) Judgment of the Court of First Instance of 11 July 2002 case T-152/99, Hijos de Andrés Molina, SA (HAMSA) v

Commission of the European Communities [2002] ECR II-3049.

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(63) Germany stated that waivers by public creditors do not represent a service (Leistung) or a benefit that
can be expressed in monetary terms. Since Herlitz AG and Herlitz PBS AG were insolvent,
in a
liquidation scenario, their assets would not have been sufficient to pay any quota on public claims.
Therefore, normally Herlitz AG and Herlitz PBS AG would have been freed from these claims by the
insolvency proceedings.

(64) Germany argued that even if waivers of public claims were considered to be a service, there was a
consideration from the Herlitz Group which counterbalanced it. This consideration was the future tax
and social security revenue that the public creditors could expect by maintaining the operations of
the company.

(65) Germany submitted that the analysis of public creditors’ waivers had to be carried out in accordance
with the private creditor principle as laid down in the HAMSA judgment. According to this principle,
each public creditor had to be compared with private creditors in a similar situation, or with a
hypothetical private creditor.

(66) According to Germany, the public creditors in the insolvency proceedings of the two Herlitz Group
companies are the public banks, the tax authority of Berlin, the Federal Employment Agency, Health
Insurance Funds, the Land of Berlin and other creditors such as the Main Customs Office and the tax
authority of Alfeld. In the opinion of Germany, in accordance with the judgment of the Court of
Justice in Case C-482/99 (France v Commission) (12), a thorough analysis is necessary to determine
whether certain credit waivers could be imputable to the State.

(67) As regards public banks, Germany submitted that

the consortium of banks that granted the
consortium credit and lines of credit included the publicly controlled Landesbank Berlin, Bayerische
Landesbank and WestLB. These banks acted as private members of the banking consortium, which is
supported by the fact that the waivers on the basis of the insolvency plans were undertaken
collectively by the consortium of banks and not by individual banks. Also, as regards the waivers
of unsecured claims undertaken by individual banks outside the insolvency plans, such waivers were
carried out by both private and public banks.

(68) With regard to the tax authority of Berlin, Germany stated that the reason for fully waiving its claims
in groups HAG 3 and PBS 3 was that it expected to be fully compensated by the future tax revenue
from Herlitz AG and Herlitz PBS AG. Similarly, the full waivers of the Federal Employment Agency
and the Health Insurance Funds in Group PBS 3 were motivated by the future revenue from statutary
social security payments. The same arguments were used to justify the full waivers of the Land of
Berlin and the Liegenschaftsfonds. According to Germany, the prospect of future ground rent revenue
from the Herlitz Group was the reason for their waivers in group PBS 3.

(69) Germany claims that the public creditors who waived 100 % of their claims in groups HAG 3 and
PBS 3 acted in a rational way and were not comparable to the other creditor groups. The motive
behind their 100 % waiver was the future revenue (tax, social security and ground rent) that the
public creditors could expect by maintaining the operations of the company. In Germany’s view,
future revenue is one of the most important motives for a creditor when deciding on a waiver of
claims. Since the public authorities had a much higher chance of obtaining future revenue from the
Herlitz Group than private ones, a higher proportion of public waivers was justifiable.

(70) Germany claims that the rule of avoiding the confusion between the roles of public authority and
public investor applies only to the market economy investor test but not to the private creditor test.
If public creditors could take into account future revenue when writing off past claims, this would be
tantamount to discrimination between creditors, so that no effective comparison of creditors could be
carried out.

(12) Judgment of the Court of 16 May 2002 case C-482/99, French Republic v Commission of the European Commu-

nities [2002] ECR I-4397.

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(71)

Referring to the opinion of the insolvency administrator, Germany pointed out that without such a
full waiver by the public creditors in groups HAG 3 and PBS 3 the creditors would not have
approved the insolvency plans. In fact the private creditors had demanded a bigger sacrifice from
the public creditors, because the continuance of the Herlitz Group ensured statutorily guaranteed
revenue for most of these creditors, while the private creditors did not have such a guaranteed future
income from the firm. Another justification for the full waivers in these creditor groups was that the
public tax claims were not clear at the time of the creditors’ agreement, therefore, by eliminating
these uncertainties, the plans could be agreed.

