2005/920/EC: Commission Decision of  20 July 2005  on a State aid implemented by Germany for a meat processing company, Greußener Salamifabrik GmbH  (notified under document number C(2005) 2725)
Date: 2005-07-20
Institutions: European Commission
Subjects: Germany, State aid, credit guarantee, infringement of EU law, meat processing industry

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COMMISSION DECISION

of 20 July 2005

on a State aid implemented by Germany for a meat processing company, Greußener Salamifabrik
GmbH

(notified under document number C(2005) 2725)

(Only the German text is authentic)

(2005/920/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(5)

(6)

(7)

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

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

Whereas:

(1)

(2)

(3)

(4)

I. PROCEDURE

The measure was notified in accordance with Article
88(3) of the EC Treaty by letter of 6 November 1997.
It appeared that the beneficiary had already received a
related aid at an earlier stage. Therefore, the measure was
registered as non-notified aid. By letters dated 4 February
1998, 10 June 1998 and 4 February 1999 Germany
provided the Commission with further information.

By letter dated 7 June 1999 the Commission informed
Germany that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid.

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Commu-
nities (2). The Commission invited interested parties to
submit their comments on the aid.

The Commission received comments from interested
forwarded them to Germany, which was
parties.
given the opportunity to react;
its comments were
received by letter dated 23 February 2000.

It

By letter of 18 May 2005, registered as received on
23 May 2005, Germany asked the Commission to take
a Decision on the basis of the information available to it,
pursuant to Article 7(7) of Council Regulation (EC) No
659/1999 of 22 March 1999 laying down detailed rules
for the application of Article 93 of the EC Treaty (3).

II. DESCRIPTION

company

producing

a meat-processing

The benefiting company, Greußener Salamifabrik GmbH,
was
and
marketing several kinds of sausages and meat products.
The beneficiary did not slaughter animals itself but
processed meat. According to information provided by
Germany,
the insolvency procedure was initiated for
Greußener Salamifabrik on 1 October 1999. The
Commission was not informed about the outcome of
it would appear that at least
the procedure. However,
the assets of the company are still operating under the
name ‘Greußener Salami- und Schinkenfabrik GmbH’.
The remarks of the present Decision, however, refer to
the pre-insolvency company Greußener Salamifabrik
GmbH.

critical

cash flow situation of

A steady decrease in the turnover of Greußener Salami-
fabrik led to losses and to a negative operating cash flow
from 1995 onwards. A document prepared by Dr.
Zimmermann & Partner in September 1996 points to
the
an extremely
company. The fact that the company was in financial
difficulty was
stated in the Commission Decision
initiating the procedure (4) and has not been contested
in the course of the investigation procedure. A reorgani-
considered
sation of Greußener
necessary. To finance this reorganisation, the company
took out additional
loans (a loan of DEM 375 000 at
the Dresdner Bank AG and a loan of DEM 725 000 at
the Sparkasse Erfurt) in the fourth quarter of 1996. For
both these loans an 80 % State guarantee, thus covering
the total amount of DEM 880 000, was granted via the
Thüringer Aufbaubank. The guarantee was not notified
to the Commission, contrary to the provisions of the
Commission letter to Member States SG(89) D/4328 of
5 April 1989, hereinafter referred to as Aid 1.

Salamifabrik was

(1) OJ C 238, 21.8.1999, p. 15.
(2) See footnote 1.

of Accession.
(4) See footnote 1.

(3) OJ L 83, 27.3.1999, p. 1. Regulation as amended by the 2003 Act

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(8)

(9)

As of 8 January 1997 Ergewa GmbH took over 75 % of
the shares of the beneficiary. The new owner wrote off
DEM 1,2 million as bad debt related to exports to Russia
and devaluation of stock. Combined with a further
decrease in sales, this measures resulted in a deteriorated
balance sheet making a second restructuring necessary.

