2007/492/EC: Commission Decision of 24 January 2007 on the State aid C 38/2005 (ex NN 52/2004) implemented by Germany for the Biria Group (notified under document number C(2007) 130) (Text with EEA relevance)
Date: 2007-01-24
Institutions: European Commission
Subjects: Germany, State aid, aid to undertakings, control of State aid, cycle and motorcycle industry, investment protection, redemption, shareholding

13.7.2007

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Official Journal of the European Union

L 183/27

COMMISSION

COMMISSION DECISION

of 24 January 2007

on the State aid C 38/2005 (ex NN 52/2004) implemented by Germany for the Biria Group

(notified under document number C(2007) 130)

(Only the German text is authentic)

(Text with EEA relevance)

(2007/492/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

mation concerning another public guarantee for the Biria
Group and public participations in group companies.

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

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

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

Whereas:

(1)

(2)

(3)

I. PROCEDURE

On 23 January and 20 August 2002 the Commission
received a complaint with regard to state aid in form of a
public guarantee for the Biria Group.

Following an exchange of correspondence between them,
Germany informed the Commission by letter of 24
January 2003, registered as received on 28 January,
that the plan to provide a guarantee, which had been
made conditional on approval being given by the
Commission, had been withdrawn. The complainant
was informed of this by letter of 17 February 2003.

By letters of 1 July 2003, registered as received on 9 July,
and of 8 August 2003, registered as received on 5
infor-
September,

submitted further

the complainant

(4)

(5)

(6)

The Commission requested information from Germany
by letter of 9 September 2003,
to which Germany
replied by letter of 14 October 2003, registered as
received on 16 October.
It requested on 9 December
2003 further information which Germany submitted by
letter of 19 March 2004, registered as received on the
same day.

On 18 October 2004 the Commission issued an infor-
mation injunction as it had doubts as to whether the aid
measures granted to the Biria Group complied with the
schemes under which they had allegedly been granted. In
response
information injunction, Germany
submitted further information by letter of 31 January
2005, registered as received on the same day.

to the

of

On 20 October 2005 the Commission initiated the
formal
to three
investigation procedure with respect
alleged state aid measures. In the same decision it took
the view that several other aid measures that were alleged
to have been granted unlawfully either did not constitute
aid or had been granted on the basis of and in line with
approved aid schemes. The Commission decision to
initiate the procedure was published in the Official
Journal
the European Union (2). The Commission
invited interested parties to submit comments on the
possible aid measures. Comments were received by
letter of 27 January 2006, registered as received on 30
from a third party that wished to remain
January,
anonymous, by letter of 6 February 2006, registered as
received on the same day, from Prophete GmbH & Co.
KG, Rheda-Wiedenbrück, and Pantherwerke AG, Löhne,
and by letters of 6 February, registered as received on the
same day, and of 27 February 2006,
registered as
received on the
from Vaterland-Werke
same day,
GmbH & Co. KG, Neuenrade.

(1) OJ C 2, 5.1.2006, p. 14.

(2) See footnote 1.

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(7)

(8)

(9)

The comments were transmitted to Germany by letters of
6 February and 2 March 2006. Germany replied by
letters of 5 April, registered as received on 7 April, and
of 12 May 2006, registered as received on the same day,
respectively.

Systems Betriebs- und Beteiligungsgesellschaft mbH
(‘BSBG’) and by Checker Pig GmbH.

Germany's response to the initiation of the formal inves-
tigation procedure was submitted by letter of 23 January
2006, registered as received on the same day.

(14)

Bike Systems is located in Nordhausen, Thuringia, an
assisted area under Article 87(3)(a) of the EC Treaty. In
2003 it had a turnover of EU-6.1m and recorded losses
of EUR 0.6m. It had 157 employees. It produces bicycles
exclusively for its parent company BSBG (‘Lohnherstel-
lungsvertrag’). BSBG is responsible for the distribution of
the bicycles.

The Commission requested on 6 February 2006 further
information which Germany submitted by letter of 5
registered as received on 7 April. The
April 2006,
Commission sent another request
for information on
19 July 2006, to which Germany replied by letter of
25 September, registered as received on 26 September.

(15)

Checker Pig GmbH is located in Dresden, Saxony, an
assisted area under Article 87(3)(a) of the EC Treaty. In
2003 it had a turnover of EU-6.9m and recorded losses
of EUR 0.4m. It had 43 employees.

II. DESCRIPTION

2.1. The beneficiary

(10)

The Biria Group is active in the production and
marketing of bicycles. The parent company, Biria AG,
is located in Neukirch, Saxony, an assisted area under
Article 87(3)(a) of the EC Treaty.

(16) On 7 November 2005 Biria AG sold the majority of its
assets to two companies in the Lone Star Group, a
private equity fund. The real estate remains with Biria
AG, which rents it
to Lone Star Group. The assets
were sold for EUR 11.5m. An external expert had put
the market price of the assets at EU-10.7m. The compa-
ny(companies) owned by
Star Group now
seems(seem) to operate under the name Biria GmbH.

Lone

In 2003 the group had a turnover of EUR 93.2m (2002:
EUR 83.8m) and recorded profits of EUR 3.7m (2002:
losses of EUR 5.8m). With 415 employees in 2003
(2002: 490 employees), it thus ranks as a large under-
taking.

(17) According to the information submitted by Germany, the
sale was carried out through an open, transparent and
unconditional tender. The tender was published on the
Internet and in several print media. The involvement of a
new investor could take the form of an asset deal, an
asset deal ‘en bloc’ or a share deal. The Lone Star Group
ultimately took over the assets by way of an asset deal.

The parent company, Biria AG, was founded in 2003 as
a result of a merger between Biria AG as was and one of
its subsidiaries, Sachsen Zweirad GmbH. At the same
time, the name of the latter was changed from Sachsen
Zweirad GmbH into Biria GmbH. In April 2005 Biria
GmbH was transformed into Biria AG.
In 2003 Biria
GmbH (now Biria AG) had an annual turnover of EUR
55.7m and recorded profits of EUR 3.6m. The sole
owner of Biria AG is Mr Mehdi Biria.