(72) Germany submitted that all public creditors that undertook partial waivers in groups HAG 2 and
PBS 5 were treated equally as private creditors in those groups. These groups contained claims of the
Federal Employment Agency, the Health Insurance Funds, the Main Customs Office and the tax
authority of Alfeld, the Land of Berlin and the Liegenschaftsfonds.

(73)

(74)

Finally, Germany argued in the alternative that, even if the Commission found that State aid was
provided in the form of waivers of public claims to Herlitz AG or Herlitz PBS AG, the measures
fulfilled the conditions for approval as restructuring aid under Article 87(3)(c) of the Treaty and the
Guidelines.

The conditions of the Guidelines were met according to Germany because there was an effective and
genuine restructuring plan, the viability of the Herlitz Group had been restored, there had been
capacity reduction and the waivers of public claims had been limited to the minimum. Furthermore,
no excess liquidity had been given to the Herlitz Group and the group had not received any
restructuring or rescue aid in the past.

3. Germany’s comments on the Land of Berlin and the Liegenschaftsfonds

(75) As regards the emphyteusis on the real estate in Berlin-Tegel, Germany submitted an excerpt of the
agreement establishing this right. Germany stated that the Liegenschaftsfonds did not increase the
ground rent for the emphyteusis because it did not consider the sale of the Berlin-Tegel buildings to
GGB a change in the use of the land that was contrary to the interests of the owner.

(76)

Concerning the loan for the move, Germany informed the Commission that the deferral of this loan
was not notified because the Land of Berlin acted as a private creditor. This was supported by the fact
that the deferral was accompanied by an interest rate, an acknowledgment of debt and a land charge
for the amount of the accrued interest on the emphyteusis.

V. LEGAL ASSESSMENT

1. Existence of aid

(77) Under Article 87(1) of the 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 under-
takings or the production of certain goods shall, in so far as it affects trade between Member States,
be incompatible with the common market. Pursuant to the established case-law of the European
Courts, the criterion of trade being affected is met if the recipient firm carries out an economic
activity involving trade between Member States.

(78)

The products of the Herlitz Group are traded within the Community and there is competition
between Member States. The rescue aid loan, the deferred loan for the move and certain waivers
of public claims in the insolvency proceedings are State measures or derive from State resources. If
these confer an advantage, this would distort competition and affect trade. The existence of advantage
has to be assessed in accordance with the market economy investor and private creditor principles.

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(a) The ‘old’ measures

(79) As regards the granting of the loan for the move in 1989, the decision to initiate proceedings found
that it was covered by the 10-year limitation period and constituted existing aid under Article 1(b)(iv)
of Regulation (EC) No 659/99. The granting of this loan therefore fell outside the investigation’s
scope. Furthermore, any State aid element that might be involved in the offering of land to the
Herlitz Group in 1989 could not be recovered in conformity with Article 15 of the said Regulation.

(80)

The decision to initiate proceedings mentioned the possibility that the non-increase of the ground
rent for the land in Berlin-Tegel in 2002 might have involved aid. This was later proved not to be the
case by the terms of the ground rent contract. The contract provided for the possiblity of a rent
increase only if the use of the land was changed. Such a change did not take place because the land
and the buildings on it were used for the same purpose as before. The Herlitz Group now simply
leases the same buildings which it used to own previously.

(81)

Regarding the deferral of the loan for the move in 1999, Germany argued that it was granted under
market conditions. The deferral was granted at a time when the Herlitz Group was not yet in
difficulty with an interest rate still higher than the reference rate applicable. The interest was
secured and in any case regularly paid until
the insolvency proceedings. The Commission
therefore considers that the deferral was not new aid.

(b) Aid in the rescue aid loan and the waivers of the insolvency proceedings

(82)

The rescue aid loan provides the Herlitz Group with advantages that a company in difficulties would
not have obtained on the market. Germany agrees on this. Furthermore, as will be shown below, in
the insolvency proceedings of Herlitz AG and Herlitz PBS AG, the disproportionate waivers by certain
public creditors derive from State resources and confer an advantage on the group. They therefore
constitute aid measures within the meaning of Article 87(1) of the Treaty.