(12)

The German authorities made clear in their notification
letter of 6 November 1997 that as Greußener Salami-
fabrik failed to reach its turnover and income targets for
1997,
the company was permanently threatened by
insolvency and was considered no longer to be able to
meet its repayment obligation towards banks. Therefore,
a new restructuring plan for Greußener Salamifabrik
GmbH was
Ernst & Young
Deutsche Allgemeine Treuhand AG in August 1997.
This new restructuring plan consisted of three parts:

elaborated by

Schitag,

This new guarantee, covering an amount of DEM
2 000 000, as well as the partial mobilisation of the
DEM 370 000 under the old guarantee were notified to
the Commission by letter of 6 November 1997 pursuant
the EC Treaty as well as to the
to Article 88(3) of
Commission letter to Member States SG(89) D/4328 of
5 April 1989. These two measures are hereinafter
referred to as Aid 2. The German authorities stated in
their letter of 4 February 1999, and reiterated in their
letter of 18 May 2005, that the guarantee by Thüringer
Aufbaubank covering DEM 2 000 000 was given subject
to the Commission authorisation.

(13)

The loan of DEM 2 500 000 by Dresdner Bank Erfurt
was paid out to Greußener Salamifabrik.

(a)

financial measures, such as:

(14)

Finally, Ergewa GmbH,
company,
subordinated loan to Greußener Salamifabrik.

the
injected DEM 1 500 000 in the form of a

the 75 % shareholder of

— a partial debt relief by creditors,

— a refinancing of existing debts,

— a capital contribution from shareholders;

(b) a new marketing strategy;

(c) cost-saving measures.

1. Financial measures

the

guarantee previously

(10) As part of the restructuring, Sparkasse Erfurt renounced
an outstanding debt amounting to DEM 1 700 000. In
given by
compensation,
Thüringer Aufbaubank (a State bank)
for a loan of
DEM 725 000 (cf. recital 7) was partly liquidated and
DEM 370 000 (64 % of the guaranteed amount) were
paid to Sparkasse Erfurt in the context of this restruc-
turing. Additionally, another guarantee given in 1993 by
a private bank, Bürgschaftsbank Thüringen GmbH for a
loan amounting to DEM 1 000 000 was partly liquidated
which resulted in a payment of DEM 590 000 (74 % of
the guaranteed amount) to Sparkasse Erfurt.

2. Marketing strategy

(15)

In the field of marketing, the restructuring plan described
improvement: product development,
for
three areas
product policy
In general,
and
Greußener Salamifabrik GmbH would become more
market oriented.

sales promotion.

3. Cost-saving measures

(16)

In an earlier
reorganisation the easiest cost-cutting
measures had been taken already. However, the reorga-
nisation plan mentioned further cost saving measures to
reduce electricity consumption and transport costs.

(17) According to information provided to the Commission
services, these measures combined would have led to a
return of viability of the company and to a return of
the
profitability. However,
to
from DEM
turnover would have had to increase
6 845 000 in 1996 to DEM 7 million in 1998 and to
DEM 8 million in 1999.

profitability

regain

(11)

Furthermore, Dresdner Bank Erfurt refinanced a DEM
2 500 000 loan, formerly granted by Sparkasse Erfurt.
Dresdner Bank was only prepared to give this loan
under an 80 % guarantee to be granted by Thüringer
Aufbaubank.

(18)

The Commission initiated the procedure provided for
under Article 88(2) of the EC Treaty in respect of the
abovementioned measures in favour of Greußener Sala-
mifabrik GmbH, which can be summed up as follows:

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— the 80 % guarantee given by Thüringer Aufbaubank
for two bank loans totalling DEM 1,1 million in
December 1996 (with the guarantee amount being
DEM 880 000),

— the partial mobilisation of one of

the guarantees
amounting to DEM 370 000 in the course of the
restructuring/debt rescheduling in 1997,

— the second 80 % guarantee by Thüringer Aufbaubank
for a bank loan amounting to DEM 2,5 million (with
the guarantee amount being DEM 2 million) in 1997.

Community guidelines on State aid for rescuing and
restructuring firms in difficulty applicable at the time
when the guarantee was granted. As far as Aid 1 is
concerned,
the Commission had no information to
evaluate the compatibility of the aid with the abovemen-
tioned guidelines. As for Aid 2, it seemed that three of
the conditions of the restructuring guidelines were not
met. It seemed as if the aid would not lead to a return of
viability of the benefiting company. Moreover, it seemed
the company tried to regain its viability by outgrowing
its problems. This expansion would seem to unduly
distort competition. Finally,
it was not clear whether
the restructuring plan was adhered to.

