State aid — United Kingdom — State aid C 13/2005 (ex NN 86/2004) — Investments of Shetland Leasing and Property Developments Ltd — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty Text with EEA relevance
Date: 2005-06-10
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, fishing industry, investment aid

C 141/12

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Official Journal of the European Union

10.6.2005

STATE AID — UNITED KINGDOM

State aid C 13/2005 (ex NN 86/2004) — Investments of Shetland Leasing and Property Develop-
ments Ltd

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2005/C 141/08)

(Text with EEA relevance)

By means of the letter dated 20 April 2005 reproduced in the authentic language on the pages following
this summary, the Commission notified the United Kingdom of Great Britain and Northern Ireland of its
decision to initiate the procedure laid down in Article 88(2) of the EC Treaty concerning the above-
mentioned aid/measure.

Interested parties may submit their comments within one month of the date of publication of this
summary and the following letter, to:

European Commission
Directorate General for Fisheries
DG FISH/D/3 ‘Legal Issues’
B-1049 Brussels
(Fax (32-2) 295 19 42)

These comments will be communicated to the United Kingdom of Great Britain and Northern Ireland.
Confidential treatment of the identity of the interested party submitting the comments may be requested in
writing, stating the reasons for the request.

SUMMARY

In January 2004 the Commission was informed of investments
which possibly concerned illegal State aid by Shetland Leasing
and Property Ltd (SLAP), a commercial limited company oper-
ating for profit which is wholly owned and funded by Chari-
table Trust, a trust fund of the Shetland Islands Council (SIC).
The Charitable Trust has been set up to receive and hold on
behalf of the Shetland community disturbance receipts which
the oil
industry has paid for using harbour facilities. The
Commission has stated in its decisions of 3 June 2003 (1)
relating to two aid schemes financed through the funds of the
Charitable Trust that the funds of the trust should be regarded
as public funds.

In 1999 SLAP invested in a company named Shetland Seafish
Ltd. This company was established on 7 October 1999 as a
result of a financial merger between Williamson Ltd and Ronas
Ltd, both loss making at the time and considered insolvent. By
setting up of Shetland Seafish Ltd it was expected that profits
would grow and that the new company by the end of 2002
would be generating profit.

SLAP invested in Shetland Seafish Ltd by acquiring 156 250
shares (62,5 %) of the ordinary shares of GBP 1,00 each and
1 000 000 preference shares of GBP 1,00 each (100 %),
investing a total amount of in total GBP 1 562 500.

(1) Commission Decisions 2003/611/EC and 2003/612/EC of 3 June

2003, OJ L 211, 21.8.2003, p. 49 and 63.

In June 2000 SLAP invested once more in Shetland Seafish Ltd
when the company decided to take over the activities of
Whalsay Ltd, a loss making fish processing company also based
in Shetland. The funding of this take over by SLAP amounted
in SLAP acquiring 2 000 000 additional preference shares in
Shetland Seafish Ltd, which were subscribed by SLAP in 2
tranches; in November 2000 SLAP acquired 1 200 000 Prefer-
ence Shares and on 16 February 2001 another 800 000 Prefer-
ence Shares.

The preference shares in Shetland Seafish Ltd have the right to
a fixed non-cumulative preferential dividend at the rate of 10 %
(net of associated tax credit) per annum on the capital for the
time being paid up or credit as paid up thereon accruing from
the date of subscription therefore and to be paid (to the extent
that there are profits available for distribution) annually on 31
January in each year in respect of the 12 months ending on
that date; and may be redeemed at par (i.e. at 1 per preference
share) plus any unpaid preferential dividend, at the option of
the Company at any time after the first anniversary of the date
of the allotment of the preference shares.

Public investments are considered to be State aid in the sense
of Article 87 of the EC-Treaty if the investments are invest-
ments which could not have been decided by a private investor
under normal market conditions. With regard to the informa-
tion submitted to the Commission by the authorities of the
United Kingdom on the companies involved, the market situa-
tion for fish processing in Shetland, the projections made and
the conditions of the investments, the Commission at this stage
has serious doubts that the investments in question are in
keeping with this private investor principle.

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fulfil

In the area of fisheries it is necessary to examine the measure
in the light of the Guidelines for the examination of State aid
to fisheries and aquaculture (2). According to point 2.3, aid that
the conditions laid down therein, must be
does not
assessed on a case-by-case basis. According to point 1.2. of
these Guidelines, State aid which is granted without imposing
any obligation on the part of the recipients and which is
intended to improve the situation of undertakings and increase
their business liquidity and which has the effect of improving
the recipient's income is, as operating aid, incompatible with
the common market. According to the Guidelines operating aid
can only be declared compatible with the common market if
such aid is linked to a restructuring plan compatible with the
common market. In absence of such a plan, the investments
seem to be incompatible with the common market.