(83)

(84)

(85)

P u b l i c c r e d i t o r s

In order to establish which measures concern State resources and are imputable to the State, each
creditor was analysed. The Commission finds that the group of public creditors is larger than
submitted by Germany. Apart from the public banks, the tax authority of Berlin, the tax authority
of Alfeld, the Federal Employment Agency, the Health Insurance Funds, the Land of Berlin (including
the Liegenschaftsfonds) and the Main Customs Office, there are two more public creditors. These are
Insurance Association (Pensionssicherungsverein) and the Employer’s Liability Insurance
the Mutual
Association (Berufsgenossenschaft).

The Mutual
Insurance Association was designated by paragraph 14 of the 1974 Occupational
Pensions Schemes Act (Gesetz zur Verbesserung der betrieblichen Altersversorgung, BetrAVG) (13) as the
institution in charge of the insolvency insurance. In accordance with paragraphs 10(1) and 10(2) of
that Act, the Mutual Insurance Association receives, through an Ausgleichfonds, compulsory contri-
butions under public law from all employers.

The Employer’s Liability Insurance Association was designated by paragraph 144 of the SGB 7
(German Social Code, Seventh Book on Statutory Accident Insurance) (14) as the institution in
charge of statutory accident insurance. In accordance with paragraph 150(1) of the SGB 7 act, the
Employer’s Liability Insurance Association receives compulsory contributions made under public law
from all employers.

(13) See Gesetz zur Verbesserung der betrieblichen Altersversorgung, (BetrAVG) of 19 December 1974 (BGBl. I S. 3610).
(14) BGBl. 1996-I S. 1254.

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(86)

The situation of the Mutual Insurance Association and the Employer’s Liability Insurance Association
corresponds to the one envisaged in paragraph 58 of the judgment of the Court of Justice in Case
C-379/98 (PreussenElektra) (15). In the case of these associations, waivers were not granted directly by
the State, but by a public or private body designated or established by the State. These waivers were
the foregoing of State resources in the form of statutary contributions to a fund designated by the
State. The waivers are also imputable to the State in accordance with the judgment of the Court of
Justice in Case C-342/96 (Spain v Commission) (16), because these independent social security asso-
ciations are supervised by the State and financed by contributions paid by undertakings.

A p p l i c a t i o n o f

t h e p r i v a t e c r e d i t o r p r i n c i p l e

(87)

In accordance with the case-law of the European Court of Justice (17), the Commission first compared
each public creditor in the insolvency proceedings of the Herlitz Group with similar private creditors.
Given that for each public creditor there were comparable private creditors, there was no need to
perform a comparison with hypothetical private creditors.

(88)

(89)

The private creditor principle was satisfied in the liquidation procedures of the Herlitz Group
subsidiaries Diplomat, HKV and Susy, because all creditors received an equal share of the liquidation
proceeds. Private and public creditors behaved in a similar way with regard to the debts of the
insolvency assets because these claims were fully satisfied. Similarly, the private creditor principle was
respected with regard to the lower-ranking claims because all the public and private creditors
concerned waived them.

The comparison of non-lower-ranking creditors produced a similar result in the procedures of Herlitz
AG and Herlitz PBS AG. Most groups contained creditors with equal ranking in the order of
satisfaction, but some of
the creditors with identical and comparable rights were placed in
different groups. As a consequence, public creditors made a disproportionate waiver in creditor
groups HAG 3 and PBS 3. With the exception of these two groups, all other creditor groups
established in the insolvency proceedings correspond to comparable creditors for the purpose of
analysing the private creditor principle.

(90) As set out in paragraph 168 of the HAMSA judgment, the factors determining the similarity of
creditors are the type and amount of securities, the privileged nature of claims, the creditors’
evaluation of the chances of recapitalising the company and the share of the liquidation revenue
they can expect. Judging by these criteria the creditor groups HAG 3 and HAG 2 are similar and
should belong to a single group with an equal right to satisfaction. The same can be said about
creditors in PBS 3 and PBS 5.