III. COMMENTS FROM INTERESTED PARTIES

(19) As the guarantees were given to a company that was in
financial difficulties, the Commission considered the aid
element of these guarantees to be at the time of their
granting equal
the guaranteed amount,
namely DEM 880 000 in 1996 and DEM 2 000 000 in
1997, in total DEM 2,88 million.

to 100 % of

(23)

that

from Kemper
The Commission received comments
from the Bundesverband
Fleischwarenfabrik (Nortrup),
(Bonn) and
der Deutschen Fleischwarenindustrie e.V.
from an interested party
to remain
that prefers
anonymous. All three parties argued that an increased
turnover could only be realised by lowering prices
which would be detrimental to the sector. The Bundes-
verband der Deutschen Fleischwarenindustrie e.V. pointed
the meat-processing
out
companies in Germany are forced to halt their activities.
In this highly competitive market only the best under-
takings can survive. By artificially keeping a company
afloat, the interests of the sector are harmed. Moreover,
the proposed new marketing strategy was the common
strategy followed by almost all companies. According to
the Bundesverband,
such a strategy would not be
successful without a large marketing budget, which was
not available.

year 1 % of

every

IV. COMMENTS FROM GERMANY

(24) Apart

from requests to prolong the period in which
Germany could react, Germany gave its comments by
letters of 22 July 1999, 28 July 1999, 6 August 1999
and 23 February 2000.

(25)

In the first letter Germany stated that the ownership of
the company had partly changed hands.

(26)

plan of

In the second letter Germany mentioned that
the
guarantee contract showing the conditions under which
the guarantee could be mobilised would be sent. A
restructuring was
the
restructuring
presented and the planned results following the second
restructuring would be
Furthermore,
sent
Germany stated more information would follow which
would explain why the targeted turnover was not reached
after the second restructuring.

as well.

first

(20)

The Commission initiated the procedure provided for
under Article 88(2) of the EC Treaty in respect of the
above measures because it had doubts on the following
points: compliance with the Commission letter SG(89)
D/4328 of 5 April 1989 concerning State guarantees
and compliance with the Community guidelines of
1994 and 1997 on State aid for rescuing and restruc-
turing firms in difficulty (5).
In the latter case specific
doubts were raised concerning the effect of the restruc-
turing which should be a return to viability of
the
company, compliance with the one time — last time
principle, and compliance with the condition to fully
implement the restructuring plan.

(21) Aid 1 was given in the form of State guarantees which
means that the aid had to comply with the letter to the
Member States SG(89) D/4328 of 5 April 1989. In this
letter the Commission stated it would accept guarantees
only if their mobilisation would be contractually linked
to specific conditions which might go as far as the
compulsory declaration of bankruptcy of the benefiting
company. It seemed no such conditions were attached to
the guarantees granted under the measure.

(22)

The aids were granted because the company was in
financial difficulty and needed restructuring. This means
the
the aid had to be considered in the light of

(5) OJ C 368, 23.12.1994, p. 12 and OJ C 283, 19.9.1997, p. 2.

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(27)

In the same letter of 28 July 1999 Germany stressed that
the company would not increase its capacity,
it would
only produce the same amounts of products as in the
past (years 1994/1995). The problems of the company
were due to external factors such as swine fever, the
implosion of
the Russian market and the advent of
BSE. Finally, Germany argued it was unlikely that the
aid would distort competition as the beneficiary was an
SME which was only active in Thüringen.

(28)

In the third letter of 6 August 1999 Germany presented
the guarantee contract and the restructuring plan of the
first restructuring.

(29)

In its letter of 23 February 2000 Germany stated that the
insolvency procedure had been initiated for Greußener
Salamifabrik GmbH. Germany mentioned that
the
banks had withdrawn their credit. Furthermore, a letter
of Greußener’s main bank, Dresdner Bank, was handed
over. In this letter the bank stated it was obvious that
competitors would be against the aid.

V. ASSESSMENT OF THE AID

Market organisations

trade between Member States,
common market.

incompatible with the

(32)

The aid was granted in the form of State guarantees. The
guarantees enabled the beneficiary undertaking to raise
money in order
to remain active instead of being
eliminated or restructured.