(13) Apart from the parent company, the most important
companies in the group are Bike Systems GmbH & Co.
Thüringer Zweiradwerk KG (hereinafter ‘Bike Systems’),
which is owned by Biria via Biria's subsidiary Bike

(18) According to Germany, the efforts to sell the company
got under way before the Commission decision to initiate
the formal investigation procedure on 20 October 2005.
The first bids were to be submitted by 4 October 2005.

2.2. The financial measures

(19) Measure 1: In March 2001 gbb Beteiligungs-AG (‘gbb’), a
subsidiary of Deutsche Ausgleichsbank, a public-law
development bank, provided until end-2010 a silent
participation (‘stille Einlage’) to Bike Systems amounting
to EUR 2 070 732. According to Germany, the partici-
pation was provided on market conditions and so did
not constitute state aid.

(11)

(12)

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(20) Measure 2: On 20 March 2003 the Land of Saxony
provided — originally until end-2008 — an 80 %
guarantee for an operating credit of EUR 5.6m in
favour of Sachsen Zweirad GmbH. The guarantee was
given back in January 2004 and replaced by a
guarantee
to Biria GmbH (see Measure 3). The
guarantee was provided under the guarantee scheme for
Saxony (3), an aid scheme approved by the Commission.

companies in difficulty at the time the guarantees were
provided. Moreover, since Sachsen Zweirad GmbH and
the guarantees
Biria GmbH were large undertakings,
would
the
to
notifiable
Commission under the aid scheme. As regards possible
exemptions under Article 87(2) and (3) of the EC Treaty,
the Commission had doubts that the conditions of the
Community Guidelines were met.

individually

been

have

(21) Measure 3: On 9 December 2003 the Land of Saxony
provided an 80 % guarantee for an operating credit
amounting to EUR 24 875m in favour of Biria GmbH
(now Biria AG)
to finance the planned increase in
turnover and the restructuring of the group's financing
plan. The credit consists of EUR 8m to repay working
capital
loans, EUR 7.45m as an advance on current
EU-9 425m for
account
seasonal financing needs (‘Saisonfinanzierungslinie’). The
guarantee was provided under the guarantee scheme for
Saxony, an aid scheme approved by the Commission. It
the guarantee for
was provided on condition that
Sachsen Zweirad GmbH (Measure 2) would be given
back.
thus entered into force only on 5 January
2004 after the guarantee to Sachsen Zweirad had been
given back.

(‘Kontokorrentkredit’)

and

It

III. REASONS FOR INITIATING THE FORMAL
INVESTIGATON PROCEDURE

(22)

formal

The Commission initiated the
investigation
procedure since it had doubts as to whether the silent
participation was provided on market conditions as
claimed by Germany. In its view, Bike Systems had just
insolvency through the adoption of an
come out of
insolvency plan and so its
future prospects were
It should thus have been considered as a
uncertain.
time. The Commission
that
company in difficulty at
doubted that the remuneration was appropriate taking
into account the risk and that the silent participation
was provided on market conditions. As regards possible
exemptions under Article 87(2) and (3) of the EC Treaty,
the Commission had no information as to whether the
conditions laid down in the Community Guidelines on
state
in
rescuing and restructuring firms
difficulty (4) (‘Community Guidelines’) had been met.

aid for

IV. COMMENTS FROM INTERESTED PARTIES

(24)

The Commission received comments from a third party
that wished to remain anonymous, from Prophete GmbH
& Co. KG and Pantherwerke AG, and from Vaterland-
Werke GmbH & Co. KG.

4.1. Comments from a competitor that wished
to remain anonymous

(25)

In its comments on the initiation of the formal investi-
gation procedure, the competitor that wished to remain
anonymous argues that, because of the state guarantee of
EUR 24.5m, Biria AG could sell bicycles to the compe-
titor's customers at below production costs even though
the competitor has the most cost-efficient production site
in Germany.

(26)

The competitor points out that in 2003 Biria AG could
only show profits because of a waiver of bank claims
amounting to EUR 8.567m. In 2004 and 2005 Biria AG
again recorded losses.

(27)

The competitor also notes that Biria was sold to the Lone
Star Group by way of an asset deal. According to the
competitor, Sachsen-LB and the Mittelständische Beteili-
gungsgesellschaft probably waived large amounts of their
claims. The new Biria GmbH, which is owned by the
Lone Star Group, took over all the assets from Biria
AG as was.

(23) Another reason for initiating the formal

investigation
procedure was that the Commission came to the provi-
sional conclusion that the conditions of the approved aid
scheme under which the guarantees to Sachsen Zweirad
GmbH and Biria GmbH had allegedly been provided were
not met and that the guarantees were thus not covered
by the aid scheme. The Commission considered that
Sachsen Zweirad GmbH and Biria GmbH were

(3) N 73/1993 Guarantee scheme of

the Land of Saxony (SEC(93)

D/9273) of 7 June 1993.
(4) OJ C 288, 9.10.1999, p. 2.

4.2. Comments from Prophete GmbH & Co. KG
and Pantherwerke AG

(28)

In its comments on the initiation of the formal investi-
gation procedure, Prophete GmbH & Co. KG and
Pantherwerke AG (‘Prophete and Pantherwerke’) allege
that, because of
its
products at prices that
it could not maintain under
normal market conditions. The two companies are
competitors of Biria and are thus directly affected by
the aid.

the state aid, Biria can offer

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(29)

(30)

The Biria Group is the largest producer of bicycles in
Germany with an annual production of
around
700 000 bicycles. The companies
in the group are
active in two segments of the bicycle market, i.e. non-
specialised trade and specialised trade.

The non-specialised trade segment concerns all retail
sales by the larger retail chains and catalogue sales.
Bicycles in this segment are priced at between EUR
100 and EUR 199. Prophete and Pantherwerke estimate
that the size of the market is around 1.5m bicycles and
that, with sales of 650 000 bicycles, the Biria Group has
a market share of around 50 % in this segment.

market presence of the Biria Group. Instead, the plan of
the Biria Group is to expand its activities further through
an aggressive pricing policy. On its homepage Biria
announced planned sales of 850 000 bicycles in 2005,
which would have implied a further increase in sales
compared with 2004. Prophete and Pantherwerke also
point out that, according to a press release, the owner
of Biria AG has sold the business to the Lone Star Group,
a private equity fund.