In accordance with Article 14 of Council Regulation (EC) No
659/1999, all unlawful aid can be subject to recovery from the
recipient.

TEXT OF LETTER

‘(1) The Commission wishes to inform the United Kingdom of
Great Britain and Northern Ireland that, having examined
the information supplied by your authorities on the aid/
measure referred to above, it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

1. PROCEDURE

(2) In January 2004 the Commission was informed by a
citizen of the United Kingdom of investments made with
involvement of authorities of the Shetland Islands of the
United Kingdom which possibly concerned State aid. By
letters of 17 February 2004 and of 1 September 2004 the
Commission has requested the United Kingdom authori-
ties to provide information about these investments, to
which the United Kingdom authorities responded by
letters of 30 April 2004 and of 13 December 2004.

2. DESCRIPTION

(3) The Shetland Islands Council (SIC), a public authority in
Shetland, has set up two trusts, the Shetland Development
Trust
(Development Trust) and the Shetland Islands
Council Charitable Trust (Charitable Trust).

(4) The Development Trust has been established to be the
main means of financing economic development projects
in Shetland and makes funding available through loans.
The trustees are the councillors of SIC plus two indepen-
dent trustees.

(5) The Charitable Trust is the trust fund of the SIC that
grants loans for charitable purposes. The trustees of the
Charitable Trust are the councillors of SIC plus two inde-
pendent trustees.

(2) The guidelines of 1997, OJ C 100, 27.3.1997, p. 12, are applicable

to the aid scheme in question.

(6) The funding of both the Charitable Trust and the SDT are
both derived from a reserve fund set up by the SIC. This
reserve fund itself is funded from an agreement concluded
on 12 July 1974 between the SIC and oil companies
using the harbour facilities of Sullum Voe. This agreement
states that fees are paid by these companies “in respect of
the import of crude oil and as compensation for distur-
bance caused thereby”.

(7) For commercial and development activities the SIC has set
up Shetland Leasing and Property Ltd (SLAP), which is a
commercial limited company operating for profit wholly
owned by Charitable Trust. The tasks of SLAP are to take
equity in local businesses and to make loans to local
industry at commercial
industrial
buildings for lease at commercial rents.

rates and construct

(8) As a commercial limited company wholly owned by the
Charitable trust the funding for SLAP's activities is mostly
provided by funding from the Charitable Trust and by its
own profit. For some specific projects funds are also
provided by the SDT.

(9) In 1999 the board of SLAP decided to invest

in a
company named Shetland Seafish Ltd. This company was
established on 7 October 1999 as a result of a financial
merger between Williamson Ltd and Ronas Ltd. Both
companies were loss making at the time and considered
insolvent. By setting up of Shetland Seafish Ltd and
merging both loss making companies it was expected that
profits would grow and that the new company would be
profit making within a short time. It was projected that
by the end of 2002 Shetland Seafish Ltd would be gener-
ating a profit in excess of GBP 460 000.

investing a total amount of

(10) SLAP invested in Shetland Seafish Ltd by acquiring
156 250 shares (62,5 %) of the ordinary shares of GBP 1
each and 1 000 000 preference shares of GBP 1 each
(100 %),
in total GBP
1 562 500. The other shareholders of ordinary shares
were the Shetland Seafish Producers Organisation Ltd
(43 750 shares), Mr. L.A. Williamson (18 750 shares), Mr.
R.A. Carter (18 750 shares) and the Shetland Fisheries
Centre Ltd (12 500 shares).

(11) In June 2000 the board of SLAP decided to invest once
more in Shetland Seafish Ltd when the company decided
to take over the activities of Whalsay Ltd, a loss making
fish processing company based in Shetland. The funding
of this take over by SLAP amounted in SLAP acquiring
2 000 000 additional preference
in Shetland
Seafish Ltd, which were subscribed by SLAP in two
trenches;
in November 2000 SLAP acquired 1 200 000
Preference Shares and on 16 February another 800 000
Preference Shares.

shares

(12) As from 16 February 2001, the issued shared capital of
Shetland Seafish Ltd thus comprised 250 000 Ordinary
shares and 3 000 000 Preference shares, held in the same
proportions and by the same shareholders as at the initial
issuing of shares in 1999.