(33) Aid 1 was granted in 1996. Non-notified State aid has to
be assessed on the basis of the legislation in force at the
time of its granting. The legal basis applicable for State
guarantees in 1996 was the Commission letter to the
Member States SG(89) D/4328 of 5 April 1989.
According to this letter the Commission regards all guar-
antees given by a State as falling within the scope of
Article 87(1) of the EC Treaty. Moreover, pursuant to
point 2.3 of the Community guidelines on State aid for
in difficulty (1994
rescuing and restructuring firms
guidelines),
funding guaranteed by the State to an
enterprise that is in financial difficulties is presumed to
involve State aid. As described in point 7, the beneficiary
was a firm in financial difficulties at the time of granting
of Aid 1. According to point 2.1 of the 1994 guidelines,
deteriorating profitability, diminishing turnover
and
declining cash flow are typical symptoms for firms in
difficulties.

(30)

The measure grants aid to an undertaking that is active in
meat processing. Article 40 of Council Regulation (EC)
No 1254/1999 of 17 May 1999 on the common orga-
nisation of the market in beef and veal (6) and Article 21
of Council Regulation (EEC) No 2759/75 of 29 October
1975 on the common organisation of the market in
pigmeat (7)
lay down that Articles 87, 88 and 89 of
the EC Treaty apply to products covered by these Regu-
lations. The sectors concerned by the aid scheme in
question are therefore subject to the Community rules
on granting State aids.

(34) Aid 2 was notified in 1997. Notified aid has to be
assessed on the basis of the legal framework applicable
at the time of its assessment. Point 4 of the Commission
Notice on the application of Articles 87 and 88 of the
EC Treaty to State aid in the form of guarantees (8) sets
out the four conditions that have to be met for an indi-
vidual State guarantee not to constitute State aid under
Article 87(1) of the EC Treaty. As the German authorities
made clear that
the borrower Greußener Salamifabrik
GmbH had to be classified as a firm in difficulties at
the time of the granting of the second guarantee (cf.
recital 9), already the first condition is not met.

Prohibition of State aids under Article 87(1) of the
EC Treaty

(35)

Therefore,
the measure is considered to grant an aid
through State resources (via the Thüringer Aufbaubank).

(31) Under Article 87(1) of the EC Treaty any aid granted by
a Member State or through State resources in any form
whatsoever which distorts or threatens to distort compe-
tition
the
certain
favouring
insofar as it affects
production of certain goods is,

undertakings

by

or

(6) OJ L 160, 26.6.1999, p. 21. Regulation as last amended by
L 328,

(EC) No 1899/2004 (OJ

Commission Regulation
30.10.2004, p. 67).

(36) As the guarantees were given to a company that was in
financial difficulties, the Commission considers the aid
the guaranteed
element
amount, namely DEM 880 000 for the first and DEM
2 000 000 for the second guarantee, in total DEM 2,88
million.

to 100 % of

to be equal

(7) OJ L 282, 1.11.1975, p. 1. Regulation as last amended by the 2003

Act of Accession.

(8) OJ C 71, 11.3.2000, p. 14.

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(37)

The aid is selective in that it favours a single company,
Greußener Salamifabrik GmbH.

Article 87(3) of the EC Treaty: exceptions at the
Commission’s discretion

(38) According to the case law of

competition

the Court of

Justice,
improvement in the competitive position of a company
resulting from a State aid generally points to a distortion
competing
compared with
of
companies not receiving such assistance (9). Neither the
relatively low level of aid nor the relatively modest size
of the beneficiary company rules out the possibility of
trade between Member States being distorted (10).

other

(44) Article 87(3) of the EC Treaty lists aids which may be
considered to be compatible with the common market.
Their compatibility with the Treaty has to be studied
from the point of view of the Community, not solely
that of a given Member State. To ensure the proper
operation of
exceptions
provided for in Article 87(3) must be interpreted in a
strict manner.

common market,

the

the

(39) A measure affects trade between Member States if

it
hampers imports from other Member States or facilitates
exports to other Member States; the deciding factor is
whether there is a risk that intra-Community trade will
develop differently or is liable to develop differently as a
result of the measure in question.

(40)

The products to which the aid in question relates are
involved in trade between Member States (11) and are
thus exposed to competition. Therefore, there is a risk
that intra-Community trade has developed differently as a
result of the measure.