4.3. Comments from Vaterland-Werke
GmbH & Co. KG

(31) According to Prophete and Pantherwerke,

the Biria
Group also has a dominant position in the specialised
trade segment. The size of
is between
150 000 and 200 000 bicycles priced at up to EUR
400. Pantherwerke is a direct competitor of Biria in
this segment.

the market

(32)

Prophete and Pantherwerke have stated for several years
that the prices offered by the Biria Group are invariably
than those offered by other producers. This
lower
difference cannot be explained by economic factors
since, although the Biria Group has a higher purchase
volume because of its dominant market position, this is
not reflected in more advantageous conditions. Prophete
and Pantherwerke estimate that, on account of its low
prices, the Biria Group has suffered significant losses in
recent years.

(37)

(38)

(33) As

the

regards

silent participation, Prophete

and
Pantherwerke have doubts that, given the economic
situation of Bike Systems in March 2001, a private
investor would have acquired such a silent participation.

out

points

In its comments on the initiation of the formal investi-
gation procedure, Vaterland-Werke GmbH & Co. KG
total
(Vaterland-Werke)
production of between 700 000 and 800 000 bicycles,
the Biria Group is the largest bicycle manufacturer in
Germany. The only comparable company is MIFA Mittel-
deutsche Fahrradwerke with an annual production of
around 700 000 bicycles. Other competitors produce
only between 250 000 and 400 000 bicycles a year.

that, with

a

Vaterland-Werke and Biria are both active in the non-
specialised trade, which includes sales by the larger retail
chains and catalogue sales by large mail order companies.
There is fierce competition in the market and Biria is
known as an aggressive competitor selling at below
production costs. Such behaviour
is possible only
because of external financing sources, i.e. in the case of
Biria because of state aid. This situation threatens the
existence of all small competitors that do not receive
state aid. Vaterland-Werke is particularly affected and
free capacities cannot be filled with alternative work
orders. It concludes that, in a market with surplus capa-
cities, any capacity extension undertaken by a producer
with the help of state aid imposes a burden on other
competitors.

(34) As regards the two guarantees for Sachsen Zweirad
GmbH and Biria in 2003 and 2004, Prophete and
Pantherwerke regard them as not being compatible
with the Community rules on state aid. They take the
view that the companies were in difficulty at the time the
guarantees were provided. They argue that
the new
company Biria has to be viewed as the legal successor
to the two former companies from which it emerged. In
their opinion, the opening balance of the newly created
company is not meaningful.

(35)

It is claimed that the two guarantees violated the ‘one
time–last time’ principle as the economic activities of the
companies forming the Biria Group could be sustained
only with repeated state support.

(36) No compensatory measures were taken to offset adverse
effects on competitors. No restriction was placed on the

(39) As regards the silent participation, Vaterland-Werke has
doubts that, in view of the economic situation of Bike
Systems in March 2001, a private investor would have
acquired such a participation.

(40) As regards the two guarantees for Sachsen Zweirad
GmbH and Biria in 2003 and 2004, Vaterland-Werke
compatible with the
regards
them as not being
Community rules on state aid.
It takes the view that
the companies were in difficulty at the time the guar-
antees were provided. It argues that the new company
Biria has to be viewed as the legal successor to the two
former companies from which it emerged. In its opinion,
the opening balance of the newly created company is not
meaningful.

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(41)

It is claimed that the two guarantees violated the ‘one
time–last time’ principle as the economic activities of the
companies forming the Biria Group could be sustained
only with repeated state support.

this is common in the case of silent participations and
corresponds to the behaviour of a market economy
investor.

(42) No compensatory measures were taken to offset adverse
effects on competitors. No restriction was placed on the
market presence of the Biria Group. Instead, the plan of
the Biria Group is to expand its activities further through
an aggressive pricing policy. On its homepage Biria
announced planned sales of 850 000 bicycles in 2005,
which would have implied a further increase in sales
compared with 2004. Vaterland-Werke also points out
that, according to a press release, the owner of Biria AG
has sold the business to the Lone Star Group, a private
equity fund.

(46) As regards the guarantee for Sachsen Zweirad GmbH,
Germany argues that the company was not in difficulty
at the time it was provided and that the company did not
show any of the typical signs of a company in difficulty
as defined by the Community Guidelines. Among other
things, the company had positive own capital of EUR
404m for 2003 (until the merger with Biria in October
2003) and generated a profit of EUR 2.1m. Its economic
situation had improved in 2003 compared with
2001/2002 thanks to consolidation efforts launched at
the end of 2002 and to an improved market situation.

V. COMMENTS FROM GERMANY

(43)

In its comments on the initiation of the formal investi-
gation procedure, Germany argues that the silent partici-
pation by gbb was provided on market conditions.
It
agrees with the Commission that the risk attaching to
a silent participation is higher than that attaching to a
traditional bank loan. Nevertheless,
the
conditions of the silent participation are such that the
provisions of the Commission notice on the method for
setting the reference and discount rates (5) were complied
with. According to the notice, the reference rate is a floor
rate which may be increased in situations involving a
particular
the premium may
amount to 400 basis points or more.

In such cases,

it argues that

risk.

(44) Germany points out that the remuneration for the silent
participation amounts to 12.25 % (8.75 % fixed and
3.5 % depending on the realisation of profits). The remu-
neration is thus 600 basis points above the Commis-
sion's reference rate of 6.33 %. gbb thus took into
account the fact that the company was going through
a period of restructuring and that the risk attaching to
the silent participation was therefore higher as a result of
the company's reorganisation and the lack of collateral.
This increased risk is reflected in the additional premium
of 200 basis points.

(45)

In addition, Germany argues that the decision to provide
the silent participation was taken on the basis of a
forecast
indicating an increase in company turnover
from EUR 0.89m in 2001 to EUR 3.38m in 2003. It
therefore concludes that the agreed remuneration for the
silent participation of 12.25 % was an appropriate
reflection of
the fact
that part of the remuneration is variable is irrelevant as

the associated risk.

In its view,

(5) OJ C 273, 9.9.1997, p. 3.