(91) All these groups comprised unsecured non-lower ranking claims, which were non-privileged and
which would have received an equal share or nothing at all in the event of liquidation. The lower-
ranking land charge of the Liegenschaftsfonds represents no security in an insolvency scenario where
the banks’ first-ranking mortgage and right to separate satisfaction fully covered the value of the
security. Furthermore, all creditors in these groups had an equal interest in avoiding liquidation and
obtaining a quota in the going concern settlement. Nevertheless, only the creditors in groups PBS 5
and HAG 2 got a quota on the basis of their existing insolvency claims.

(15) Judgment of the Court of 13 March 2001 Case C-379/98, PreussenElektra AG v Schleswag AG, in the presence of

Windpark Reußenköge III GmbH and Land Schleswig-Holstein [2001] ECR I-2099, paragraph 58.

(16) Judgment of the Court of 29 April 1999 in Case C-342/96, Kingdom of Spain v Commission of the European Commu-

nities [1999] ECR I-2459, paragraphs 5 and 46.

(17) See HAMSA v Commission, loc. cit., paragraphs 167 to 170; Spain v Commission, loc. cit, paragraph 46; and Judgment
of the Court of 29 June 1999 in Case C-256/97 Déménagements-Manutention Transport SA (DM), [1999] ECR I-3913,
paragraph 24.

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(92)

(93)

Contrary to Germany’s submission, public creditors in groups HAG 3 and PBS 3 could not take into
account their future statutory tax and social security revenue to justify a proportionally larger waiver.
The case-law of the Court of First Instance and of the European Court of Justice (18) prevents a public
authority from taking into account its future tax and social security revenue when deciding on the
proportion of the claims it should waive against a debtor. If such considerations were allowed, the
roles of public authority and investor would be confused.

The need to avoid any confusion between the roles of public authority and investor applies not only
to the market economy investor principle, but also to the private creditor principle. These two
principles have essentially the same purpose of establishing whether public investors behave in a
comparable way to private ones. The effectiveness of both principles would be impaired if public
authorities could take into account their future statutory income when making decisions as an
investor.
Insolvency creates an exceptional situation where the past statutory public claims (tax
and social security) can be compared with civil claims of private creditors. Nevertheless, such a
comparison can be performed only with regard to the past, for existing claims.

(94) Although future revenue expectations can play a role when deciding on waivers, this is not the main
consideration. Also, the State is not driven by profit considerations when levying taxes.
If the
argument of Germany were taken further, private creditors should be required to waive more than
public ones, because the waivers are deductible from their tax base. Furthermore, Germany does not
explain why in other creditor groups, public creditors of the same type were granted a quota for
similar claims and not in HAG 3 and PBS 3. For the same reason, the public but non-statutory
ground rent claim of the Liegenschaftsfonds in group PBS 3 cannot be waived to a larger extent than
that of private or public claims in group PBS 5.

(95)

Finally, paragraph 167 of the HAMSA judgment of the Court of First Instance reiterated that public
creditors in debt write-off situations do not have to be compared to private investors pursuing a
global or sectoral structural policy, but rather to a private creditor seeking to recover as much of his
claims as possible from the firm in financial difficulty. This bears out the private and public creditors’
equal interest in obtaining a quota on their existing insolvency claims.

T h e a m o u n t o f

t h e r e s c u e a n d t h e r e s t r u c t u r i n g a i d

(96)

The amount of rescue aid corresponds to the rescue aid loan of EUR 963 855,42. The aid to the
Herlitz Group in the form of waivers in the insolvency proceedings corresponds to the proportional
difference between waivers made on the one hand by pubic creditors in groups PBS 3 and HAG 3
and on the other hand the waivers of the creditors in groups PBS 5 and HAG 2.

(97)

In the insolvency proceedings of Herlitz AG, the public creditor in group HAG 3 did not behave in
the same way as the comparable private creditors in group HAG 2. Therefore, its waiver is State aid,
the amount of which is higher than the difference between the waived proportion of its claim and
the waived proportion of the private claims. This is so because, for instance, the private bodies might
not have waived to such an extent without the higher waiver of public creditors. Similarly, not only
the waived proportion of claims, but also the absolute amount in each class of creditors might be
In these circumstances the aid amount may be anything up to 100 % of the waiver.
relevant.
Nevertheless, in the present case it is not necessary to calculate this amount precisely as, in any
event, even if it were to reach 100 % of the waiver, the aid would still be compatible with the
common market.

