2008/344/EC: Commission Decision of 23 October 2007 on State Aid C 23/06 (ex NN 35/06) which Poland has implemented for steel producer Technologie Buczek Group (notified under document number C(2007) 5087) (Text with EEA relevance)
Date: 2007-10-23
Institutions: European Commission
Subjects: Poland, State aid, aid for restructuring, control of State aid, iron and steel industry, tube

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COMMISSION

COMMISSION DECISION

of 23 October 2007

on State Aid C 23/06 (ex NN 35/06) which Poland has implemented for steel producer Technologie
Buczek Group

(notified under document number C(2007) 5087)

(Only the Polish version is authentic)

(Text with EEA relevance)

(2008/344/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(2)

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

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

Having regard to Protocol No 8 of the Accession Treaty on the
restructuring of the Polish steel industry (1) (hereinafter referred
to as ‘Protocol No 8’),

Having called on interested parties to submit their comments
pursuant to the provisions cited above (2),

Whereas:

(3)

(4)

the

and

Restructuring

On 5 November 2002 the Polish Council of Ministers
approved
Development
Programme for the Polish Iron and Steel Industry until
2006 (hereinafter referred to as ‘the National Restruc-
‘NRP’). This plan essentially
turing Programme’ or
allows for State Aid to be awarded to the Polish steel
industry for restructuring in the period from 1997 to
2006 of up to PLN 3 387 billion (EUR 846 million) (3).

The NRP was submitted to the EU. On 25 March 2003 it
was assessed by the Commission. On this basis the
Commission made a proposal
for a Council Decision
to extend the grace period for the granting of state aid
in the Polish steel sector under the Europe Agreement
(which initially lasted only until 1997) until Poland’s
accession to the EU, subject to the recipients achieving
viability by 2006; this was approved by the Council in
July 2003 (4).

The EU thus allowed Poland, notwithstanding its rules (5),
to grant restructuring aid to the steel industry. This was
finally laid down in a Protocol to the Accession Treaty,
Protocol No 8 on the restructuring of the Polish steel
industry (6). It confirms the acceptance of the award of
state aid to eight companies listed in Annex 1 to
including TB-HB, of not more than
Protocol No 8,
PLN 3,387 billion before end-2003.

I. PROCEDURE

(1)

In March 2002 a restructuring programme was presented
by Huta Buczek (hereinafter ‘TB-HB’), to the Polish auth-
orities. TB-HB was as of 7 May 2003 renamed Tech-
nologie Buczek S.A. (hereinafter ‘TB’).

(1) OJ L 236, 23.9.2003, p. 948.
(2) OJ C 196, 19.8.2006, p. 23.

(3) Assuming that EUR 1 = PLN 4.
(4) See for details Decision 2006/937/EC of 5.7.2005 in case C-20/04
Huta Czestochowa, (OJ L 366, 21.12.2006, p. 1, points 23 et seq).
(5) State Aid to the steel sector is not allowed in the EU; see Commu-
nication from the Commission — Rescue and restructuring aid and
closure aid for the steel sector (OJ C 70, 19.3.2002, p. 21).

(6) See Protocol No 8 to the Accession Treaty on the restructuring of

the Polish steel industry (OJ L 236, 23.9.2003, p. 948).

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(5)

(6)

(7)

(8)

(9)

In order to ensure that the conditions laid down in the
Protocol are complied with, Protocol No 8 sets out
detailed provisions for implementation and monitoring.
One requirement is that Poland has to provide bi-annual
monitoring reports, and evaluations were carried out by
an independent consultant in 2003, 2004, 2005 and
2006 (7). Company reports for TB were presented in
February 2004 and April 2005. They were discussed
with the Polish authorities and the recipients and
approved by the Commission and the Polish authorities.

In September 2005 TB modified its IBP (hereinafter
referred to as ‘2005 IBP’) and later submitted it to the
Commission with a request for approval under point 10
of Protocol No 8. However, the fact that the company
modified this plan several times subsequently and has
request
been in liquidation since 2006 made this
redundant.

After the independent evaluation in 2005 indicated that
TB had an increasing debt to public creditors and was
not achieving viability, the Commission requested addi-
tional information from Poland by letters of 29 March
2005, 1 August 2005 and 2 December 2005. Poland
replied by letters of 23 June 2005, 28 September
2005 and 14 February 2006.

By letter dated 7 June 2006 the Commission informed
Poland that it had decided to initiate the procedure laid
down in Article 88(2) of the EC Treaty in respect of the
aid.

24 November 2006, 23 January 2007 and 23 May
2007. On 13 December 2006 a meeting took place
between the Polish authorities and the Commission.

(12)

(13)

II. DETAILED DESCRIPTION OF THE AID

1. The TB group

TB is a Polish tube producer located in the city of
Sosnowiec in Silesia Province. Until 2006 it produced
steel tubes in a welded tube rolling shop and a high
alloy steel tube rolling shop. These are considered steel
products under the EC State Aid rules (9). It has a total
capacity of about 60 thousand tonnes (10). The welded
tube mill consists of
four welding lines (W1.5, W2,
which was upgraded in 1993 and 2001, W3, put into
service in 1999, and W4, put into service in 2003) and
two slitting lines (one put into service in 2004). TB also
operated a rolling mill facility until 2005.

TB is a joint stock company which in 2004 had own
capital of around PLN 20 million (EUR 5 million). The
majority shareholder of TB, with about 78,1 %, is Górno-
śląski Fundusz Restrukturyzacyjny S.A.
(Upper Silesian
Restructuring Fund, hereinafter ‘GFR’), whose main share-
holder, with 51,3 %, was, until 30 December 2005, Euro-
faktor SA (hereinafter ‘EF’). EF’s shareholders are private
investors, such as Bonum Sp. z o.o. (37,25 %), ING TFI
(13,40 %), Polmetal Sp. z o.o.
(11,31 %) and Stabilo
(10,93 %). EF subsequently sold its
Group Sp. z o.o.
shares to Stabilo Group Sp. z o.o. The Treasury was a
minority shareholder in GFR.

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Union (8).
The Commission invited interested parties to submit their
comments on the aid/measure.

(14)

TB currently has
business activity:

four

subsidiaries with significant

(10)

The Commission received no comments
parties.

from third

(11)

The Polish authorities replied by letters of 18 September
2006, 2 October 2006 and 20 October 2006. The
Commission asked Poland for additional information by
letters of 6 November 2006, 18 December 2006 and
of
15 March

Poland

replied

2007.

letters

by

(7) Hereinafter ‘independent monitoring reports’ referring to the year

monitored.
(8) See footnote 2.

‘BA’,
z o.o (hereinafter
(a) Buczek Automotive Sp.
(Przedsiębiorstwo Usług
originally named P.U.R.M.
Remontowo Mechanicznych) ‘REMEBUD’ Sp. z o.o.),
is today 51 % owned by TB. It originally provided
machinery and equipment maintenance services to
transferred
TB.

In December 2005

TB also

(9) See Annex B of the Multisectoral framework (OJ C 70, 19.3.2002,
p. 8), which was replaced by Annex I to the Guidelines on national
regional aid for 2007-2013 (OJ C 54, 4.3.2006, p. 13).

(10) Information on TB is taken from Huta Buczek's restructuring
‘2002 IBP’) of March
programme for 2002-2006 (hereinafter
2002, which was the basis for approving aid following adoption
of the NRP. For more information see the decision to initiate the
procedure (footnote 2).

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its main business for the automotive sector to BA (at
that time 100 % owned by TB) and renamed it BA. In
addition to the 76 employees
in the original
company, a further 227 employees were transferred
to BA on 1 December 2005. On 1 January 2006 TB
and BA signed a lease agreement, of unlimited
duration, on the basis of which BA operates TB's
automotive assets. In November 2006 EF executed
the pledge on the shares of BA because of TB’s
unpaid debts and acquired a 49 % stake in BA. BA
is a steel producer within the meaning of the EU
State Aid rules.

(b) Huta Buczek Sp. z o.o.

(hereinafter

‘HB’, 100 %
owned by TB) is TB’s spun-off rolling mill facility.
It has 227 employees. HB was
created on
3 December 2004 with PLN 100 000 (around EUR
25 000) share capital. In 2005 and the first half of
2006 TB increased the HB’s capital through several
capital injections totalling PLN 14 811 600. HB is not
a steel producer within the meaning of the EU State
Aid rules.

(c) Buczek — HB — Zakład Produkcji Rur Sp. z o. o.
‘ZPR’, 18 % owned by TB, with the
(hereinafter
remaining shares held by the company’s employees)
which manufactures drawn tubes and provides tube
cutting and processing services, with 100 employees.
It was taken over by TB's employees in 2001 to
prevent its closure. TB still owns TB-ZPR's production
equipment, which is leased to it.

(d) SAMKOL (100 % owned by TB) is a transport service
provider, which was founded in 1997 and whose
It used to
increased in 2001.
last
capital was
provide 80 % of
its services to TB but currently
only 20 % of its revenue is derived from work for TB.