(47) Germany points out

that, although the

company's
‘serious’.
liquidity situation was difficult,
the private banks
There had been no danger
would not extend their credit
lines. Moreover, high
interest payments would not have led to liquidity
problems as claimed by the Commission.

it was not

that

(48) As regards the guarantee for Biria GmbH (now Biria AG),
Germany points out that the basis for it was the new
plan of the Biria Group for streamlining its organisation
and concentrating procurement, production responsi-
bilities and distribution at Biria GmbH. Apart from the
financing needed to increase turnover,
the plan also
included a reorganisation of group financing.

(49) Germany claims that Biria GmbH (now Biria AG) was
not in difficulty at the time the guarantee was provided.
In its view, a distinction has to be made between Biria
AG as was and the new Biria AG. The latter can be
considered in difficulty only if it had inherited the diffi-
culties of the old company (in the event of there being
any). This is, however, not the case with the new Biria
AG, which resulted from a merger of Sachsen Zweirad
GmbH and Biria as was. Sachsen Zweirad AG, which was
not in difficulty, dominated the merger economically. It
cannot therefore be automatically assumed that the new
Biria AG would be in difficulty. Even if Biria AG as was
had been in difficulty, the merger with Sachsen Zweirad
GmbH would have meant that the new Biria AG would
not automatically have found itself in difficulty.

(50) Germany also explained that the withdrawal by one of
the private banks from the financing operation was due
to a revamping of the bank's strategy following a merger.
The other two banks ended their involvement at the
same time at this private bank. This cannot however,
be seen as a sign of a lack of confidence as one of the
banks still provided financing for two separate projects.

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(51) Germany points out that the merger of Sachsen Zweirad
GmbH and Biria AG was not designed to circumvent the
state aid rules and classification of the company as a
company in difficulty but was the consequence of a
new plan for the group.

(52)

turnover of

In reply to the comments by a competitor who wished to
remain anonymous, Germany argues that the figures on
the cost structure of the competitor and Biria are not
comparable. The
competitor has
the Biria Group have
increased while the sales of
decreased. At
the
fell while that of Biria Group remained
competitor
constant. This
at
dumping prices and that the competitor has engaged in
more aggressive price behaviour than the Biria Group.

that Biria does not

the EBITDA of

the same time,

shows

sell

the

(53) Germany

the

that

argues

economic disadvantages
apparently suffered by the competitor because of
the
Biria Group's behaviour are not borne out by facts or
presented in a coherent manner. It also points out that it
is normal in a competitive market for a company to be
undercut by a competitor.

(54) As regards the sale of the assets of the Biria Group to the
Lone Star Group, which was mentioned by
the
competitor, Germany provided details on the sale as
well as on the repayment of private and public claims.

(55)

In reply to the comments by Prophete and Pantherwerke
and by Vaterland-Werke, Germany points out that the
market for bicycles is divided into three segments, and
two as claimed by these companies. The three
not
segments are
specialised trade, mail order/catalogue
sales and self-service premises. Biria has a strong
position in the mail order segment due less to aggressive
pricing than to just-in-time deliveries, while in the self-
service segment MIF AG is the leading supplier, with Biria
having less than 10 % of the market.

(56) Germany rejects the assertion by Vaterland-Werke that
the Biria Group planned to expand its activities further
and makes
through an aggressive pricing policy
to information already submitted in the
references
context of
It points out
the investigation procedure.
that Biria AG produced 670 000 bicycles in 2003 and
that production has been falling since.

VI. ASSESSMENT

6.1. The relevant undertaking

(57)

The aid was granted to Sachsen Zweirad GmbH and Biria
GmbH (now Biria AG) as well as to Bike Systems, a

subsidiary of Biria GmbH. On 7 November 2005 Biria
AG sold the majority of its assets to two companies in
the Lone Star Group, a private
equity fund. The
Commission notes
judging by the information
provided, the assets were sold following an open, trans-
parent and unconditional tender. According to Germany,
an expert opinion put the sales price of the assets at EU-
10.7m. The price paid by the Lone Star Group (EUR
11.5m) was thus above the estimated price.

that,

(58) On the basis of

its disposal,

the
the information at
Commission therefore comes to the conclusion that
there is no evidence to suggest
that any advantage
accrued to the Lone Star Group as a result of the aid
or that the Lone Star Group would thus be a direct or
the state aid granted to Biria
indirect beneficiary of
GmbH (now Biria AG) and Bike Systems.

6.2. Measure purportedly provided on market
conditions

(59) According to Germany, ggb's silent participation in Bike
Systems (Measure 1) was provided on market conditions.
A silent participation is comparable in terms of risk to a
subordinated loan and should thus be treated as a high-
risk loan. In the case of bankruptcy or liquidation, it is
paid back only after all other
liabilities have been
honoured. The risk associated with the participation
thus exceeds that associated with a traditional bank
loan, which is normally secured on the
investment
conditions required by the bank and reflected in the
Commission's reference rate. The remuneration to be
paid for such a participation should thus significantly
exceed the reference rate.

(60)

The Commission's reference rate at the time was 6.33 %.
The participation was provided with a fixed remuneration
of 8.75 % plus a variable
remuneration of 3.5 %,
depending on the profits made. The agreed remuneration
is thus higher than the Commission's reference rate.

(61) However, Bike Systems had just came out of insolvency
through the adoption of an insolvency plan. Its future
prospects were uncertain as only a limited operational
restructuring had been carried out. According to the
company's annual report for 2001, the company still
recorded losses
still
negative although, thanks to hidden reserves, this did
not trigger insolvency. Bike Systems must, therefore, be
regarded as a company in difficulty at that time.

Its own capital was

that year.

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(62) Accordingly, the Commission considers that the remu-
neration was not proportional to the risk and that the
silent participation was not provided on market
conditions. The silent participation thus conferred on
the company would
Bike Systems an advantage that
not have obtained on the market.

6.3. Aid purportedly covered by approved aid
schemes

within the meaning of the Community Guidelines (6). The
Commission points out that the typical signs of a firm
being in difficulty, which are mentioned in point 6 of the
Community Guidelines, give merely an indication of
when a company can be considered to be in difficulty
and do not have to be met cumulatively. Sachsen
Zweirad GmbH recorded operating losses of EUR
1.274m in 2001 and EUR 0.733m in 2002. The losses
were taken over by the parent company Biria under the
profits and loss transfer agreement. Turnover decreased
in 2002 compared with 2001.