(18) See Judgment of the Court of First Instance of 6 March 2003 Joined cases T-228/99 and T-233/99 Westdeutsche
Landesbank Girozentrale and Land Nordrhein-Westfalen v Commission of the European Communities [2003] ECR II-435,
paragraph 272; Judgment of the Court of 28 January 2003 Case C-334/99 Federal Republic of Germany v Commission of
the European Communities [2003] ECR I-1139, paragraph 134; Judgment of the Court of 14 September 1994 Joined
Cases C-278/92, C-279/92 and C-280/92 Kingdom of Spain v Commission of the European Communities [1994] I-4103,
paragraph 22.

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(98)

The same reasoning applies to the State aid in the insolvency proceedings of Herlitz PBS AG, which
results from the different proportion of claims waived in group PBS 3 and by the comparable private
creditors in PBS 5.

2. Assessment in the light of the Guidelines

(99)

The rescue aid loan and the disproportionate waivers conferred an advantage on the Herlitz Group,
by reducing the costs it would normally have to bear and facilitating its restructuring process. The
Commission must therefore assess whether the measures can be considered to be compatible with the
common market.

(100) Since the aid measures were not granted under any scheme approved by the Commission, the aid
falls to be assessed as ad hoc aid. Article 87(2) and (3) of the Treaty sets out the conditions according
to which aid is compatible or may be considered compatible with the common market. Article
87(3)(c) is relevant to this case, since the purpose of the aid measures was to enable rescue and the
restructuring of the recipient and no other derogation mentioned in Article 87(2) and (3) was
invoked or can be applied.

(101)

In the Guidelines, the Commission set out the conditions for the positive exercise of its discretion
under Article 87(3)(c) of the Treaty. Since the information submitted by Germany indicates that all of
the aid that is to be assessed was granted to the recipient after the entry into force of the Guidelines,
they apply to the measures in question (19).

(a) Aid beneficiary

(102) The Commission considers that the beneficiary of all the aid measures covered by the investigation is
the entire Herlitz Group and not individual companies within that group. This conclusion follows
from the closely intertwined structure of the Herlitz Group and the systematic allocation of tasks and
assets between the two main companies (Herlitz AG and Herlitz PBS AG) and their subsidiaries.

(103) The Herlitz Group appears and acts on the market as a single firm. For example Herlitz AG
concluded the agreement on the emphyteusis with the Land of Berlin for the site in Berlin-Tegel,
though the ground rent claim was registered and waived in the insolvency proceedings of Herlitz PBS
AG only. Furthermore, the Herlitz Group published consolidated financial statements in accordance
with Article 290 of the German Commercial Code. Finally, the creditors of the Herlitz Group treated
it as a single firm when they adopted in a uniform manner the parallel and interrelated insolvency
plans of Herlitz AG and Herlitz PBS AG.

(104) Herlitz AG, Herlitz PBS AG and FOP are all located in assisted areas (Berlin/objective 2 covered by
Article 87(3)(c), Brandenburg covered by Article 87(3)(a)). The Herlitz Group had not received
restructuring aid in the 10-year period before the insolvency proceedings.

(b) Firm in difficulty

(105) Section 2.1 of the Guidelines defines a firm in difficulty. The Herlitz Group can be considered a firm
in difficulty in accordance with point (5)(a) of the Guidelines because it is a limited company more
than half of whose registered capital disappeared during the 12-month period from 31 December
2000 to 31 December 2001. The amount of the group’s registered capital is set out in the following
table:

(19) See point 101 of the Guidelines.

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Table 4

31.12.1998

31.12.1999

31.12.2000

31.12.2001

(in EUR million)

Registered capital

94,8

94,8

94,8

46,5

Source: the Herlitz Group’s Annual Reports for the years 1999 and 2001 to 2002.