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(13) According to a special resolution adopted in 17 December
1999 by the board of Shetland Seafish Ltd the preference
shares in Shetland Seafish Ltd have “the right to a fixed
non-cumulative preferential dividend at the rate of 10 % (net of
associated tax credit) per annum on the capital for the time
being paid up or credit as paid up thereon accruing from the
date of subscription therefore and to be paid (to the extent that
there are profits available for distribution) annually on 31
January in each year in respect of the 12 months ending on that
date; and may be redeemed at par (i.e. at 1 per preference share)
plus any unpaid preferential dividend, at
the
Company at any time after the first anniversary of the date of
the allotment of the preference shares.”

the option of

3. ASSESSMENT

(20) It must be determined first if the measure can be regarded
as State aid and if this is the case, if this aid is compatible
with the common market.

Existence of State aid

(14) From the data provided it shows that Shetland Seafish Ltd

State resources

has been loss making since 1999.

Comments from the United Kingdom

(15) In its letters from 30 April 2004 and of 13 December
2004 the United Kingdom has stated that the investments
should be considered as private investments as SLAP is a
private body and at the time of the investments both the
SIC and SLAP had legitimate expectations that the monies
involved should be considered as private funds.

(16) Secondly the United Kingdom states that if the monies
involved are considered to be public funds, the invest-
ments made by SLAP are investments which could have
been decided by a normal private operator. To support
this statement the United Kingdom has provided 2 reports
issued with regard to the investments in question: the
Shetland Seafish Merger Report and the Whalsay Report.

Shetland Seafish Merger Report

(17) The Seafish Merger Report of 27 September 1999 is a
report from Mr. M. Goodlad and Mr. S. Gillani to the
Directors of SLAP on “A proposed restructure and merger
of L Williamson & Sons (Shetland) Limited & Ronas Fish-
eries Limited”.

(18) According to the figures and the prognoses in the report,
the merger of L Williamson & Sons (Shetland) Limited &
Ronas Fisheries Limited, through the establishing of Shet-
land Seafish would become profit making within 3 years.

(21) The funds of SLAP which have been used for the invest-
ment are derived from funding from the Charitable Trust.
The Charitable Trust was created by the SIC to receive
and hold on behalf of the Shetland community, distur-
bance receipts which the oil industry agreed to pay.

(22) As was already pointed out by the Commission in its deci-
sion of 3 June 2003 on loans for the purchase of fishing
quotas in the Shetland Islands (United Kingdom) (3), these
monies, which are directly related to the disturbances
caused to the Shetland Islands population and not to the
effective supplying of the service of the harbour facilities,
cannot be considered as private funds, but must be
regarded as State resources for the purposes of Article 87
of the EC Treaty.

(23) The investments of SLAP currently under investigation are
funded from the same type of funding. With regard to the
conclusions of the Commission in its decision mentioned
above and the fact that the United Kingdom has not
provided any additional arguments to proof that these
funds are private funds, the Commission considers that
the investments must be regarded as granted through
State resources.

(24) Furthermore, the decision of the Commission mentioned
above also pointed out that the trustees of the Charitable
Trust are the councillors of the SIC. Although these coun-
cillors act as trustees ex officio, the fact that they are
nominated by the SIC means that the latter is able to exer-
cise a dominant influence over the trust and SLAP as well
as over the funds at their disposal. There is therefore a set
of indicators showing that decisions can not be taken
without
the public
authority.

the requirements of

regard for

Whalsay Report

Market economy investor principle

(19) The Whalsay Report is a report of Mr. John Inkster, who
at that time held the position of Managing Director of
Whalsay Fish Processors Ltd, issued in June 2000. This
report gives an analysis of the situation of the companies
involved, the developments in the market and possible
advantages for Shetland Seafish Ltd to acquire Whalsay
Ltd.

(25) Public investments are regarded State aid if the invest-
ments are decided under circumstances which would not
be acceptable for a private investor acting under normal
market economy principles.

(3) 2003/612/EC, OJ L 211 of 21.8.2003, p. 63.

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(26) According to the United Kingdom, SLAP acted like a
normal market economy investor in investing in Shetland
Seafish Ltd and the take over of Whalsay Ltd by Shetland
Seafish Ltd. This would follow from two reports submitted
to the board at the time of the investments: the Shetland
Seafish Merger Report and the Whalsay Report.

(32) With regard to this the Commission at this stage has
doubts on the prognosis laid down in the report and is of
the opinion that the information laid down in the report
would be insufficient for a normal investor in the private
market to decide on the investment made by SLAP.

(27) An investment can be considered to be in line with the
market economy investor principle if the investment is
made in circumstances that would be acceptable to a
private investor operating under normal market economy
conditions. An investment would not be considered in
line with this principle where the financial position of the
company, and particularly the structure and volume of its
debt,
is such that a normal return cannot be expected
within a reasonable time from the investment.