(63)

The guarantee in favour of Sachsen Zweirad GmbH for
an operating credit of EUR 5.6m (Measure 2) and the
guarantee in favour of Biria GmbH (now Biria AG) for an
operating credit of EUR 24.875m (Measure 3) were
granted under the loan guarantee scheme of the Land
of Saxony. This approved scheme allows guarantees for
loans of more than DEM 5m (EUR 2.6m) to healthy
companies for the financing of new investments and,
in special
financing of
cases,
In exceptional cases,
investment and working capital.
the scheme also allows for the financing of consolidation
and restructuring measures. The provision of guarantees
for
the restructuring of a large undertaking must,
however, be notified to the Commission in each indi-
vidual case.

supplementary

for

(64) According to Germany, the conditions of the scheme
were met and the guarantees therefore comply with the
scheme. Germany considers that Sachsen Zweirad GmbH
and Biria GmbH (now Biria AG) were not in difficulty at
the time the guarantees were provided to secure working
capital
loans, something which is admissible under the
aid scheme.

(65)

The Commission does not agree that the guarantees are
compatible with the aid scheme under which they were
allegedly provided. As will be explained in more detail
below, the Commission, unlike Germany, considers that
Sachsen Zweirad GmbH was a company in difficulty at
the time a guarantee was provided in March 2003 and
in its turn, Biria GmbH was also a company in
that,
difficulty at
the time a guarantee was provided in
December 2003. The provision of guarantees for the
restructuring of a company in difficulty must, however,
be notified to the Commission in each individual case.

(67) According to the annual

report

for 2002, Sachsen
Zweirad GmbH also faced liquidity problems.
is
explicitly stated in the annual report that its liquidity
situation was tight because of high expenditures for the
pre-financing of the group's inventory and because of its
growth and that its survival could be ensured only if the
banks were prepared to keep open or to restructure the
existing credit lines.

It

(68) Germany argues that there never had been any danger of
the banks not extending their credit lines. However, this
does not invalidate the fact that the liquidity situation of
the company was tight. According to the annual report, a
large majority of the credits had a remaining period to
maturity of less than five years, which is by no means
optimal for financing business activities and increases the
risks facing the company. The short-term nature of the
credits also led to high interest payments (albeit slightly
lower in 2002 compared with 2001), placing a further
burden on the company's liquidity.

(69)

to be viewed as

The Commission thus comes to the conclusion that
Sachsen Zweirad GmbH has
a
company in difficulty at
the time the guarantee was
provided and that the guarantee has accordingly to be
viewed as a restructuring guarantee. Since the provision
of such a guarantee to a large undertaking has to be
notified individually to the Commission, the conditions
of the approved aid scheme under which the guarantee
had allegedly been provided were not met and the
guarantee was not covered by the aid scheme.

Guarantee for Biria GmbH (Measure 3)

Guarantee for Sachsen Zweirad GmbH (Measure 2)

(70)

Biria GmbH (now Biria AG) was created with effect from
1 October 2003 through a merger of Biria AG as was
with its subsidiary Sachsen Zweirad GmbH.

(66) Germany argues that Sachsen Zweirad GmbH did not
show any of the typical signs of a company in difficulty

(6) See footnote 4.

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(71) According to Germany, Biria GmbH (now Biria AG) has
to be clearly distinguished from its predecessors Biria AG
as was and Sachsen Zweirad GmbH since, as a result of
the merger, a new company was created. The assessment
in difficulty when the
whether
guarantee was provided on 9 December 2004 should
therefore be based on the opening balance sheet of the
newly merged company, which, according to Germany,
demonstrates that Biria GmbH does not qualify as a
company in difficulty.

this company was

(72)

The Commission does not agree. The newly merged
company Biria GmbH cannot be viewed separately
from Biria AG as was and Sachsen Zweirad GmbH
since it was created through a merger of
the two
it would be easy to circumvent
companies. Otherwise,
the classification as a company in difficulty by merging
economic entities or creating new companies. Biria AG
as was recorded losses and faced liquidity problems in
2002 as did Sachsen Zweirad GmbH. Biria GmbH
inherited all the debts and liabilities of Biria AG as was
and Sachsen Zweirad GmbH.
It also owns the same
assets and carries out the same activities as Biria AG as
was and Sachsen Zweirad AG. The Commission therefore
considers that Biria GmbH took over the difficulties of
Biria AG as was and Sachsen Zweirad AG.

(73) Germany claims that Sachsen Zweirad GmbH dominated
the merger economically and was not in difficulty, from
which it cannot automatically be assumed that the new
Biria GmbH had found itself in difficulty. Contrary to
what Germany
the Commission is most
certainly of the view that Sachsen Zweirad GmbH was
the new Biria
a company in difficulty. Consequently,
GmbH also ‘inherited’
Sachsen
Zweirad GmbH.

the difficulties of

claims,

(74) Moreover, according to its annual report for 2003, the
Biria Group continued its restructuring and reorgani-
sation, which had started in 2002 and included a reor-
dering of its financing. On the basis of the guarantee
provided by the Land of Saxony for the EUR 24.875m
loan, the Biria Group drew up a new plan for financing
included a
its activities
in the medium term that
rates and thus a
significant adjustment of
reduction in the high interest burden.

interest

(75) At the same time, the pool of banks was reorganised:
three banks agreed to waive claims amounting to EUR
8.567m, which seems to have represented significantly
in return for an
more than 50 % of

their claims,

redemption of

remaining claims. Conse-
immediate
quently, the loan covered by the 80 % guarantee under
Measure 3 consists of EUR 8m to pay off working capital
loans, EUR 7.450m in the form of an advance on current
account and EU-9.425m for seasonal financing needs.

(76)

Biria GmbH (now Biria AG) thus faced serious liquidity
problems at the time the guarantee was provided and so
was a company in difficulty. This assessment is borne out
by the fact that three banks withdrew from the financing
of Biria's activities and even agreed to waive a large part
of their claims in return for the immediate redemption of
remaining claims. This shows that the banks had serious
doubts as to whether Biria would be able to service its
debts and was to be regarded as a viable company.