(106) Furthermore, the Herlitz Group was in difficulty from at least April 2002, also pursuant to point
(5)(c) of the Guidelines, because it fulfilled the criteria under German law for being the subject of
collective insolvency proceedings. As described in recital 13, insolvency proceedings were requested
in April 2002 for several main companies within the Herlitz Group.

(107) Therefore, the Herlitz Group was in difficulty from 31 December 2001 since more than half of its
registered capital disappeared during the 12 months preceding this date. Being a firm in difficulty, the
Herlitz Group was eligible for both rescue and restructuring aid.

3. Analysis of the rescue aid loan

(108) The rescue aid loan was granted by ILB. ILB, an institution incorporated under public law, was
created in 1992 with the task of supporting the Land of Brandenburg in its activities to promote
local industry. It is not a commercial bank under the German Commercial Code and profit making is
not the main purpose of its operations. It acts as the development and structural bank of the Land of
Brandenburg and is closely supervised by the Land. State supervision of the bank is performed by the
Ministry of Finance of Brandenburg and promotional committees are formed to advise on individual
projects (20). The Commission therefore considers that the measure at issue is imputable to the State.

(109) The rescue aid loan confers on the Herlitz Group advantages that a company in difficulties would not
have obtained on the market. Since Germany recognises that the loan is aid, the Commission does
not consider it necessary to apply the market economy investor principle. Consequently, the rescue
aid loan includes State aid elements within the meaning of Article 87(1) of the Treaty and has to be
assessed accordingly. The Guidelines set out clear conditions for such aid.

(110) Firstly, the aid has to consist of liquidity help in the form of loan guarantees or loans bearing normal
interest rates. The rescue aid loan conforms to this requirement and its interest rate

commercial
exceeded the Commission reference rate (21).

(111) Secondly, the aid should be warranted on the grounds of serious social difficulties and have no undue
adverse effects on the industrial situation in other Member States. The Commission can take account
of the fact that the Herlitz Group is a large employer in the assisted areas of Berlin and Brandenburg.
An immediate, disorderly insolvency would have led to serious social difficulties. For the bridging
period of the rescue aid loan, the Commission considers the adverse effects on the industrial situation
in other Member States to be limited and not undue.

(112) Thirdly, although the granting of the rescue aid loan was initially not notified to the Commission,
during the formal investigation procedure Germany submitted proof that the loan has been reim-
bursed in full.

(20) See the ILB’s website: www.ilb.de
(21) The reference rate adopted by the Commission for Germany was 5,06 % from 1.1.2002 and 4,8 % from 1.1.2003,

see http://europa.eu.int/comm/competition/state_aid/others/reference_rates.html

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(113) Fourthly, the aid has to be restricted to the amount needed to keep a firm in business. The
Commission finds that this condition is fulfilled. The rescue aid loan was only used when the
liquidity loan could no longer cover the increased liquidity needs due to routine supplies for the
start of the school term in the autumn of 2002. Even after receiving the rescue aid loan, the liquidity
level of Herlitz PBS AG remained low between August and December 2002.

(114) Finally, the aid has to be paid only for the time needed to devise the necessary and feasible
restructuring plan. This time should not exceed six months, unless warranted by particular circum-
stances. In the present case, although the decision to grant the rescue aid loan was taken on 10 May
2002, the actual disbursement took place on 24 July 2002 and the repayment followed exactly six
months after the disbursement. Furthermore, the repayment took place before the Commission was
to take its decision on the measures involved in the insolvency plans. In conclusion, the rescue aid
loan fulfils the criteria of the Guidelines and is compatible with the common market.

4. The restructuring through insolvency plans

(a) Restoration of viability

(115) The insolvency plans that were approved in the procedures of Herlitz AG and Herlitz PBS AG
contained the following operational measures for the restoration of the Group’s viability: reduction
of the firm’s overcapacity, sale of factory sites, closing down of subsidiaries, improvement of negative
financial results, reduction and optimisation of costs. The activities of the group were to be reduced
to the still healthy core business.