2. The original restructuring plan

(15)

In 2002, TB-HB prepared an individual business plan
in order
(hereinafter
to
indicated in the
overcome

financial difficulties. As

referred to as

‘2002 IBP’)

(16)

(17)

(18)

decision to initiate the procedure, the operational restruc-
turing plan involved focusing on manufacturing of
welded calibrated tubes for special applications made of
ALU-coated or galvanised steel strip. To this end, more
production equipment was to be acquired (11).

The business plan indicated the total cost of the potential
investments as PLN 25 million. In addition to the main
investments in production and processing of pipes for
automotive applications and welded tube manufacturing
lines,
this included projects such as computerisation,
modernisation of other minor projects and purchase of
fixed assets. Investments in the rolling department were
also desired but were judged unrealistic and therefore
postponed.

The plan also included a cost reduction programme
involving a cut in the number of employees from 532
to 407. To this end, provision was made for total costs
for 2002-2006 of PLN 2 910 000. In particular, for the
161 job cuts, external public aid of PLN 823 000 with a
net grant equivalent of PLN 597 000 was envisaged. In
addition, aid of PLN 2,754 million was envisaged for
research and development
referred to as
‘R&D’) with PLN 1 250 000 for 2002, representing a
net grant equivalent of PLN 900 000 in 2002, and
PLN 2 540 000 for 2003 (net grant equivalent PLN
1 854 000) (12).

(hereinafter

‘ZUS’) and debt

Lastly, financial restructuring of PLN 8,411 million net
grant equivalent was planned aiming at a debt waiver of
about PLN 3,392 million (this mainly involved real estate
tax debt to the local authority and smaller amounts owed
to the Tax Office and the social
insurance institution
(Zakład Ubezpieczeń Społecznych, hereinafter referred
to as
rescheduling of PLN 6,014
million to ZUS and the State Fund for Rehabilitation
of Disabled Persons (Państwowy Fundusz Rehabilitacji
Osób Niepełnosprawnych, hereinafter ‘PFRON’) with a
net grant equivalent of PLN 5,019 million (PLN 5,001
million (ZUS) + 18 000 (PFRON). The purpose of
financial restructuring was to purchase materials and to
maintain continuity of production (13).

(11) See 2002 IBP, p. 57.
(12) See 2002 IBP, p. 74.
(13) See 2002 IBP, p. 74.

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(a) Aid envisaged under the restructuring plan

(19)

The restructuring programme essentially envisaged the following aid:

3. State Aid

Table 1

Planned State Aid for TB for 2002-2003

Institution

Nature of Aid

PLN thousand

PLN thousand (NGE)

FGSP (2002) (1)

Payment in instalments

FGSP (2003)

Payment in instalments

Sub-total instalments

136

270

406

3

15

18

Sosnowiec local authority

Debt write-off

2 964

2 964

Tax Office

Debt write-off

ZUS

Debt write-off

Sub-total write-offs

ZUS

Payment in instalments

Total

Financial restructuring

Employment restructuring

R&D

Total aid

163

265

3 392

6 014

9 812

823

3 790

163

265

3 392

5 001

8 411

597

2 754

14 425

11 762

(1) Fundusz Gwarantowanych Świadczeń Pracowniczych (Wage Guarantee Fund) is designed to ensure the payment of employees'

claims in the event of an employer going bankrupt.

(20)

that

plan

restructuring

also mentioned

The
in
1997–2001 HB-TB had received State Aid amounting
to PLN 4 422 411 (net grant equivalent). Most of this
was R&D aid (PLN 3 243 626). PLN 196 800 was aid
for environmental protection, PLN 132 240 for training
aid and the remaining PLN 849 746 was aid for the
‘restructuring process’ or ‘ad-hoc aid’ (14).

(b) Aid received

(22) According to the independent consultant, in 2002-2003
the company received only PLN 2,235 million (net grant
equivalent) in Atate Aid (15). PLN 2,045 million of this
aid was
set aside for R&D and PLN 190 400 for
employment restructuring (16).

(21)

Thus altogether aid of PLN 16 184 411 was earmarked
for TB and subsequently approved under the NRP and
Protocol No 8.

(14) See 2002 IBP, p. 30.

(15) 2004 Independent Monitoring Report, April 2005, p. 14.
(16) This was confirmed by the figures provided by Poland in its bi-
annual monitoring report, e.g. for 2003, see OCCP Report No 2,
Annex 5, p. 5. The fact that TB's 2005 business plan indicates a
smaller amount which clearly excludes R&D is not acceptable.

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(23)

re-enter

steel workers

In addition, the 2005 IBP indicated that TB had obtained
a budget grant for employment restructuring from 2004
to 2006 of PLN 877 000 (17). The Polish authorities have
explained that the government provided funds to help
the labour market
redundant
through training to improve their qualifications or to
encourage them to take early retirement by compen-
for the low income they would
sating them in part
It
receive while on early retirement.
is based on the
the Iron and Steel
December 2003 amendment of
Industry (Restructuring) Act of 24 August 2001 and
stipulated that
the sole recipients are the employees
(the employer is merely an intermediary which transfers
budget funds to redundant workers).

4. Failure of restructuring — developments between
2003 and 2006

(24)

The restructuring of TB did not develop as envisaged in
the restructuring plan but resulted in bankruptcy in 2006
for several reasons:

restructuring plan and had no other
presented a
arrears, the restructuring authority was obliged to issue
a ‘final’ decision to waive the liabilities listed in the
decision on restructuring conditions (the ‘decision on
completion of restructuring’).

(28)

This final decision could, however, be issued at
the
earliest one year after the adoption of the decision on
restructuring conditions and had to be endorsed by the
President of the Office for Competition and Consumer
Protection (the Polish competition authority, hereinafter
‘OCCP’) as regards the compatibility of the waivers with
the State Aid rules. In the period after the adoption of
the decision on restructuring conditions and before the
decision on completion of restructuring, companies had
to register future waivers as arrears. In addition, penalty
interest accrued. The Commission understands that the
rationale of this was to allow debt waivers to take place
only after it had been shown that the company really
was implementing a restructuring programme.

(a) Waiver of debt

(25)

TB was not able to obtain the debt waivers planned in
the IBP.

(29)

The Commission was informed that ZUS, Sosnowiec
local authority and the Tax Office had not implemented
such waivers.

(26)

Cancellation of debts to ZUS, Sosnowiec local authority
and the Tax Office amounting to PLN 3 392 000 was
the Act of
supposed to be awarded on the basis of
restructuring of
30 August 2002 on the
some
(hereinafter referred to as ‘the
corporate public debt
Act of 30 August 2002’ (18). This Act made it possible
for companies
to restructure
in financial difficulties
form of waivers. The
public-law liabilities
company concerned had to lodge an application and
restructuring plan with each public authority whose
receivables were to be restructured (hereinafter also
referred to as ‘the restructuring authorit’y).

in the

(30)

Plans to waive TB's debts to Sosnowiec local authority
(real estate tax liability of PLN 2 964 000), were rejected
by the OCCP because the application had been lodged
after 31 December 2003, whereas Protocol No 8
prohibited the granting of State Aid to steel companies
after that date. Therefore, on 28 April 2004 the OCCP
stated that the planned waiver could not be granted as it
would breach the provisions of Protocol No 8. For the
same reasons, on 6 February 2004, the OCCP issued a
negative opinion concerning the planned cancellation of
TB's debts to PFRON.

(27)

The restructuring authority, after reaching the conclusion
that the proposed restructuring plan could improve the
company’s
issued a ‘decision on
situation,
restructuring conditions’ listing the liabilities covered by
restructuring. If the company fulfilled all the conditions
i.e. paid a restructuring fee,
imposed by the decision,

financial

(17) Letter of 2 October 2006.
(18) See 2002 IBP, p. 73.

(31)

TB's application for the cancellation of its debts to the
Tax Office (PLN 163 000) was rejected by the Tax Office.
According to the Act of 30 August 2002, this could
happen only if the company did not pay the ‘restruc-
turing fee’ (amounting to 15 % of the value of debts to
be waived) or if the company had other arrears to the
Tax Office.

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(32)

(26))

Lastly, as shown by the 2005 business plan, restructuring
of the debt to ZUS (PLN 265 000) failed for financial
reasons. As explained above (recital
in order to
obtain debt cancellation under the Act of 30 August
2002, the company should have repaid, or rescheduled
repayment of, all the other public liabilities not subject to
restructuring under the Act of 30 August 2002. That is
why the 2002 IBP assumed that debt amounting to PLN
6 420 000 would be repaid in instalments. Hence, the
reached no
Commission concludes
agreement with ZUS on repayment in instalments or
ZUS issued such a decision but TB did not abide by it.

that TB either

(b) Increase in debt

(33)

Between 2001 and 2006 TB accrued public debts vis-à-
vis ZUS, Sosnowiec local authority, the Tax Office and

PFRON. The debt began to increase in 2001, rising
steadily until December 2002. After a short respite,
debt continued to accrue between February 2002 and
November 2003. Only between November 2003 and
the company in a position to
October 2004 was
service its debt, probably with a view to meeting the
debt cancellation requirements set out
in the Act of
30 August 2002. However, as of November 2004 the
company’s debt started rising again.