(77) Germany argues that

the banks withdrew from the
financing only because of a refocusing of their business
strategy. The Commission notes that the banks agreed to
waive probably around 50 % of their claims, which, even
if the banks withdrew because of a refocusing of their
business strategy, is a sign that the banks considered it
unlikely that
they would be able to recover the full
amount of the loans.

(78)

The Commission thus comes to the conclusion that Biria
GmbH has to be viewed as a company in difficulty at the
time the guarantee was provided and that the guarantee
has accordingly to be viewed as a restructuring guarantee.
Since the provision of such a guarantee to a large under-
taking has to be notified individually to the Commission,
the conditions of the approved aid scheme under which
the guarantee had allegedly been provided were not met
and the guarantee was not covered by the aid scheme.

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

(79) According to Article 87 of the EC Treaty, any aid granted
by a Member State or through state resources in any
form whatsoever which distorts or threatens to distort
competition by favouring certain undertakings or the
in so far as it affects
production of certain goods is,
incompatible with the
trade between Member States,
common market. Pursuant to the established case law
of
trade being
affected is met
firm carries out an
the recipient
economic activity involving trade between Member
States.

the European Courts,

the criterion of

if

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(80)

The silent participation (Measure 1) was provided by gbb.
Germany claims that this took place under the ‘Eigen-
programm’ of
the gbb so that no state support was
involved. The Commission notes nevertheless that, at
the time the participation was provided, gbb was fully
controlled by the Deutsche Ausgleichsbank, a public-law
supporting the
development bank with the task of
German economy in the public interest.
In addition,
gbb is also tasked with promotional tasks. For example,
it was responsible for the Consolidation and Growth
Fund for Eastern Germany (‘Konsolidierungs- und Wach-
stumsfonds Ostdeutschland’), which is entrusted with
providing equity capital to medium-sized companies in
eastern Germany to strengthen their equity capital base.
The Commission therefore considers that the measure is
imputable to the State. As pointed out in paragraphs 59
to 62, the measure also conferred on Bike Systems an
advantage that the company would not have obtained on
the market.

(81)

The guarantees under Measures 2 and 3 were provided
by the Land of Saxony. They thus stem from state
resources and are imputable to the State. The guarantees
confer an advantage on Sachsen Zweirad GmbH and
Biria GmbH (now Biria AG) as the two companies
would not have been able to obtain the guarantees on
the market on the same conditions.

(82)

Bike Systems as well as Sachsen Zweirad GmbH and Biria
GmbH manufacture bicycles. As this product is traded
across borders, the measures threaten to distort compe-
trade between Member States. The
tition and affect
Commission concludes therefore that the silent partici-
pation and the two guarantees constitute state aid within
the meaning of Article 87(1) of the EC Treaty and that
the two guarantees were not provided under an approved
aid scheme. Measures 1, 2 and 3 thus constitute new aid
which has to be assessed accordingly.

(86)

Aid element of Measure 1

(83)

The Commission considers that the aid element of the
silent participation should be calculated as the difference
between the remuneration that Bike Systems would have
paid on the market for the silent participation and the
remuneration actually paid. As Bike Systems was in
difficulty when the silent participation was provided
and as the associated risk was high, the aid element
could amount to as much as 100 % of the silent parti-

cipation as no market economy investor would have
provided the participation (see point 3.2 of
the
Commission notice on the application of Articles 87
and 88 of the EC Treaty to state aid in the form of
guarantees (7)).

(84) According to the Commission notice on the method for
setting the reference and discount rates (8), reference rates
are supposed to reflect the average level of interest rates
charged on medium- and long-term loans backed by
this
normal security. The notice also points out
reference rate is a floor rate which may be increased in
situations involving a particular risk (for example, an
undertaking in difficulty or where the security normally
required by banks is not provided). In such cases, the
premium may amount
to 400 basis points or more.
The silent participation is not a loan but can nevertheless
be compared to a high-risk loan since, in case of bank-
ruptcy,
it is subordinated to all other claims including
subordinated loans.

that

(85) As explained in paragraph 61,

insecure.

the situation of Bike
Systems after it had come out of insolvency should be
considered as
future prospects were
Its
uncertain as only limited operational restructuring had
been carried out. As pointed out
same
paragraph, the company is therefore to be regarded as
a company in difficulty. Moreover, no collateral was
provided for the silent participation, increasing the risk
of default. In addition to the missing collateral, the silent
participation is also subordinated to all other loans in the
event of insolvency, further increasing the risk of default.

in the

In the present case, therefore, the Commission considers
that Bike Systems would have had to pay an interest rate
at least equal to the reference rate plus a premium of
400 basis points because it was in difficulty and a
premium of a further 400 basis points because of the
lack of any collateral. It also considers an additional 200
basis points appropriate because of the low ranking of
the silent participation in the event of insolvency. This is
in line with the indications given in the Commission
notice on the method for setting the reference and
discount rates, which states that in situations involving
a particular risk (for example, an undertaking in difficulty
or where the security normally required by banks is not
provided) the premium may amount to 400 basis points
or more. The aid element of the silent participation thus
consists in the difference between the reference interest
rate plus 1 000 basis points and the actual remuneration
against which the silent participation was provided.

(7) OJ C 71, 11.3.2000, p. 14.
(8) See footnote 5.

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(87)

(88)

on

the

unclear.

realising

company

The Commission

In calculating the aid element, the variable remuneration
of 3.5 % can be taken only partly into account as it
depends
profits. The
company's situation was, however, weak and the profit
therefore
outlook was
considers that only 50 % of the variable remuneration
should be taken into account, i.e. 1.75 %. In calculating
the
remuneration should,
actual
therefore, be the fixed rate of 8.75 % plus 50 % of the
variable remuneration of 3.5 %, giving a total rate of
10.5 %. The aid element consequently consists in the
difference between the reference rate plus 1 000 basis
points and the remuneration of 10.5 %.