Shetland Seafish Merger Report

arguments

for which insufficient

(28) The prognoses of profit laid down in the Seafish Merger
Report of 27 September 1999 are based on a number of
are
assumptions,
provided. The report contains a projected profit and loss
account, a projected balance sheet and a projected cash
flow statement for 2000, 2001 and 2002. The data in
these sheets show that Shetland Seafish Ltd would become
profitable and that the turnover is expected to increase in
comparison to 2000, with more than 16 % in 2001 and
with 26 % in 2002. However, the report does not contain
sufficient data and arguments to establish the reliability of
these projections as the necessary data on supply, prices
and production to support
these expectations are not
contained in the report.

(29) Without further argumentation for these projections and
assumptions, it is impossible to establish their credibility,
both for the Commission at this stage, as well as for any
normal private investor wishing to invest
in such an
operation.

shortfall within the

(30) It is mentioned in the report that “the new management
organisation and production strategy have been carefully devised
two companies
to address previous
concerned. But the core of the new philosophy is the recognition
that only a market
led approach will ensure success and
continued whitefish processing in Shetland”, which according
to the United Kingdom demonstrates that the intent at the
time the investments were made was to ensure that the
companies were operating in a manner consistent with
their market in order to ensure the long term viability if
the companies.

Whalsay Report

(33) The Whalsay report was issued by the managing director
of Whalsay Ltd and can not be considered to be an inde-
pendent report on Whalsay and the possible acquisition
of the company by Shetland Seafish Ltd. In the report it is
stated that both companies clearly suffer from the restric-
tive supplies of salmon on the market and that a merger
between the two companies “offers not only the best, but
maybe the only chance of securing continued and sustainable
employment in this industry”.

(34) The report furthermore concludes that “The decision of the
Board of SLAP, should it approve proposals to invest in the
merger between Seafish and Whalsay, must therefore be to a
background of ensuring that salmon supplies are secured on an
enduring basis;
the risk of not achieving this must make
approval of the merger a highly risky decision and leave both
SLAP and Seafish vulnerable.”.

(35) With regard to the doubts expressed in the report on the
profits to follow from the merger between the companies,
the reference to securing employment in this industry and
the fact that the report does not contain sufficient data to
show the profitability of the investment in question, the
Commission at this stage has serious doubts in consid-
ering the investment of SLAP in the acquisition of
Whalsay Ltd a decision that could have been decided by a
normal private investor.

State aid

(36) With regard to the foregoing, the Commission has found
insufficient evidence to establish that both investments
made by SLAP are normal commercial investments, which
could have been decided by any normal private investor.

(37) From the information available to the Commission it is
most certain that the companies involved, Williamson Ltd
and Ronas Ltd, merged into Shetland Seafish Ltd, and
Whalsay Ltd, would not have been able to continue oper-
ating without the investments concerned. In any case, the
investments have strengthened their position on the
market, which would not have occurred without
the
investments.

(31) From the figures and data contained in the report the
Commission can however not established if these argu-
ments have been correctly applied and in absence of
further data leading to the decision to invest, the Commis-
sion can not establish that indeed the investment could be
considered to be a profitable investment and that SLAP
has acted like a normal private investor.

(38) As the investments are clearly in the benefit of the compa-
nies involved and these companies are in direct competi-
tion with other fish processing companies both within the
United Kingdom as in other Member States, at this stage
the Commission is of the opinion that these investments
appear to be State aids in the sense of Article 87 of the
EC Treaty.

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Compatibility with the common market

(39) State aid can be declared compatible with the common
market if it complies with one of the exceptions foreseen
in the EC-Treaty. As regards to State aid to the fisheries
sector, State aid measures are deemed to be compatible
with the common market if they comply with the condi-
tions of Guidelines for the examination of State aid to
fisheries and aquaculture (4). According to point 5.3 of the
Guidelines
“an unlawful aid” within the meaning of
Article 1(f) of Regulation (EC) No 659/1999 will be
appraised in accordance with the guidelines applicable at
the time when the administrative act setting up the aid
has entered into force.

(40) As the investments made by SLAP have taken place in
1999 and 2000, the compatibility of the aid shall have to
be assessed under the Guidelines for the examination of
fisheries and aquaculture of 1997 (5) (further referred to as
Guidelines), which were in force at the time.