(34) As a result of

its failure to secure waivers, TB had
outstanding debts of
around PLN 20 million by
autumn 2004. This was confirmed in the fourth Polish
monitoring report for 2004 of 8 March 2005 which
contained a detailed breakdown of
following
outstanding liabilities:

the

Table 2

Debt of TB as indicated in Polish monitoring report of March 2005

Public creditors (PLN thousand)

Liabilities at end-2003

Liabilities at end-2004

Liabilities at end-January
2005

ZUS

Sosnowiec Local authority

PFRON

Sosnowiec Tax Office

Other

14 956

7 411

480

269

115

13 916

5 118

678

555

0

14 510

5 371

704

524

0

Total

23 231

20 267

21 108

(35) Accordingly, by end-2004, TB’s debts vis-à-vis public
creditors amounted to about PLN 20 million. The
Polish authorities
in 2004 TB had
indicated that
managed to repay about PLN 5 million (PLN 1,2
million to ZUS and PLN 3,8 million to the local
authority)
idle assets. This notwith-
standing, the report indicated that the debt had started
to increase again after 2004 and by January 2005 it
amounted to PLN 21,1 million.

from the sale of

(36)

The Polish authorities subsequently corrected the amount
to PLN 20,761 million at end-2004. By 31 March 2005
it had increased to PLN 22,43 million and by 30 June
2005 to PLN 22,91 million. Thereafter the company
apparently managed to sell some assets and reduced
the debt by end-2005 to PLN 20,87 million. However

in mid-2006 it increased again to PLN 22,11 million,
reaching PLN 22,67 million in August 2006, when bank-
ruptcy was declared.

(37) According

to

the

the
information
Commission, TB did not present a comprehensive
restructuring plan in 2004 with a view to rescheduling
the debt.

available

to

(38) As creditors, the public authorities have taken steps to
enforce their claims, as required by law. For example,
the
Sosnowiec
local
authority
company’s bank accounts
claims.
However, this was not effective as all funds paid into
the accounts are earmarked for payment of salaries.

to enforce

and ZUS

froze

their

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(39)

Therefore the outstanding debt is being enforced mainly
by realising charges against real estate and acquiring
permanent usufruct. In addition, the local authority has
apparently obtained the transfer of several assets under
Article 66 of the Tax Ordinance.

(44)

earmarked for other
Some PLN 3,5 million was
investments concerning IT systems, purchases of other
capital goods and other projects (20).

(40)

In particular, repayment of the debt to ZUS was enforced
by obtaining mortgages of PLN 25 million. ZUS also has
pledges on production assets of around PLN 12 million,
of which approximately PLN 9,5 million constitutes first-
rank pledges (this includes a first-rank pledge on welding
line W-3, worth more than PLN 7 million).

(45)

Provision was also made for an additional PLN 12 to 13
million for 2005 and 2006,
including the bringing
forward of the launch of production of chromium pipe
elements, with a new welding line due to be purchased in
2006 (about PLN 6 000 000). As far as the Commission
is aware, however, this was not built.

(d) Overall performance of the company

(46)

TB has not overcome its financial difficulties and has not
obtained any bank loans.

(41)

In May 2007 the receiver published the list of
the
acknowledged debts of the bankrupt TB with a total
value of PLN 63 million. This amount includes public-
law debts, the main creditor being EF, whose liability
amounts to PLN 35,9 million.

(47)

support

from creditors

Throughout the restructuring period TB was unable to
obtain financial
and local
institutions (21). In fact, TB's bank reduced its
financial
facilities as early as 2003. This situation was
credit
resolved only by
financial
investor, GFR, which took over a significant number of
debts which were
converted into long-term loans.
Despite this, by 2004 TB was once again unable to
obtain credit from banks (22).

involvement of

the

a

(c) Investments

(42)

TB did not fully implement its investment programme of
PLN 25 million as envisaged but spent about PLN 10
million in investments and earmarked some additional
funds for R&D.

(48)

This is mainly due to the fact that at no point during the
restructuring period was TB able to achieve profitability,
despite very positive market trends.

(43)

TB implemented some investments on the basis of its
IBP. In 2003 and 2004 investments were focused on
developing the production of tubes for automotive appli-
cations. In 2003 it commissioned a line for welding ALU
coated tubes (PLN 3 207 000) and in 2004 a slitting line
for manufacturing short pipes
In
the existing welding lines (PLN 1 063 000)
addition,
and some buildings
including a
(PLN 1 379 000,
heating system) which were necessary for the automotive
business were modernised. In total PLN 6,383 million
was invested in the automotive business between 2002
and 2005. The Polish authorities have confirmed that all
the investments concern assets which have been leased to
BA in the meantime (19).

(PLN 733 000).

(19) Letter from the Polish authorities of 23.1.2007.

(49)

In fact, in 2003, as the independent monitoring reports
show, TB remained far below its sales target of 48
tubes, selling only 30 thousand
thousand tonnes of
tonnes (23).
it was struggling with tariffs
In addition,
imposed on wide hot rolled strip,
its main feedstock
and an unsuccessful price promotion strategy which
therefore ended 2004
resulted in reduced revenue.
with a negative operating margin of PLN 5 million
it failed
(turnover was PLN 92 million). Consequently,
to pass the Commission's viability test.
In its January
2004 summary report, the Commission’s independent
consultant concluded that TB ‘is effectively trading
while being insolvent’ (24).

It

(20) See 2005 IBP, p. 69.
(21) See 2003 Independent Monitoring Report, January 2004, p. 7.
(22) See fourth Polish report for 2004, March 2005, p. 168.
(23) See 2003 Independent Monitoring Report, January 2004.
(24) See 2003 Independent Monitoring Report, January 2004, p. 16. In
its 2004 report, it was even noted that the 2003 performance was
significantly worse than that estimated after 10 months (from the
date of the first monitoring exercise).

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(50)

(51)

In 2004, the third Polish monitoring report of September
2004 also indicated that TB had low financial liquidity
and that its financial surplus did not cover repayment of
loan instalments with interest, which meant there was a
high risk of defaulting (25). The fourth Polish report for
2004 contained detailed data on arrears (see recital (34)
above) and indicated that the company had not received
any support from financial institutions, implemented its
planned job cuts or reached forecast productivity levels.
As regards the company’s financial standing, it concluded
that, ‘of all the group companies, Technologie Buczek Sp.
z o.o. was most at risk of losing financial liquidity. This
risk was not mitigated by net profits on business activity,
because this did not result in additional revenue. […] The
existence of the risk was demonstrated by the high level
of financing assets by debt, including a significant share
of arrears
situation
to public-law institutions. This
dissuaded investors from investing in the company, as
evidenced by the company’s difficulties in obtaining
bank loans.’

The Polish view was confirmed by the independent
monitoring report of May 2005 (26).
It stated that in
2004, despite the upturn on the steel market and
rising steel prices
than forecast) TB
(30 % higher
recorded a negative operating margin and sales were
consultant
20 % below forecasts.
concluded that,
its performance in
2003 and 2004, there was a significant risk that the
company would not achieve viability by end-2006’ (27).

‘on the basis of

Therefore

the

(55) At end-2003, in September 2005 and at the beginning
of 2006 TB changed its restructuring strategy. The 2005
IBP clearly changed the strategy by narrowing down TB’s
activity to ALU coated steel tubes and tubes made from
chromium steel. To this end, manpower was to be
reduced to 267 employees. The updated IBP apparently
imposed an obligation on TB to discontinue production
of unprofitable high alloy seamless and welded tubes.
The company also stopped production of welded tubes
from HR strip.

in the production of

(56) As indicated by Poland in a letter of 14 February 2006,
as of 2006 TB intended to terminate production in 2007
and wanted to continue as a purely management
company.
It planned to set up a new company with
the intention of creating a leading Polish company
specialising
aluminium and
chrome pipes for the motor vehicle industry. To this
end a separate company was to be set up as the
‘ongoing restructuring of TB's assets and finances […]
precludes
repayment of
stabilisation,
budget arrears and the obtaining of loans giving access
to cheaper sources of financing’ (29). It was to use the
welding lines W-4 and W-2, leasing them from TB while
the entire workforce was transferred to it
(with the
exception of a few workers
to run TB). The
necessary infrastructure had clearly been hived off from
TB's assets. The remaining welding machines were to be
sold for
restructuring. Given that
production was to cease by end-2006 the Commission
concludes that the new restructuring strategy implied the
de facto winding-up of TB.

reasons of asset

financial

left

the

(52)

In September 2005 the fifth Polish report confirmed that
TB had lost financial liquidity. It also stated that this was
due to the spinning-off of the rolls business (28).