(45) As regards Article 87(3)(a) of the EC Treaty, it is pointed
out that the beneficiary of the aid is located in a region
where the economic situation can be described as
extremely unfavourable in relation to the Community
as a whole according to the Guidelines on national
regional aid (12)
(having a per capita gross domestic
product, measured in purchasing power standards, of
less than 75 % of the Community average). However,
the abovementioned regional aid guidelines
(and a
previous version of these guidelines (13)) state that the
specific provisions concerning the granting of State aid
in Article 87(3)(a) regions are not applicable in the agri-
culture sector. Therefore, Article 87(3)(a) of the EC Treaty
cannot justify an aid for the production, processing or
marketing of Annex I products.

(41)

The measure in question thus constitutes aid within the
meaning of Article 87(1) of the EC Treaty.

Article 87(2) of the EC Treaty: exceptions

(42)

Exceptions to the prohibition laid down in Article 87(1)
of the EC Treaty are set out in paragraphs 2 and 3 of
that Article.

(43)

The exceptions listed in Article 87(2) are not applicable,
given the nature of the aid measure and its objectives.
Nor has Germany claimed that Article 87(2) is applicable.

(9) Judgment of the Court of 17 September 1980 Case 730/79 Philip
Morris Holland BV v Commission of the European Communities [1980]
ECR 2671, paragraphs 11 and 12.

(10) Judgment of the Court of 21 March 1990 Case C-142/87 Kingdom
of Belgium v Commission of the European Communities [1990] ECR
I-959, paragraph 43,
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]
ECR I-4103, paragraphs 40 to 42.

and Judgment of

(11) The meat sector in general is subject to significant intra-EU trade. In
1996, some 8 million tonnes of meat (carcass weight) were traded
within the EU. This represented some 23 % of total 1996 meat
production. (Source: Eurostat).

(46) As regards Article 87(3)(b) of the EC Treaty, it is noted
that the measure concerned is not intended to promote
the execution of an important project of common
European interest or to remedy a serious disturbance in
the economy in Germany.

(47) Nor is the aid designed or intended or appropriate to the
objectives referred to in Article 87(3)(d) of the EC Treaty.

Article 87(3)(c)of the EC Treaty

(48) Aid to facilitate the development of certain economic
activities or of certain economic areas may be deemed
by the Commission to be compatible with the common
market under Article 87(3)(c) of the EC Treaty if the aid
does not adversely affect trading conditions to an extent
contrary to the common interest.

(12) OJ C 74, 10.3.1998, p. 9.
(13) OJ C 31, 3.2.1979, p. 9.

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(49) Normally,

the Commission would assess compatibility
with Article 87(3)(c) of the EC Treaty of aid granted to
companies in financial difficulty on the basis of the 2004
Community guidelines on State aid for rescuing and
restructuring firms in difficulty (14)
(2004 guidelines).
However,
in accordance with points 103 and 104 of
these guidelines, the Commission assesses aid notified
prior
to 10 October 2004 as well as non-notified
rescue and restructuring aid granted in full before the
publication of the 2004 guidelines on the basis of the
guidelines in force at the time of notification or at the
time the aid was granted, as the case may be. Aid 1 was
granted in 1996 and Aid 2 was notified in November
1997. At the time, the 1994 Community guidelines on
State aid were in force. According to point 2.2 of the
1994 guidelines, special rules for rescue and restructuring
aid could be applied to individual beneficiaries in the
agriculture sector at the discretion of the Member State
concerned. Germany has not asked for the application of
special rules. Therefore, the measure is assessed under the
conditions and provisions of the 1994 guidelines.

Aid 1

(50) Aid 1 concerns an 80 % State guarantee on loans worth
DEM 1,1 million. The Commission initiated the
procedure provided for under Article 88(2) of the EC
Treaty on the following grounds:

difficulty at the time of the granting of the guarantee, the
aid has to be assessed under the rules for rescuing and
restructuring firms in difficulties applicable at that time
(cf. recital 49). The guarantee was granted in the context
of a restructuring of the beneficiary company.

(53) Germany has

sent a copy of a report drafted by
Dr. Zimmermann & Partner dated 9 September 1996.
According to Germany, this report was the restructuring
plan that was adopted at the time of the first State aid.
The report has two major shortcomings as a restruc-
turing plan: the status of the report is not clear and
the report does not seem to concern any restructuring.