aid element,

the

Aid element of Measures 2 and 3

for

loans

terms

The guarantees in the case of Measures 2 and 3 enabled
Sachsen Zweirad GmbH and Biria GmbH to obtain better
than otherwise normally
financial
available on the financial markets. The aid element of
these guarantees is the difference between the interest
rate that Sachsen Zweirad GmbH and Biria GmbH
would have had to pay on a loan on market conditions,
i.e. without a guarantee, and the interest rate at which the
guaranteed loan was actually provided. This
should
correspond to the premium that a market economy
guarantor would have required for these guarantees. As
Sachsen Zweirad GmbH and Biria GmbH were in
difficulty at the time the guarantees and the loans were
provided, the aid element can amount to as much as
100 % of
the guarantees as no lender would have
provided the loans without a guarantee (9).

the

and

discount

reference

reference

(89) According to the Commission notice on the method for
rates (10),
setting
the
rates which are
Commission establishes
supposed to reflect the average level of
interest rates
charged on medium- and long-term loans backed by
normal security. The notice also points out
this
reference rate is a floor rate which may be increased in
situations involving a particular risk (for example, an
undertaking in difficulty or where the security normally
required by banks is not provided). In such cases, the
premium may amount to 400 basis points or more.

that

was particularly low. The guarantee for the loan to
Sachsen Zweirad GmbH was
secured only by an
(‘selbstschuldnerische Bürgschaft’)
absolute
guarantee
provided by the group companies. The economic value
of such general guarantees is very low.

(91)

Therefore, in the present case, the Commission considers
that, without
the guarantee, Sachsen Zweirad GmbH
would have had to pay an interest rate at least equal
to the reference rate plus 400 basis points because it
was a company in difficulty and plus a further 400
basis points because of the very low collateral. The aid
element of the guarantee thus consists in the difference
between the reference rate plus 800 basis points and the
actual rate at which the guaranteed loan was provided.

is still

(92) As regards the loan and the guarantee to Biria GmbH,
the collateral provided had a higher economic value than
that for the guarantee to Sachsen Zweirad GmbH. Never-
lower than that normally
theless, the collateral
required. The guarantee to Biria GmbH is secured by a
first-rank mortgage on property of Bike Systems
amounting to EUR 15m. The mortgage is, however,
subordinated to another loan of EUR 2m. This first-
rank mortgage therefore covers only just over 50 % of
the total sum of the loan. The other forms of collateral
(mortgages,
of
of
materials in the possession of the group companies and
absolute guarantee on the part of the owner of Biria)
were of low economic value.

assignment

assignment

claims,

(93)

Consequently,
the view that,
the Commission takes
without the guarantee, Biria GmbH would have had to
pay an interest rate at least equal to the reference rate
plus 400 basis points because it was a company in
difficulty and plus a further 300 basis points because
of the low collateral
(compared with the premium of
400 basis points for the guarantee to Sachsen Zweirad
GmbH because of
the very low collateral). The aid
element of the guarantee thus consists in the difference
between the reference rate plus 700 basis points and the
actual rate at which the guaranteed loans were provided.

(90) As explained above in paragraphs 66 to 78, Sachsen
Zweirad GmbH and Biria GmbH were companies in
difficulty at the time the guarantees were provided. The
loan and the guarantee to Sachsen Zweirad GmbH
involved an additional risk as the collateral provided

(9) See footnote 7.
(10) See footnote 5.

6.5. Derogations under Article 87(2) and (3)
of the EC Treaty

(94) Article 87(2) and (3) of

the EC Treaty provides for
exemptions to the general prohibition of state aid as
spelt out in Article 87(1).

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(95)

nor

character

The exemptions in Article 87(2) do not apply in the
present case because the aid measures neither have a
social
individual
are
consumers; moreover, the measures do not make good
the damage caused by natural disasters or exceptional
occurrences and are not granted to the economy of
certain areas of
the Federal Republic of Germany
affected by its division.

granted

to

(96)

The exemptions provided for in Article 87(3)(b) and (d)
do not apply either. They refer to aid to promote the
execution of an important project of common European
interest and aid to promote culture and heritage conser-
vation.

leaves

This
87(3)(a)
guidelines.

the exemptions provided for

in Article
relevant Community

and (c)

and in the

(100)

In addition, none of the other Community guidelines and
regulations governing aid for research and development,
for the environment, for small and medium-sized enter-
for employment and training, risk capital, etc.
prises,
it does not
apply to the present measure. Since
correspond to any objective of common interest,
the
aid constitutes operating aid that is incompatible with
the EC Treaty.

Measures 2 and 3

(101) The Commission notes that Sachsen Zweirad GmbH and
Biria GmbH are located in an assisted area under Article
87(3)(a) of the Treaty. Nevertheless, the provisions of that
indent and the regional provisions of indent (c) are not
applicable as Sachsen Zweirad GmbH and Biria GmbH
were in difficulty and the objective of the aid measures
was not the economic development of a certain region.

Measure 1

(102) The Commission concludes that only the Community
Guidelines could be applicable. As the aid was granted
in March and December 2003,
the Community
Guidelines of 9 October 1999 (13) apply.

that Bike Systems

the Commission notes

is
Firstly,
located in an assisted area under Article 87(3)(a) of the
EC Treaty that is eligible for regional aid. Nevertheless,
despite the doubts raised by the Commission when
investigation procedure, Germany
initiating the formal
the
did not provide any information to show that
conditions
laid
regional aid as
the granting of
down in the Guidelines on national regional aid (11)
were met.

for

Further exemptions are laid down in the Community
Guidelines. As the aid was granted in March 2001, the
Community Guidelines of 9 October 1999 (12) apply.
The Commission does not possess any information to
show that the aid can be considered to be compatible
the Community
with the EC Treaty on the basis of
the Community Guidelines,
Guidelines. Under
the
granting of
restructuring aid is conditional on the
existence of a sound restructuring plan, with undue
distortions of competition being avoided and the aid
being limited to the minimum. Despite the doubts
raised by the Commission when initiating the formal
investigation procedure, Germany did not provide any
these conditions had been
information to show that
the
met. The Commission concludes
conditions of the Community Guidelines have not been
met.

therefore that

(103) The granting of aid is conditional on the implementation
of a restructuring plan the duration of which must be as
short as possible and which restores
the long-term
viability of the firm within a reasonable timescale and
on the basis of realistic assumptions as to the future
operating conditions. Despite the doubts raised by the
investigation
Commission when initiating the formal
procedure, Germany did not provide any information
to show that
the guarantees had been based on a
sound restructuring plan that would have restored the
group's viability.

the

end

(104) Measures must also be taken to mitigate as far as possible
any adverse effects of
the aid on competitors. This
usually takes the form of a limitation on the presence
which the company can enjoy on its market or markets
period. The
after
Commission was not provided with any information
on the relevant market or on the share of the Biria
Group on that relevant market.
It was not provided
either with any information on compensatory measures
to limit the company's presence on the market. Instead,
the Biria Group seems
to have expanded with the
takeover of Checker Pig and Bike Systems in 2001.

restructuring

the

of

(11) OJ C 74, 10.3.1998, p. 9.
(12) See footnote 4.