(e) Changes in strategy

(53)

TB has changed its management and its business strategy
several times.

(57)

TB has since filed for bankruptcy (15 September 2006).
The bankrupt TB Group has been allowed to continue its
business activity. This now consists in leasing assets to its
subsidiaries. The administrator in bankruptcy plans to sell
off the organised parts of the company and to continue
leasing activity until that time.

(54)

TB has attempted to implement various
changes. The board was dismissed several
2003, 2005 (February and October) and 2006.

structural
in
times,

(25) See the third Polish report for January to June 2004, January 2004.
(26) See 2004 Independent Monitoring Report, May 2005.
(27) See 2004 Independent Monitoring Report, May 2005, p. 1.
(28) See fifth Polish report, 9.9.2005, p. 18.

(f) Corporate restructuring

(58)

TB has restructured its group and spun off two profitable
activities, rolls production (to HB) and the aluminium
and chrome pipe business (to BA) (see recital (14) above).

(29) The plan was never

submitted to the Commission but was
reproduced in the letter from the Polish authorities of 14.2.2006.

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(59)

TB’s rolls production activities were not considered part
of its core business. As early as 2002 the IBP indicated
that no further investments should be made in HB and
that it should be spun off.

(65) As a creditor, EF also lodged an application with the
administrator for 48,8 % of HB shares to be excluded
from the bankruptcy proceedings. This application was,
however, dismissed by the judge in September 2006.

(60) HB was founded in December 2004 with initial capital of
PLN 100 000. The following year its value was increased
to PLN 14 911 600 by a way of an asset injection of
PLN 3 330 900 on 17 January 2005, capital injections of
PLN 3 850 000 and PLN 1 830 700 in February/March
and November 2005 respectively and an injection of
intangible assets with a value of PLN 5 800 000 on
13 July 2006.

III. GROUNDS FOR INITIATING THE PROCEDURE

(66)

In its decision to initiate the procedure the Commission
found that the restructuring of TB was incompatible with
Protocol No 8 and raised three issues:

(61)

(62)

The overall value of HB was estimated at PLN 38 million
on the basis of the Swiss method. Hence its market value
is much higher than its share value of PLN 14,9 million.
In fact HB is recording profits. It has no arrears with
In June/July 2005 HB purchased real
public bodies.
estate and machinery from TB for PLN 9 450 013 with
an estimated value of PLN 10 430 194. The pledges on
the assets remained and, in accordance with Polish law
(Article 112 of the Tax Act), HB even became a joint and
several debtor with TB for some of TB’s debts vis-à-vis
ZUS.

automotive

exhaust pipes business

BA was revived in 2005 to receive the aluminium and
chrome pipe business. To that end, TB's workforce was
transferred to BA and,
in July 2006, capital of PLN
1 550 000 was injected. BA leases production assets for
the
from TB
(including welding lines W2 and W4 and a slitting
line). Under the lease agreement, which is of unlimited
duration, BA pays PLN 258 000 per month + VAT. On
this basis BA is clearly benefiting from the investments
made in these assets. In fact the seventh Polish report
confirms that TB has transferred 20 thousand tonnes of
production capacity to BA (30).

(63)

In February 2004 EF signed a factoring service contract
with TB. Pledges on the shares of HB and BA were
to ensure compliance with the
registered in order
contract. EF thus became TB’s biggest creditor. As EF
was only a shareholder of GFR, EF's claims are not
deemed to constitute capital investment in TB.

(64)

TB is currently the owner of 51,2 % of BA shares. The
remaining shares in BA were taken over by EF when a
pledge was enforced on 20 July 2006 as debt settlement.
Settlement was effected at the nominal value of shares
(PLN 7,2 million).

(30) See seventh Polish report, 10.9.2006, p. 15.

(a) given that the restructuring plan had not been imple-
mented, it had decided to investigate whether there
had been misuse of restructuring aid;

(b) whether

the non-enforcement of

public debt
constituted
meaning of Article 87(1) of the EC Treaty;

the outstanding
State Aid within the

(c) whether additional budgetary support had been
awarded for employment restructuring after 2003,
possibly constituting State Aid under Article 87(1)
TEC.

(67)

The Commission indicated that it would consider the
whole group as the recipient.

IV. COMMENTS FROM POLAND

(68)

First, the Polish authorities dispute that restructuring aid
was misused. Poland argues that the aid was not in its
entirety restructuring aid.

(a) This mainly concerns R&D aid provided between
2002 and 2003. TB used most of the aid it was
awarded under
the restructuring plan for R&D.
the aid was used for
Poland has confirmed that
that purpose. The Polish authorities have provided
information on the Ordinance of the Chairman of
the
of
30 November 2001 on the criteria and methods
used to award and calculate state funding for
science.
R&D expenditure was
monitored on the basis of invoices submitted and
detailed annual
reports which indicated that no
misuse of aid had occurred.

Accordingly,

Committee

Scientific

Research

for

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L 116/35

(b) The employment aid awarded before 2004 was
deemed compatible given that
its approval had
been linked to other factors in the accession nego-
tiations. The Polish authorities do not, however,
this aid is compatible on grounds
maintain that
other than for restructuring purposes.

(70)

(c) Poland also argues that some of the aid awarded
before 2002 was actually used for R&D, environmen-
tal protection and training purposes and was spent
for its designated purpose.

enforceable titles which led to partial repayment in
July 2006.

It explained that

Third, Poland responded to the European Commission's
doubts regarding aid for employment restructuring after
Industry
2003.
(Restructuring) Act of 24 August 2001 had been
amended in December 2003 so that aid was earmarked
solely for redundant workers; the steelworks were used
purely as intermediaries to transfer funds (see recital (20)
above).

the Iron and Steel

(69)

Second,
the Polish authorities have forwarded some
explanations by the relevant institutional creditors, ZUS,
Sosnowiec local authority and PFRON concerning their
enforcement action, so as to underline that they behaved
like private creditors.

(71)

the Polish authorities take the view that TB's
Lastly,
subsidiaries can be held liable only if
they actually
benefited from the aid. They also claim that capital and
asset injections were carried out in a proper manner. The
Polish authorities also note that HB is not a steel
producer and is therefore not caught by Protocol No 8.

(a)

In the course of its enforcement action ZUS seized
the company’s accounts and claims and managed to
enforce PLN 2,3 million in 2005.
It also has a
mortgage on TB’s real estate worth more than PLN
25 million and has taken out a fiscal pledge on the
company’s assets to the value of PLN 12,2 million.
According to ZUS, however, there were no grounds
to conclude that, in the event of TB being declared
bankrupt, a higher proportion of its claims would be
settled than in the event of intensified enforcement
proceedings being taken against TB. Instead,
it was
likely that
the sales price obtained for the assets
would be significantly lower than for most liabilities
secured by pledge. In addition, the majority of forced
mortgages encumbering TB’s assets which had been
set up for ZUS had been preceded by securities set up
for other creditors which,
in the event of the real
estate being sold off within the context of bankruptcy
proceedings, would have priority for the settlement
of existing claims.

(72)

(73)

(b) Sosnowiec local authority conducted enforcement
proceedings, seizing bank accounts (the amount of
enforced claims
is about PLN 1,7 million) and
seizing claims in the form of rent (revenue equivalent
to PLN 0,5 million). The local authority’s claims were
also secured by registering forced mortgages to a
total amount of PLN 3,2 million, plus interest.

V. ASSESSMENT OF THE AID

1. Applicable law

Point 1 of Protocol No 8 states that ‘notwithstanding
the EC Treaty, State Aid
Articles 87 and 88 of
awarded by Poland for
to
restructuring purposes
specified parts of
industry shall be
the Polish steel
deemed to be compatible with the common market’ if,
inter alia, the conditions laid down in the Protocol are
met.

In order to achieve that objective,

The grace period for granting restructuring aid to the
industry under the Europe Agreement was
Polish steel
extended by the Council until the accession of Poland
to the EU. This arrangement was included in Protocol
No 8 to the Treaty of Accession to the European
Union.
it covers a
time-frame extending before and after accession. More
precisely,
it authorises the award of a limited amount
of restructuring aid from 1997 to 2003 and forbids
any further State Aid for restructuring purposes to the
Polish steel
industry between 1997 and 2006. In that
it clearly differs from other provisions of the
respect,
Accession Treaty such as the interim mechanism set
out in Annex IV (the ‘existing aid procedure’), which
only concerns State Aid awarded before accession in so
far as it is ‘still applicable after’ the date of accession.
Protocol No 8 can therefore be regarded as lex specialis
which,
it covers, supersedes any
other provision of the Act of Accession (31).

for the matters that

(c) PFRON indicated that

against TB in 2005,

it conducted enforcement
six

issuing

proceedings

(31) See Decision 2006/937/EC.