(54)

The report seems to be a description of the company,
dated 9 September 1996. According to the report, diffi-
culties are caused by the BSE-crisis and by the loss of
export markets in Eastern Europe. However, figures have
been changed by hand, presumably at a later date. The
status of those amendments is not clear. Furthermore, it
is not clear whether the plan was adopted by the owners
of the company.

— it was not certain whether the guarantee complied
with the specific conditions required for a State
guarantee,

(55)

— there was no restructuring plan which would show
the aid was compatible with the rescue and restruc-
turing guidelines.

The report depicts the cost structure and the need for
capital in September 1996. Apart from a description of a
reinforcement of the existing management it is not clear
how the company is to be restructured. If the report was
meant as a restructuring plan at the time, which is not
clear,
the company could
outgrow its difficulties without any restructuring.

it seemed to suggest

that

(51) Germany has sent a copy of the guarantee contract. This
copy shows that the guarantee can only be invoked when
the benefiting company is in financial difficulties (bank-
ruptcy- or a similar procedure) and when the sale of
lead to
other assets owned by the company cannot
the
redemption of
specific condition mentioned in the Commission letter
to Member States SG(89) D/4328 of 5 April 1989 (15)
has been met and the guarantee thus complied with the
specific conditions required for a State guarantee.

the guaranteed loan. Therefore,

(56)

To be
following conditions would have to be met:

compatible with the 1994 guidelines,

the

(a)

the aid would lead to a restoration of viability;

(b) the aid would avoid undue distortion of competition;

(52) However, as the beneficiary of the guarantee, Greußener
Salamifabrik GmbH, had to be regarded as a firm in

(c)

the aid amount would be in proportion to the
restructuring costs and benefits;

(14) OJ C 244, 1.10.2004, p. 2.
(15) This letter has been superseded by the Commission Notice on the
application of Articles 87 and 88 of the EC Treaty to State aid in
the form of guarantees (OJ C 71, 11.3.2000, p. 14).

(d) the restructuring would be monitored and would be

reported on.

(57)

(58)

(59)

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in turnover

The report drafted by Dr. Zimmermann & Partner
showed a yearly decrease
from 1994
onward. Still, according to the report, turnover would
increase again in the following year. The report did not
this expected development.
give an explanation of
the return to viability depended on this
However,
change of
the
trend. According to point 3.2.2(i) of
‘the improvement
1994 guidelines
in viability must
mainly result from internal measures contained in the
restructuring plan and may only be based on external
factors such as … price and demand increases …,
if
generally
the market
assumptions made
acknowledged’. As
the
Commission does not consider the aid in form of a
guarantee to lead to a restoration of viability.

condition is not met,

this

are

capacity reduction in markets of structural overcapacity
and the reporting obligation. In spite of the more lenient
approach applicable to SMEs, the aid was already found
not to lead to a restoration of viability (cf. recital 57) and
to distort competition unduly.

(62)

the

abovementioned reasons,

the Commission
For
considers Aid 1, granted in the form of State guarantees
to Greußener Salamifabrik GmbH for an amount of
maximally DEM 880 000,
to be incompatible with
Articles 87 and 88 of the EC Treaty. Since the aid has
been granted illegally and is incompatible, it has to be
recovered.

The restoration of viability would have been the result of
an increase of turnover. Although, this increased turnover
apparently could be realised with the existing capacity,
the restoration would depend on the loss of market share
of competitors (if the market would be stable, however,
according to the ‘restructuring’ report, the demand was
decreasing). Therefore, the Commission also concludes
that
the aid does not avoid an undue distortion of
competition since a return to viability would have led
to a disadvantage of competitors.

Aid 2

(63)

The second aid concerns the partial mobilisation and
payment of DEM 370 000 to Sparkasse Erfurt under
the first guarantee in the context of the debt reschedu-
ling/restructuring undergone in 1997 as well as an 80 %
State guarantee on a DEM 2,5 million loan taken out in
1997 at Dresdner Bank.