(13) See footnote 4.

(97)

(98)

(99)

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the

restructuring

light of
the company and its

(105) The amount of aid must be limited to the strict
to be
minimum required to enable
existing financial
undertaken in the
resources of
In
addition, the beneficiary must make a substantial contri-
bution to the restructuring costs from its own resources
or from external financing on market conditions. As the
granting of the aid was not based on a restructuring plan,
the Commission has no information on the contribution
of the beneficiary and as to whether the aid was limited
to the strict minimum.

shareholders.

(106) According to the Community Guidelines, restructuring
aid should be granted only once. If the firm concerned
has received restructuring aid in the past and if less than
ten years have elapsed since the restructuring period
came to an end, the Commission will normally allow
further restructuring aid only in exceptional and unfor-
eseeable circumstances.

(107)

In April 1996 and March 1998 Sachsen Zweirad GmbH
received restructuring aid in form of a public partici-
pation amounting to a total of EUR 1 278 200 under
an approved aid scheme. Since less then ten years have
elapsed since the restructuring period of Sachsen Zweirad
GmbH came to an end and since the Commission is not
aware of any exceptional and unforeseeable circum-
stances, the ‘one time — last time’ condition has not
been met in granting the two guarantees.

(108) The Commission therefore comes to the conclusion that
the conditions of the Community Guidelines are not met.

state aid and do not meet the necessary conditions for
them to be considered compatible with the common
market,

HAS ADOPTED THIS DECISION:

Article 1

The state aid for Bike Systems GmbH & Co. Thüringer Zweir-
adwerk KG, Sachsen Zweirad GmbH and Biria GmbH (now
Biria AG) is incompatible with the common market. The aid
consisted of the following measures:

(a) Measure 1: a silent participation of EUR 2 070 732 provided
to Bike Systems GmbH & Co. Thüringer Zweiradwerk KG.
The aid element corresponds to the difference between the
reference interest rate plus 1 000 basis points and the remu-
neration against which the silent participation was provided
(fixed remuneration plus 50 % of the variable remuneration);

(b) Measure 2: a guarantee of EUR 4.480m to Sachsen Zweirad
GmbH. The aid element corresponds to the difference
between the reference interest rate plus 800 basis points
and the interest rate at which the guaranteed loan was
provided;

(c) Measure 3: a guarantee of EUR 19.9m to Biria GmbH (now
Biria AG). The aid element corresponds to the difference
between the reference interest rate plus 700 basis points
and the interest rate at which the guaranteed loan was
provided.

(109)

In addition, none of the other Community guidelines and
regulations governing aid for research and development,
for the environment, for small and medium-sized enter-
prises, for employment and training, for risk capital, etc.
apply to Measures 2 and 3. Since the measures do not
correspond to any objective of common interest, the aid
constitutes operating aid that is incompatible with the EC
Treaty.

Article 2

1.
Germany shall take all necessary measures to recover from
the beneficiary the aid referred to in Article 1 and unlawfully
made available to the beneficiary.

VII. CONCLUSION

(110) The Commission thus comes to the conclusion that the
participation of gbb in Bike Systems of EUR 2 070 732,
the 80 % guarantee for a loan of EUR 5.6m to Sachsen
Zweirad GmbH and the 80 % guarantee for a loan of
EUR 24.875m for Biria GmbH (now Biria AG) constitute

The silent participation and the guarantee for Biria GmbH
2.
(now Biria AG) shall be discontinued within two months
following notification of this decision.

Recovery

shall be

3.
and in
accordance with the procedures of national law provided that
they allow the immediate and effective execution of
the
decision.

effected without delay

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The aid to be recovered shall

include interest from the
4.
date on which it was at the disposal of the beneficiary until
the date of its recovery.

proving that recovery proceedings have been initiated against
the beneficiary of the unlawful aid.

Article 4

Interest shall be calculated in conformity with Chapter V

5.
of Commission Regulation (EC) No 794/2004 (14).

This decision is addressed to the Federal Republic of Germany.

Article 3

Done at Brussels, 24 January 2007.

Germany shall
inform the Commission, within two months
following notification of this decision, of the measures already
taken or planned to comply with it. It shall provide this infor-
In
mation using the questionnaire annexed to this Decision.
it shall submit to the Commission all documents
particular,

For the Commission

Neelie KROES
Member of the Commission

(14) OJ L 140, 30.4.2004, p. 1.

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ANNEX

Information regarding the implementation of the Commission Decision C(2007) 130

1. Calculation of the amount to be recovered

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

the beneficiary:

Date(s) of
payment (*)

Amount of
aid (**)

Currency

Identity of beneficiary

(*) Date or dates on which the aid or individual instalments of aid were put at the disposal of the beneficiary; if the measure

consists of several instalments and reimbursements, use separate rows.

(**) Amount of aid put at the disposal of the beneficiary, in gross aid equivalents.

Comments:

1.2. Please explain in detail how the interest payable on the amount to be recovered will be calculated.

2. Measures planned and already taken

2.1. Please describe in detail what measures have already been taken and what measures are planned to effect the
immediate and effective recovery of the aid. Please also explain what alternative measures are available under
national law to effect recovery. Where relevant, please indicate the legal basis for the measures taken or planned.

2.2. By what date will the recovery of the aid be completed?

3. Recovery already effected

3.1. Please provide the following details of aid that has been recovered from the beneficiary:

Date(s) (*)

Amount of aid
repaid

Currency

Identify of beneficiary

(*) Date or dates on which the aid was repaid.

3.2. Please attach supporting documents for the repayments shown in the table at point 3.1.