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(74)

The Commission also notes that the scope of the Polish
NRP and Protocol No 8 is not limited to that of Annex 1
of the ECSC Treaty. Instead, Protocol No 8 also covers
certain steel sectors not covered by the ECSC Treaty (32),
in particular seamless tubes and large welded tubes. This
is in line with the definition of steel under the EC State
Aid rules (33), which applied when Protocol No 8 came
into effect. Above all, it follows from the scope of the
NRP, which Protocol No 8 implements. In fact, half of
the recipients under the last NRP are tube producers,
namely Huta Andrzej S.A. (bankrupt), Huta Batory S.A.
(bankrupt), Huta Pokój, a subsidiary of Mittal Steel
Poland (former PHS) and TB. Therefore, Protocol No 8
also applies to tube producers, in particular to TB.

(78)

Poland was authorised by Protocol No 8 to grant restruc-
turing aid to TB in order to implement its restructuring
plan.

(79) However, the granting of aid was limited by a grace
period which expired at end-2003. Thereafter, Poland
was no longer authorised to grant
restructuring aid
under Protocol No 8. Any aid would then be in breach
of Point 18(c) of Protocol No 8 prohibiting any granting
of additional State Aid to the steel industry and to the
benefiting companies
in
particular.

indicated in the Protocol

(75)

Consequently, while Articles 87 and 88 TEC would
normally not apply to aid awarded before accession
and not applicable after accession, Protocol No 8
extends State Aid monitoring under the EC Treaty to
cover any aid awarded for
the
Polish steel industry between 1997 and 2006.

the restructuring of

(80) Notwithstanding this, the Polish authorities continued to
give or prolong outstanding loans to TB after 2003
which has to be considered as State Aid within the
meaning of Article 87(1) TEC.

(76) Decisions may be taken after Poland’s accession under
Article 88(2) TEC because,
in the absence of specific
provisions in Protocol No 8, the normal rules and prin-
ciples should apply. Consequently, Council Regulation
(EC) No 659/1999 of 22 March 1999 laying down
detailed rules for the application of Article 93 (here-
inafter ‘the Procedural Regulation’) (34) will also apply.

(81)

that Article 87(1) TEC
The Commission points out
covers interventions in various forms which reduce a
company’s normal costs and which, without therefore
being subsidies in the strict sense of
the word, are
similar in character and have the same effect. This has
been confirmed on numerous occasions in cases where a
public body responsible for collecting social security
contributions tolerates non-payment or late payment of
such contributions, as its conduct undoubtedly gives the
recipient a significant competitive advantage by reducing,
for that company, the burden associated with the normal
operation of the social security system (35). Instead of a
deferral of payments the public creditor could have
demanded immediate repayment of
the total amount
if necessary by relying on the mortgage in its
owed,
favour (36).

2. Existence of aid

(77) According to Article 87(1) TEC, State Aid is any aid
awarded by a Member State or through state resources
in any form whatsoever which distorts, or threatens to
distort, competition by favouring certain undertakings, in
so far as it affects trade between Member States, and is
thereby incompatible with the common market.

(82)

In order to establish that there is an advantage which can
be classified as State Aid for the purposes of Article 87(1)
TEC,
the
the Commission needs to demonstrate that
public authorities acted differently from a hypothetical
private creditor, who would, in so far as possible, be in
the same situation vis-à-vis his debtor (37).

(32) See OJ C 320, 17.10.1998, p. 3.
(33) See Annex B to the Multisectoral framework (OJ C 70, 19.3.2002,
p. 8), which was replaced by Annex I to the Guidelines on national
regional aid for 2007-2013 (OJ C 54, 4.3.2006, p. 13).

(34) OJ L 83, 27.3.1999, p. 1.

(35) Case C-256/97 DMT [1999] ECR I-3913, point 21.
(36) Case T-36/99 Lenzing [2004] ECR II-3597, point 146.
(37) See C-342/96 Tubacex [1999] ECR I-2459, point 46, C-256/97
DMT [1999] ECR I-3913, point 21, C-480/98 Magefesa [2000]
ECR I-8717, T-152/99 HAMSA [2002] ECR II-3049 point 167.

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(83) As a preliminary remark, the Commission notes that the
very existence of previous aid to a company prevents it
on the basis of established European case-law from
viewing the case from the perspective of a hypothetical
type would
private creditor, since a creditor of
obviously not have tolerated the original waiver, as it
would otherwise not have been aid (38). This is particu-
larly true
in a restructuring scenario, where both
measures fall within the restructuring period.

that

to restructuring on the basis of

the Act of
subject
30 August 2002 was prohibited pending the completion
of
restructuring proceedings or discontinuance of
proceedings on the grounds enumerated in the Act.
Moreover, the Commission notes that as regards addi-
to rescheduling,
tional debts which were not subject
creditors could have counted on an improvement
in
TB's financial situation following the planned waiver,
and therefore might have had reason to suspend debt
enforcement until aid was awarded pursuant to the Act
of 30 August 2002.

(84)

The non-existence of an updated restructuring plan also
prevents an assessment of a hypothetical private creditor.
In this case too, according to established case-law, when
considering a rescheduling agreement
from a market
economy investor perspective, such an investor would
have required a comprehensive update of the original
restructuring plan. No private
investor
would accept restructuring without such a plan (39), as
was the case here.

creditor or

(87) However, it is evident that restructuring on the basis of
the Act of 30 August 2002 failed, at least partly because
of non-compliance with Protocol No 8 as manifested in
the negative opinion of
the OCCP (the first, dated
6 February 2004), and partly because of the company’s
financial problems which prevented TB from complying
with national law. The Commission considers that such
failure must have come to the knowledge of the main
public creditors such as ZUS, the local authority and the
Tax Office, as they all were involved in the original debt
restructuring. Similarly, PFRON should have been alerted
by the OCCP’s opinion on TB's debt to PFRON.

(85)

Furthermore, even on the basis of a hypothetical restruc-
turing plan, no hypothetical private creditor would have
entered into an additional restructuring agreement.

(88)

(86)

The Commission does not dispute that non-enforcement
of the public debts which were eligible for waivers under
the IBP/NRP was justified for a certain period of time
under
in the Act of
30 August 2002. Indeed, enforcement of the liabilities

the mechanism envisaged

in which the Court held that a capital

(38) Case T-11/95 BP Chemicals [1998] ECR II-3235, points 170 and
179,
injection cannot be
regarded in isolation from an ongoing restructuring. In other words,
it held that where restructuring aid has already been provided to a
company in difficulty, other financial support should not normally
pass the private investor test.

(39) See Case T-126/96 and T-127/96 BFM and EFIM [1998] ECR II-
3437, point 86. Also Case T- 318/00 Freistaat Thüringen v.
Commission (CDA Alrechts) [2005] ECR II-4179, points 200 and
‘Given the disastrous situation of PA when the restructuring
248:
agreement was concluded, any reasonably diligent investor acting in
a market economy would first have made an in-depth study of the
undertaking's financial situation and required a viable restructuring
plan to be drawn up before granting it such sizeable loans and a
fortiori before acquiring it.’

failure of

the previous

Following the
restructuring
agreement, particular alertness can be expected from
private creditors, who would scrutinise the economic
situation of their debtor (40). Accordingly, careful consid-
eration of the advantage derived from rescheduling the
recovery
debt would have shown that
in
would not have exceeded the safe return inherent
the firm’s liquidation (41).
In fact, a new rescheduling
agreement would
restore
viability to the company in all cases and to prevent
increases in arrears, so that the creditor could anticipate
recovery of the loans within a reasonable time.

the potential

restructuring

require

to

(89)

In the case of TB, a return to viability by end-2004 was
highly doubtful, as the company had had a negative
operating margin throughout 2003 and 2004 as
indicated in recitals (49) to (51). Its turnover was not
sufficient
to cover its costs. TB did not even benefit
from the upturn in the steel sector in 2004. As such,
indications regarding the prospects for TB's future
all
viability were negative.

(40) Similarly: case T-36/99 Lenzing [2004] ECR II-3597 points 140 et

seq.

(41) Case T-152/99 HAMSA [2002] ECR II-3049 point 170.

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(90)

In addition, given that TB was no longer creditworthy, its
debts were steadily rising. As of November 2004, TB was
no longer able to pay its current debts, despite being in
restructuring. As such, there was no reasonable possi-
bility of recovering the past debt as a result of any
hypothetical new restructuring of the debt.

(94)

it
Lastly, with a view to providing a complete picture,
should be noted that the September 2005 plan was by
no means a proper basis for further rescheduling. Given
that the company was to be wound up, it is clear that its
business activities would not generate any more profits
and that liquidation would be the only solution. Indeed,
the plan indicated that ZUS could count on only partial
repayment. This was to be generated by the restructuring
of assets worth about PLN 20 million up to end-2005,
which proved unrealistic for the reasons stated in the
previous paragraph. The proposed monthly payments
after 2005 of PLN 100 000, subject to TB’s ability to
pay, were not
feasible either as TB was no longer
operating.