The condition concerning the balance between costs and
benefits of the restructuring plan is difficult to assess.
Normally, beneficiaries are expected to make a significant
contribution from their own resources or from external
commercial financing. According to the report drafted by
Dr. Zimmermann & Partners the owner of the benefiting
company would inject new capital but it was unclear
the Commission
whether
cannot conclude that the aid complies with the 1994
guidelines on this point.

this was done. Therefore,

(60)

it is unclear how the ‘restructuring’ would be
Finally,
monitored or reported on. Consequently, this condition
of the guidelines is not met either.

(SMEs). Point 3.2.4 of

(61) Greußener Salamifabrik GmbH met the criteria to fall
under the definition of small and medium-sized enter-
prises
the 1994 guidelines
provides that the Commission is justified in taking a
aids
less
granted to SMEs
trading
those
conditions less than that to large firms. However, this
more
in assessing
approach towards SMEs
restructuring aid particularly concerns the obligation of

tend to affect

attitude
as

restructuring

restrictive

towards

lenient

found to be

(64) As it is stated in point 62 that the first State guarantee
was
illegal and incompatible aid to
Greußener Salamifabrik GmbH under Articles 87 and
88 of the EC Treaty, the part-mobilisation of the first
guarantee under the second restructuring plan is covered
by these findings.

(65)

The 80 % State guarantee on a DEM 2,5 million loan has
to be assessed under the Commission Notice on the
application of Articles 87 and 88 of the EC Treaty to
State aid in the form of guarantees (cf. recital 34). The
general conditions for guarantees applied by Thüringer
Aufbaubank, provided to the Commission, show that
guarantees can only be invoked when the benefiting
company is in financial difficulties (bankruptcy- or a
similar procedure) and when the sale of other assets
owned by the company cannot lead to redemption of
the guaranteed loan (cf. also recital 51). Therefore, the
specific conditions for guarantees under point 5.3 of the
abovementioned Commission Notice are met.

(66)

Pursuant to point 2.1 of the 1994 guidelines, typical
symptoms for a firm in difficulties are deteriorating pro-
fitability, increasing size of losses, diminishing turnover,
growing inventories, excess capacity, declining cash flow,
increasing debt, rising interest charges and low net asset
value.

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Official Journal of the European Union

L 335/55

(67) As

the
the German authorities communicated that
company was permanently threatened by insolvency,
Greußener Salamifabrik GmbH was found to be a firm
in difficulty at the time of the granting of the guarantee
(cf. recitals 9 and 34). Therefore the aid has to be
assessed under the applicable rules for rescuing and
restructuring firms in difficulties. As set out in recital
49,
these are the 1994 guidelines. The Commission
initiated the procedure provided for under Article 88(2)
of the EC Treaty against this aid because it was doubted
whether
from the 1994
guidelines were met:

following conditions

the

(a) restructuring aid should be granted once only;

(b) the aid should lead to a restoration of viability;

(c)

the aid should not unduly distort competition;

(d) the implementation of the restructuring plan should

be monitored and reported on.

(68) According to point 3.2.2(i) of the 1994 guidelines, aid
for restructuring shall basically only be granted once.
Germany has not commented upon this point.

(69)

The fact that another guarantee was granted in the course
of a second restructuring violates the basic principle of
the one-off character of restructuring aid.

(70)

The Commission doubted whether the restructuring plan,
presented to justify the second restructuring aid (i.e. the
second guarantee), would lead to a restoration of
viability. The restoration of viability seemed to be
based on a higher turnover. This increased turnover
seemed unlikely, especially since the first projected
turnover figures were already proven to be too optimistic
at the time of the initiation of the procedure. Germany
has not provided any justification or explanation for the
projected
the
Commission maintains its doubts on the fulfilment of
the condition that the restructuring plan should lead to
restoration of viability.

Therefore,

turnover.

increases

in

(71) As far as the condition on the avoidance of an undue
distortion of
concerned, Germany
competition is
presented two arguments. First of all, Germany stated
that the company concerned was too small to distort
competition or influence Community trade. Secondly,
Germany stated that the company would not expand

its capacity but would make better use of existing
capacity.