(116) The Herlitz Group’s development has been in accordance with the financial plans forming part of the
insolvency plans. As a result, in the financial year 2003 the group had an operating profit before
interest and financing payments of EUR 7,2 million and a total turnover of EUR 346,6 million. On
the basis of these figures for 2003 the operating margin disregarding interest and financing payments
(Umsatzrendite vor Finanzierungsaufwendungen) is 2 %, which corresponds to the average in the sector.
The operating cash flow before interest and financing costs for 2003 is approximately EUR 14
million.

(117) For 2004, the expectations of the Herlitz Group are an operating profit before interest and financing
payments of EUR [5-10] * million and output (a) (sales and changes in inventory of finished products)
of EUR [250-300] * million. This will lead to an operating margin disregarding interest and financing
payments of [2-4] * %. The actual results until now have borne out the Herlitz Group’s expectations.
Therefore, based on the above, the insolvency plans have laid the foundation for the restoration of
the Herlitz Group’s viability.

(b) Aid limited to the minimum

(118) The Herlitz Group had already carried out restructuring measures before the insolvency proceedings.
The estimated costs of the restructuring were around EUR 20,6 million, consisting of EUR 9,3
million for severance payments, EUR 6,2 million for depreciation and impairments and EUR 5,1
million for moving, closure and advisory costs. As regards the costs directly related to the restruc-
turing measures adopted in the insolvency proceedings in 2002, these amounted to EUR 6,9 million
(severance payments and costs of the insolvency proceedings).

(119) The majority of the restructuring costs were undertaken by the firm and its creditors. The share-
holders of the group have contributed by not taking any dividends since 1997. The positive cash-
flows were reinvested in the group. At the beginning of the insolvency proceedings the bank
consortium provided the group with a ‘new’
liquidity loan of EUR 15 million that was twice
prolonged (renewed) until 17 November 2003, when it was fully repaid. This loan covered the
seasonal
liquidity needs of the group and may be granted again in June 2004. Apart from this
fresh loan, the banks have also prolonged the duration of their existing and non-waived credits for
another year in March 2004.

(a) Substantive error.

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(120)

If we accept the restructuring costs covering the period before the insolvency proceedings, the own
contribution exceeds 95 % of EUR 27,5 million. Alternatively,
if we take into account the costs
directly connected to the insolvency proceedings, the own contribution amounts to 83,01 % of
EUR 6,9 million. Given the significant own contribution in both cases, the restructuring aid can
be considered to be limited to the minimum.

(c) Avoidance of undue distortions of competition

(121) The following definitive compensatory measures in the form of capacity limitations were undertaken
by the Herlitz Group: closing down three envelope machines; sale of an offset printing machine and a
napkin machine; abandoning of the injection moulding production area; closing down or sale of
subsidiaries in Portugal, Austria and France; reduction of storage capacity and reduction of personnel
by 630 employees.

(122) During the restructuring period, the group acquired control over its former joint venture eCom for
EUR […] * million, the company Mercoline for EUR […] * million and it bought back some assets
in the liquidation of its subsidiaries for EUR […] * million. [The sum of the three figures in this
the function of these
paragraph is EUR 1-3 million] The amounts paid were relatively small,
companies and assets fits into the aim of reducing costs, focusing on the core business and concen-
trating the logistical and administrative functions. Therefore, the Commission accepts that these
investments were essential for restoring viability without unduly distorting competition.

(123) There is no overcapacity on the relevant markets. The Herlitz Group has an approximate share of
[5-15 %] * in Germany and [3-17 %] * in the EU. Given the small market share and the small amount
of state aid, the additional investments could be regarded as necessary and not representing undue
distortions. In conclusion, the restructuring aid fulfils the criteria of the Guidelines and is compatible
with the common market.

(124)

In view of the above, the Commission comes to the conclusion that the rescue aid and the restruc-
turing aid comply with the conditions set out in the Guidelines and are therefore compatible with the
common market,

VI. CONCLUSION

HAS ADOPTED THIS DECISION:

The State aid in the form of rescue aid and restructuring aid which Germany has implemented for the
Herlitz Group is compatible with the common market within the meaning of Article 87(3)(c) of the Treaty.

Article 1

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 30 June 2004.

For the Commission

Mario MONTI
Member of the Commission