(91) Given that the public creditors,

i.e. the local authority,
ZUS, PFRON and the Tax Office all had good securities,
they had a good chance of transforming them into cash
Polish
insolvency proceedings
in collective
insolvency law. The Commission cannot accept ZUS's
argument that it did not have good securities, since the
Polish authorities have indicated that first-rank pledges
accounted for a significant part, if not all, of the securit-
ies (see recital (40) above). In view of the deterioration of
the company and its assets, making use of these securities
appeared to make more economic sense than restruc-
turing (42).

under

(95)

Instead, as TB admitted in its 2005 IBP, it saw spinning
off its assets into BA as its only hope of restoring the
business's viability. That did not just entail the spinning-
off of
also
its only profitable business
determined TB’s fate, i.e. its liquidation.

(BA) but

(92)

restructuring,

Furthermore, even if a hypothetical restructuring plan
proposed some hypothetical asset
this
proposal
should not have reduced private creditors'
resistance to restructuring. This is because all the assets
of a firm as indebted as TB are normally pledged and
thus promise hardly any return if sold off.
Indeed,
although the company announced asset
restructuring
on several occasions in 2005, it was not able to obtain
more than PLN 5 million in cash from the sale of assets.

(96)

In short, the Commission finds that any hypothetical
private creditor would have opted for enforcement of
his claims as early as end-2004. At that time it became
clear that TB was not able to honour its previous resche-
duling agreements and would not be able to meet its
engagements. No updated plan had been
current
presented and nor was there any perspective of
the
company becoming profitable.

(93)

The Commission understands that in 2004 and subse-
quently TB made attempts to repay some of the debt but
notes that these repayments barely covered the amounts
of interest accrued (see the table in recital (34) for the
effect of the PLN 5 million repaid in 2004).

(97)

(42) Similarly, case T-36/99 Lenzing [2004] ECR II-3597, point 160, in
which the CFI held that a public creditor with good securities has
no reason to delay too long before applying collective enforcement
measures.

Thus Poland failed to enforce PLN 20,761 million (PLN
20,267 million was indicated in the fourth Polish restruc-
turing report, but that amount was later rectified by the
Polish authorities). This constitutes operating support for
inefficient business and is
the firm to continue its
therefore an advantage granted through state resources
which threatens to distort competition in so far as it
affects trade between Member States, and is thereby
incompatible with the common market in the sense of
Article 87 of the EC Treaty.

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(98)

In order to quantify the aid amount, the hypothetical
effect of non-enforcement of debt must be simulated.
Given that a private creditor would have preferred to
enforce its claims, the advantage that the firm derives
from non-enforcement is the full amount of the claims
which it does not have to reimburse. In other words, the
firm has at its disposal an amount which, due to its
it would not be able to obtain on
financial situation,
the market. In particular,
if the State had enforced its
claims the firm would not have been able to pay the
amount due and would most probably have gone
bankrupt. Failure to enforce the claims therefore had
the entire
the same effect as granting the recipient
advantage
the
non-enforced
obtained concerns an amount of PLN 20,761 million
obtained as of 1 January 2005. However, given that a
market economy operator would have enforced the
original debt, this debt should hypothetically no longer
exist and should not therefore be counted twice.

amount (43). Hence

transitional arrangements contained in this Protocol have
not been fulfilled.’

(101) The Commission finds that TB did not fully implement
its restructuring plan as explicitly stipulated in point 9 of
Protocol No 8 and contributed to its bankruptcy with the
various measures indicated in recital (56) above. Poland
has not disputed this finding.

(102) TB also failed to comply with several benchmarks set out

in point 9 of Protocol No 8:

(99) As regards the budgetary funds indicated as employment
restructuring and awarded after 2004, the Commission's
Indeed they cannot be
doubts have been allayed.
considered State Aid as
the Polish authorities have
explained that they are provided for the sole benefit of
redundant workers, who cannot be considered as an
undertaking; equally, such payments cannot be related
to the employer as they are provided after the workers
are laid off and do not diminish any other charges which
the company would have to bear if no such aid were
provided.

3. Misuse of aid

(100) Point 18(a) of Protocol No 8 gives the Commission the
power to take ‘appropriate steps requiring any company
concerned to reimburse any aid awarded in breach of the
conditions laid down in this Protocol […] if monitoring
of the restructuring shows that the commitments for the

to a loan, given that

(43) The same conclusions should be reached when considering that the
non-enforcement of debt is a debt deferral, which has an effect
equivalent
the recipient would normally
need to borrow money on the capital market to prevent enfor-
its credit-
the debt. However, because TB had lost
cement of
worthiness, such a loan would have had an aid element of 100 %
(see the Communication on public undertakings in the manufac-
turing sector, OJ C 307, 13.11.1993, p. 3, point 41, applied in the
Commission Decision of 7.7.2004 in case C-58/2003 Alstom, OJ
L 150, 10.6.2005, p. 24, points 132 and 133). It should also be
noted that the assumption of a 100 % subsidy does not require a
concrete transfer of state resources but is an assumption from an ex
ante perspective. It is thus irrelevant if a loan is later repaid contrary
to the original assumption. This is also true in the event of non-
enforcement of debt, where the question of what a hypothetical
private creditor is able to enforce should not be relevant.

(a) TB was not able to obtain financial support from
creditors and local financial institutions as stipulated
in point 9(c) of Protocol No 8;

(b) TB only partially reduced its costs as stipulated in
consultant
this obligation was met only in

point 9(c) of Protocol No 8. The
confirmed that
part (44);

(c) TB managed only partially to implement employment
restructuring as parts of its cost savings programme.
The number of workers was cut from 550 to 294
only
rolls
department into HB, not because of reductions in
the core business (45);

spinning-off of

to the

thanks

the

(d) TB was not able to improve the efficiency and effec-
tiveness of its business management as stipulated in
the second recital of point 9(a) of Protocol No 8. In
fact, TB’s management board has been replaced
several times since 2002.

(103) Since TB failed to meet the conditions set out in Protocol
No 8 and did not properly implement its IBP, the restruc-
turing aid has been misused and must be repaid.

(44) See 2004 Independent Monitoring Report, April 2005, p. 13.
(45) See 2004 Independent Monitoring Report, April 2005, p. 15.

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4. Compatibility of aid

(a) On the basis of the NRP between 1997 and 2003

(104) The Commission indicated in the decision to initiate the
procedure that other reasons of compatibility might take
precedence over the fact that restructuring aid was not
used in line with the restructuring plan. To that end the
Commission observed that under the NRP not only
restructuring aid but also other types of State Aid had
been awarded. As such, the failure of the restructuring
does not necessarily imply that
aid was
misused (46), if it can be proven to be compatible with
the single market under other State Aid rules (47).

this

all

for

2496/96/ECSC

the
Decision

sector were
No

(105) The Commission notes that until 23 July 2002 the State
contained in
steel
Aid rules
of
Commission
18 December 1996 establishing Community rules for
State Aid to the steel industry (48) (hereinafter ‘the Steel
Aid Code’) (49). Commission practice in implementing
Protocol No 8 shows that in principle it takes the view
that aid awarded under other frameworks such as the
R&D framework can be deemed compatible if
the
Commission has no serious doubts as to its compatibility
under Annex IV(3)(2) of the Accession Treaty (50).

(106) First, Article 2 of the Steel Aid Code and the EC State
Aid rules authorise aid which is compatible with the EC
R&D framework. The R&D subsidies given in the context
of the NRP were awarded by KBN and were covered by
the Programme of the Chairman of KBN on the Criteria

(46) This can be inferred from the Commission's practice under the
1999 rescue and restructuring guidelines which were applicable
when Protocol No 8 came into effect (Community Guidelines on
State Aid for rescuing and restructuring firms in difficulty, OJ C
288, 9.10.1999, p. 2). This would not be allowed any longer under
point 20 of the 2004 Community Guidelines on State Aid for
(OJ C 244,
firms
rescuing
1.10.2004, p. 2). Although they do not apply directly as steel is
in principle excluded, the Commission may in the exceptional case
that restructuring aid is allowed at least draw inspiration from these
guidelines.

and restructuring

in difficulty

(47) See Decision 2006/937/EC.
(48) Official Journal L 338, 28.12.1996 p. 42.
(49) According

to point 44 of

the Communication from the
Commission concerning certain aspects of the treatment of compe-
tition cases resulting from the expiry of the ECSC Treaty (OJ C 152,
26.6.2002, p. 5) ‘when taking decisions after 23 July 2002 in respect of
State Aid put into effect on or before that date without prior Commission
approval, the Commission will proceed in accordance with the Commission
notice on the determination of the applicable rules for the assessment of
unlawful State Aid.’ This Communication (see OJ C 119, 22.5.2002,
p. 22), stipulates that unlawful aid must be assessed in accordance
with the text in force at the time when the aid was awarded.