(72)

Justice (cf.

recital 38). As

The first argument is rebutted by the jurisprudence of the
to the second
Court of
argument, according to point 3.2.2(ii) of
the 1994
guidelines, the Commission only asks for a reduction
of capacity if there is a structural excess of production
capacity in the European Community. At the initiation of
the procedure the Commission found that there was no
overcapacity in the sector concerned. However,
the
Commission wondered how the measure could be
considered in the common interest if it was based on
increased production. Increased production would auto-
matically lead to a decrease in market share for compe-
titors.

consequences

(73) Germany has in no way explained how the increased
production could be absorbed by the market without
competitors. Moreover,
for
negative
Germany has not given any data on the balance
for the company concerned and
between the benefit
the costs for
the
Commission cannot assess whether the measure avoids
an undue distortion of competition.

the sector as a whole. Therefore,

(74) Germany did not provide any information on the moni-

toring of the restructuring plan.

It

the beneficiary.

(75) As of 8 January 1997 Ergewa GmbH took over 75 % of
the shares of
is not clear whether
Ergewa falls under the SME definition under the 1994
guidelines and thus changes the status of Greußener Sala-
mifabrik GmbH, being a more than 25 % shareholder.
However, even taking into account
the more lenient
approach for SMEs provided for in point 3.2.4 of the
1994 guidelines, it was made clear in recital 72 that no
concerned and
overcapacity
furthermore no assessment could be made on the moni-
toring requirement due
information.
Therefore, the fact that the beneficiary company could
probably still fall under the SME definition in 1997, does
not change the evaluation of the present aid.

existed in the

to a lack of

sector

(76)

the

abovementioned reasons,

For
the Commission
considers Aid 2, granted in the form of a State
guarantee for an amount of up to DEM 2 million to
Greußener Salamifabrik GmbH to be incompatible with
Articles 87 and 88 of the EC Treaty. The German autho-
rities stated in their letter of 4 February 1999, and reit-
erated in their letter of 18 May 2005, that the guarantee
had been given subject to the Commission authorisation.
Therefore, as no payments have been made under the
guarantee,
the incompatible aid does not have to be
recovered.

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VI. CONCLUSION

Article 2

(77)

(78)

(79)

The Commission finds that the State aid measures in the
form of State guarantees worth DEM 880 000 (Aid 1)
and DEM 2 000 000 (Aid 2), totalling DEM 2,88 million
on loans worth DEM 1 100 000 and DEM 2 500 000
respectively, totalling DEM 3,6 million are incompatible
with the common market.

Incompatible aid granted illegally has to be recovered.
The Commission notes that
the insolvency procedure
was initiated for Greußener Salamifabrik on 1 October
1999. As it is not known to the Commission whether
the company has ceased its existence as a result of the
insolvency proceedings, the recovery may still have to
take place.

The Commission draws the attention of
the German
authorities to the fact that according to point 6.4 and
6.5 of the Commission Notice on the application of
Articles 87 and 88 of the EC Treaty to State aid in the
form of guarantees the question whether the illegality of
the aid affects the legal relationship between the State
and third parties is a matter which has to be examined
under national law. National courts may have to examine
law prevents the guarantee contracts
whether national
from being honoured and in that assessment
the
Commission considers that they should take account of
the breach of Community law,

HAS ADOPTED THIS DECISION:

1.
Germany shall take all appropriate measures to recover
from the recipient the payments made under the guarantee
referred to in Article 1.

2.
Recovery of the aid shall be effected without delay and in
accordance with the procedures of national law in so far as they
allow the immediate and effective execution of the decision. The
amounts to be recovered shall include interest from the date on
which it was at the disposal of the recipient until the date of its
actual recovery. Interest shall be calculated on the basis of the
reference rate used for calculating the grant-equivalent of
regional aid.

Article 3

to the
The State aid which Germany planned to grant
Greußener Salamifabrik GmbH in the form of a guarantee
amounting to DEM 2 million is
incompatible with the
common market.

This aid may not therefore be granted.

Article 4

Germany shall inform the Commission, within two months of
notification of this Decision, of the measures taken to comply
with it.

Article 5

This Decision is addressed to the Federal Republic of Germany.

Article 1

Done at Brussels, 20 July 2005.

The State aid which Germany has granted in the form of a
guarantee
Salamifabrik GmbH
amounting to DEM 880 000 is
incompatible with the
common market.

1996 to Greußener

in

For the Commission

Mariann FISCHER BOEL
Member of the Commission