(41) According to point 2.3 of the Guidelines aid to invest-
ment in the processing and marketing of fishery products
may be deemed compatible with the common market
provided that the conditions for granting it are compar-
able to those laid down in Regulation (EC) No 3699/93
and are at least as stringent and provided that the level of
the aid does not exceed, in subsidy equivalent, the overall
level of the national and Community subsidies permitted
under those rules. In addition if the aid concerns invest-
ments that are, according to Regulation (EC) No 3699/93,
not eligible for community assistance, the Commission
has to assess its compatibility with the objectives of the
Common Fisheries Policy on a case-by-case basis. The
investments made by SLAP must thus be assessed under
these conditions.

in the

investment

(42) According to Article 11(1) of Regulation (EC) No
3699/93 Member States may under the conditions of
Annex III to that regulation take measures to encourage
capital
field of processing and
marketing of fishery and aquaculture products. Point 2.4
of Annex III states that eligible investments for processing
and marketing shall in particular relate to the construction
and acquisition of buildings and installation, to the acqui-
sition of new equipment and installation needed for the
processing and marketing of
fishery and aquaculture
landing and the end-
products between the time of
product stage or to the application of new technologies
intended in particular to improve competitiveness and
increase value added.

(43) The investments of SLAP can not be considered as invest-
ments related to one of these issues and must thus in
accordance with point 2.3 of the Guidelines be assessed
on a case-by-case basis.

(44) As the investments have the effect of

improving the
general financial situation of Shetland Seafish Ltd, this aid
should be assessed as operating aid.

(4) OJ C 229, 14.9.2004, p. 5.
(5) OJ C 100, 27.3.1997, p. 12.

(45) According to the general principles laid down in point 1
of the Guidelines, aid which is granted without imposing
any obligations on the part of recipients and which is
intended to improve the situation of undertakings and
increase their business liquidity, or is calculated on the
quantity produced or marketed, products prices, units
produces or the means of production, and which has the
effect of reducing the recipients production costs or
improving the recipients income is, as operating aid,
incompatible with the common market.

(46) According to point 1 of the Guidelines, the Commission
shall assess such operating aid on a case-by-case basis
where it is linked to a restructuring plan considered to be
compatible with the common market.

(47) The United Kingdom has not provided any restructuring
plan for the Commission to assess. According to the
Guidelines operating aid can only be declared compatible
with the common market if such aid is linked to a restruc-
turing plan compatible with the common market. There-
fore the investments are considered not to comply with
the Guidelines.

(48) With regard to the above and on the basis of the informa-
tion available to the Commission at
the
Commission has doubts on the compatibility of the aid
with the EC-Treaty.

stage,

this

4. DECISION

(49) The Commission observes that there exist, at this stage of
the preliminary examination, as provided for by Article 6
of Council Regulation (EC) No 659/1999 of 22 March
1999 laying down detailed rules for the application of
Article 88 of
the EC Treaty, serious doubts on the
compatibility of this aid scheme with the Guidelines for
the examination of State aid to Fisheries and aquaculture
and, therefore, with the EC Treaty.

(50) In the light of the foregoing considerations, the Commis-
sion requires the United Kingdom of Great Britain and
Northern Ireland, within one month of receipt of this
letter, to provide all documents,
information and data
needed for assessment of the compatibility of the aid/
measure. Otherwise the Commission will adopt a decision
on the basis of
It
requests your authorities to forward a copy of this letter
to the potential recipient of the aid immediately.

the information in its possession.

(51) In the light of the foregoing considerations, the Commis-
sion, acting under the procedure laid down in Article
88(2) of the EC Treaty and Article 6 of Regulation (EC)
No 659/1999, requests the United Kingdom of Great
Britain and Northern Ireland to submit its comments and
to provide all such information as may help to assess the
aid scheme, within one month of the date of receipt of
this letter. It requests your authorities to forward a copy
of this letter to the recipients of the aid immediately.

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(52) The Commission wishes to remind the United Kingdom
of Great Britain and Northern Ireland that Article 88(3) of
the EC Treaty has suspensory effect, and would draw your
attention to Article 14 of Council Regulation (EC) No 659/
1999, which provides that all unlawful aid may be recov-
ered from the recipient.

(53) The Commission warns the United Kingdom of Great
Britain and Northern Ireland that it will inform interested

parties by publishing this
letter and a meaningful
summary of it in the Official Journal of the European Union.
It will also inform interested parties in the EFTA countries
which are signatories to the EEA Agreement, by publica-
tion of a notice in the EEA Supplement to the Official
Journal of the European Union and will inform the EFTA
Surveillance Authority by sending a copy of this letter. All
such interested parties will be invited to submit their
comments within one month of the date of such publica-
tion.’