(50) See Decision 2006/937/EC.

for Awarding

and Calculating
and Arrangements
Financial Support
for Science dated 30 November
2001, which was accepted by the Commission as
existing aid under Measure PL 6 of Annex IV to the
‘KBN’s
Accession Treaty. The NRP
resources’ as ‘authorised State Aid instruments in the
form of subsidies for R&D’, which it clearly distinguished
from ‘restructuring instruments’ (51). This NRP was
approved by a Council decision in July 2003. The
Commission has therefore decided not to raise objections
to KBN's aid measure between 1997 and 2003 under
Annex IV to the Accession Treaty and considers this
aid as compatible R&D aid (52).

identified the

(107) As the aid classified as R&D in the IBP was provided by
KBN it can be regarded as compatible aid. In addition,
the Commission notes that Poland was able to demon-
strate that the aid was paid out only in connection with
the performance of R&D activities. This is true for aid
awarded in 2002 and 2003 as well as R&D aid awarded
between 1997 and 2000.

(108) However,

the

in the

case of

remaining training,
employment restructuring and other restructuring aid,
the Commission does not see under which provisions
of the Steel Aid Code and the EC State Aid rules this
aid could be deemed compatible.

(109) First none of the aid is aid for environmental protection
in line with the Community guidelines (53). Poland argued
that aid designated as environmental aid in 1997 was
awarded for the purpose of environmental protection,
but without providing any details of the objectives in
question. Also, the fact that the aid was provided by
the Provincial Funds for Environmental Protection and
Water Management does not suffice to demonstrate com-
patibility, as this fund is explicitly mentioned in the NRP

(51) Page 38.
(52) See Decision 2006/937/EC.
(53) OJ C 72, 10.3.1994, p. 3, applied in accordance with Article 3 of
the Steel Aid Code (since replaced, OJ C 37 of 3.2.2001, p. 3).

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it

is not

(106) above). Second,

as an example of a ‘restructuring instrument’ and, unlike
from restructuring
R&D,
distinguished
instruments (see recital
the aid
was not used for closures (Article 4 of the Steel Aid
Code), as TB did not close any facilities. In any event,
apart from the aid from environmental funds, the Polish
authorities did not invoke any derogation under either
the Steel Aid Code or the EC rules whereby the aid could
be regarded as compatible with the common market.

(110) Lastly, the Commission would point out that, even if
certain measures were deemed to constitute compatible
restructuring aid within the context of a comprehensive
restructuring project ensuring the restoration of viability,
the failure to implement the entire restructuring plan
successfully and to restore viability means in principle
that the whole restructuring project failed and that any
aid awarded to that end no longer serves any purpose.
Consequently aid awarded previously according to the
plan is no longer justified either and must consequently
be considered ex post as incompatible.

(111)

common market because

In fact, Poland argues that
the employment aid was
compatible with the
its
approval had been linked to other
in the
factors
is not disputed by the
accession negotiations. This
Commission. Nevertheless, the Commission notes that
the compatibility argument does not mean that the aid
would be compatible in the absence of the restructuring
project. Therefore,
individual
measures such as employment restructuring must also
be regarded as having been misused. In the absence of
any indication that such aid was compatible under other
grounds the Commission must conclude that it is incom-
patible.

the restructuring fails,

if

(112) To sum up,

the

that

takes

the fact

in view of

the remaining
training, employment restructuring and other restruc-
turing aid is not covered by any other exception under
the ECSC Steel Aid Code or the EC State Aid rules, the
Commission
constitutes
unauthorised restructuring aid which, under Protocol
is deemed incompatible with the common
No 8,
market. The Commission therefore concludes that aid
designated as restructuring aid of PLN 849 746, as
training aid of PLN 132 240, as environmental aid of
PLN 196 800 and as employment aid of PLN 190 400,
i.e. PLN 1 369 186 in total, has been misused.

view that

it

(b) Aid outside the NRP and after accession

(113) The non-enforcement of debts at end-2004 constitutes
operating aid and is as such clearly incompatible with the
common market. It is not acceptable as restructuring aid
either under Protocol No 8, which categorically prohibits
any aid after 2003, or under any other provisions of
Article 87(3) TEC. Indeed, the Commission notes that
the Polish authorities have not
even claimed the
contrary. Therefore, any aid awarded to TB, BA and HB
after Poland’s accession to the EU is
incompatible
regardless of whether the recipient (here HB) is a steel
producer or not.

5. Aid recipient

(114) The Commission expressed its opinion in the decision to
initiate the procedure that the aid recipient is the TB
group,
its subsidiaries with the possible
exception of TB-ZPR. This is because HB and BA are
clearly part of the same business entity, i.e. the TB group.

including all

(115) As

regards

debt, which
the non-enforcement of
amounted to PLN 20 761 643 million, the present inves-
tigation confirms that parts of the group benefited from
it. The Commission could not, however, establish such
benefits in the case of ZPR and SAMKOL:

(a) ZPR is not majority owned by TB but by ZPR's
employees; under Polish law it is thus not part of
the group. Furthermore, no investments were made
in the company and nor were any assets or capital
transferred to it from TB between 2003 and 2006
(and probably not before then either).

(b) SAMKOL, while part of the group,

is not a steel
producer. No investments were made
in the
company and nor were any assets or capital trans-
ferred to it between 2003 and 2006 (and probably
not before then either).

(116) On the other hand, the investigation showed that BA and
HB profited from the aid. The operating aid did not
remain within TB because non-enforcement allowed it
to proceed with its business activity and organise its
internal restructuring.

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30.4.2008

in

complete

automotive

investments

(117) The restructuring and the operating aid allowed TB first
to
exhaust
production of around PLN 6,383 million (see recital
(43) above) (54) initiated between 2003 and 2005 and
which would not have been possible if TB had had to
service its debt properly or to file for bankruptcy earlier.
These assets, essential
to automotive production, are
today operated by BA. Although BA merely leases
these assets from TB it would, had these investments
similar
not been realised, have needed to make
investments itself. Moreover, by leasing these assets BA
avoids exposure to enforcement of the associated pledges
while enjoying similar rights to those of an owner, given
that the lease period is unlimited. Moreover, BA is clearly
continuing TB's core activity developed within the
framework of TB’s
plan with TB’s
productive assets and workforce as part of the TB group.

restructuring

it

agreement) because

(120) This assessment of whether the company received an
advantage is not altered by the fact that TB received
some consideration in exchange for the benefits (i.e.
injections and rent under the
shares for the capital
remained the ultimate
lease
owner (directly or indirectly) of all the assets and the
transaction was not profit-orientated but carried out for
reasons of internal organisation. The main issue is that
the benefit is relocated within the group, i.e. the compe-
titive position of TB which was created by the distortive
aid was transferred. The fact that TB holds the shares in
the
its subsidiaries does not alter
Commission would not go so far as to consider the
sale of assets by TB to HB as an advantage,
in so far
as it was properly remunerated (58).

this (57). However,

(118) Second, transferring assets, workers and capital to its
subsidiaries (PLN 14,81 million to HB and PLN 1,55
million to BA, see recitals (60) and (62)) was possible
only because the operating aid saved TB from bank-
ruptcy. Without
the two subsidiaries would
most probably not have been set up in the first place
and would definitely not have been able to operate.

this aid,

(121) On the basis of this assessment of the facts, and in view
of the case-law of the European courts, the Commission
considers that the incompatible aid should be recovered
from the TB group bearing in mind the actual benefit
derived from the aid (59).

(119) Despite the fact that BA, HB and TB are different legal
that
economic
the Commission considers
persons,
continuity exists and,
the ownership
structure, deems the three companies to form together
a single undertaking (55) which should therefore be
regarded as the aid recipient (56).

in the light of

(54) If more investments were made in 2005 and 2006 as indicated in

recital (45) these should also be considered.

(55) See Case 323/82 Intermills, point 11, where the court stated: ‘[…] it
must therefore be accepted that, in spite of the fact that the three
manufacturing companies each has a legal personality separate from
the former SA Intermills, all those undertakings together form a
single group, at least as far as the aid awarded by the Belgian
authorities is concerned.’ A similar approach is also suggested by
Advocate General Geelhoed in Joined Cases C-328/99 and
C-399/00 Seleco [2003] ECR I-4035, despite the fact
the
Commission had argued that
the recovery claim should be
extended to the hived-off entity (and did not raise the economic
continuity argument).

that

(56) It is established case-law that aid must, in principle, be recovered
from the undertaking which has had the actual use thereof, in order
to eliminate the distortion of competition caused by the compe-
titive advantage afforded by that aid, see Joined Cases T-111/01 and
T-133/01 Saxonia Edelmetalle [2005] II-1579, point 115.

that

the case solely concerns

(122) The Commission does not, however, agree with the
Polish authorities
the
initial addressee of the claims, which were not enforced
and therefore constituted aid. In this case recovery of the
aid could be carried out by registering the claim to the
assets of the bankrupt TB. This option could be imple-
mented on the basis of established case-law which

(57) This argument is also put forward by Advocate General Geelhoed in
Joined Cases C-328/99 and C-399/00 Seleco [2003] ECR I-4035,
points 79 and 84.

(58) This applies irrespective of the fact that some debt was passed on to
HB following the sale of TB's assets to HB as described in recital
(61) above. In any event, the price paid for the assets was clearly
not reduced in so far as the transfer of the claims is concerned,
given that HB paid almost the market value of the assets.

(59) The Commission is aware of the fact that it is ‘not required to
determine […]
to what extent each undertaking had benefited
from the [aid], but could merely instruct [the Member State] to
recover that aid from the recipient or recipients thereof, that is,
from the undertaking or undertakings which had had actual use
thereof,’ see Joined Cases T-111/01 and T-133/01 Saxonia Edel-
metalle, point 124. However, while the Commission may limit
itself to instructing the Member State to indicate the company
from which the aid is to be recovered, nothing prevents the
Commission from determining who actually benefited from the aid.

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recognises that liquidation of a company is considered as
an acceptable alternative to full
recovery since the
objective is to abolish the aid, and that objective can
be attained by way of proceedings to wind up the
company (60).

regards the extension of recovery is whether a hive-off
from the bankrupt undertaking’s
removed resources
assets (62), this is irrelevant in an intra-group scenario
as indicated above.

(125)

Justice has

In any event, the European courts accept that recovery
can be demanded from a subsidiary if it was the actual
recipient of the aid (63), which is the case here. Moreover,
the
also accepted that
the Court of
Commission should be
allowed to seek recovery
outside the liquidation procedure to avoid the risk of
recovery being deprived of its effect (64). As explained
in recital (56) above, TB deliberately hived off the auto-
motive steel business into BA in order to continue the
activity that benefited from the aid (65). However, the
Commission considers
simply an additional
this as
reason for recovering the aid from the actual recipient.

(123) However,

the Commission finds that winding up the
original aid recipient is unsatisfactory from a competition
perspective where the actual benefit of the aid has been
passed on. In this case, registration of the claim to the
assets of the bankrupt TB would not allow the compe-
titive advantage resulting from the actual benefit derived
from the aid, which was passed on to TB’s subsidiaries,
to be offset. Targeting TB alone would result in the sale
of the subsidiaries as legal persons, but would not affect
their economic activity as such, because the sale would
not have an impact on the activity itself, the subsidiaries'
accounts or their operations.

the Commission is not able to
(126) On the other hand,
establish that
the misused restructuring aid awarded
before 2004 was used for the benefit of any of TB’s
subsidiaries. It must therefore be recovered from TB.

the Polish authorities

(124) Therefore, from a competition perspective, recovery from
recipients is the only appropriate option.
the actual
Accordingly,
should primarily
target the subsidiaries (reverting to the group only if
recovery from the subsidiaries is no longer possible).
This solution is in line with established case-law (61) on
bankrupt undertakings and, in particular, with the Seleco
case, which is based on similar facts but in which the
Commission argued that the recovery claim should be
extended to the hived-off entity. Contrary to the Seleco
case, the Commission does not, however, want to extend
recovery but has simply opted for recovering the actual
issue as
benefit within the group. While the crucial

(60) Case 277/00 SMI [2004] ECR I - 4355 point 85, Case 52/84
Commission v Belgium [1986] ECR 89, point 14, and Case C-
142/87 Tubemeuse [1990] ECR I-959, points 60 to 62.

(61) Joined cases C-328/99 and C-399/00 Seleco [2003] ECR I-4035,
Case 277/00 SMI [2004] ECR I - 4355, case T-318/00 and T-
324/00 CDA Albrechts II [2005] ECR II-4179.

(62) Case 277/00 SMI

[2004] ECR I

read in
conjunction with point 92. This is the case if the assets have not
been transferred at
the transaction is
if
the market price or
motivated by the intention to evade recovery.

- 4355 point 86,

(63) See point 86 of Case 277/00 SMI [2004] ECR I-4355, in which the
Court ruled that ‘it is certainly possible that, in the event that hive-
off companies are created in order to continue some of
the
activities of the undertaking that received the aid, where that under-
taking has gone bankrupt, those companies may also, if necessary,
be required to repay the aid in question, where it is established that
they actually continue to benefit from the competitive advantage
linked with the receipt of the aid.’

(64) Indeed, the Court had clarified that ‘if it were permissible, without
any condition, for an undertaking experiencing difficulties and on
the point of being declared bankrupt to create, during the formal
inquiry into the aid granted it, a subsidiary to which it
then
transfers its most profitable assets before the conclusion of the
inquiry, that would amount to accepting that any company may
remove such assets from the parent undertaking when aid is
recovered, which would risk depriving the recovery of that aid of
in whole or in part.’ C-328/99 and C-399/00 Seleco
its effect
[2003] ECR I-4035, point 77. A similar rationale was applied in
Case C-415/03 Commission vs. Greece (Olympic)
[2005] ECR
I-3875.

(65) As regards HB the hive-off was already envisaged in the original

IBP, see recital (59) above.

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VI. CONCLUSIONS

(127) The Commission concludes that the restructuring of TB
was not properly implemented and failed, and that all
restructuring aid awarded to TB during the restructuring
period must therefore be deemed to have been misused.
However, any aid which is compatible because it was
awarded for R&D, and which was
that
purpose, was not misused.

spent

for

(128) Accordingly,

the restructuring aid of PLN 1 369 186
received by the TB group between 1997 and 2003 is
incompatible with points 9 and 18 of Protocol No 8
to the Accession Treaty and must be repaid pursuant
to point 18 of Protocol No 8.

(129) Moreover, the restructuring aid received as of end-2004
of PLN 20 761 643 is incompatible with the common
market within the meaning of Article 87(1) TEC and
points 6 and 18 of Protocol No 8.

specified in recital

(130) As indicated above this aid is regarded as a grant received
such, be
as of 1 January 2005 which should, as
recovered with interest as
(133)
below. Given that this aid had similar effects to a debt
waiver, the Commission could, however, accept that the
Polish authorities proceed with recovery as if the original
debt had been waived. The Commission would also find
it acceptable, for the purpose of recovery, for any new
debts of TB arising after 2004 to be disregarded, because
some
repayments were made by TB between the
beginning of 2005 and August 2006 to public
creditors which more or
less neutralised the debts
which arose after 2004 (66). As indicated in recital (36)
above, TB’s total public debts after January 2005 never
amounted to less than PLN 20,76 million and by August
2005 they had risen to PLN 22,7 million.

regards

(131) As discussed above, repayment of the aid should take
into account which companies actually benefited from
it. As
it
should be borne in mind that PLN 7,833 million was
passed on to BA and PLN 14,81 million to HB (see
these
above). As
recitals
amounts (PLN 22,643 million) exceeds the amount of

the amount of PLN 20 761 643,

(117)-(118)

sum of

the

(66) However, the proceeds from enforcement of claims after August
2006 may be taken into consideration when the amounts to be
recovered are established.

aid received, recovery should be limited to the total
amount of the aid. This limitation should be propor-
tionate, i.e. BA, which received 34,6 % of the total iden-
tified benefit, should also pay 34,6 % of the amount to
the remaining 65,4 %
be recovered (PLN 7 183 528);
(PLN 13 578 115) should be recovered from HB.

(132) Furthermore, the misused aid of PLN 1 369 186 received
before 2002 should be recovered from TB, as there is no
indication that this aid was passed on to other members
of the TB group.

(133) The

to be

amounts

recovered shall bear

interest
calculated in accordance with the provisions of the Im-
plementing Regulation. In particular, under Article 9(4)
of the Implementing Regulation, when five-year inter-
bank swap rates are not available,
the Commission
may,
in close cooperation with the Member State
concerned, fix a State Aid recovery interest rate using a
different method and on the basis of the information
available to it. As five-year inter-bank swap rates were
not available to Poland for the period when the incom-
patible aid was awarded, the recovery interest rate to be
applied should be based on the available interest rate
end,
deemed appropriate
reference may be made to the practice already established
between Poland and the Commission (67),

that period. To that

for

HAS ADOPTED THIS DECISION:

Article 1

The State Aid of PLN 20 761 643 unlawfully awarded by
Poland to Technologie Buczek Group is
in breach of
Article 88(3) of
the Treaty and is incompatible with the
common market.

Article 2

The State Aid of PLN 1 369 186 awarded by Poland to Tech-
nologie Buczek Group between 1997 and 2003 has not been
used in accordance with the conditions stipulated in Protocol
No 8 to the Accession Treaty and is therefore incompatible with
the common market.

(67) Further to the Commission Decision 2006/937/EC.

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L 116/45

Article 3

Article 5

1.
Poland shall recover the aid referred to in Article 1
unlawfully made available to Technologie Buczek Group in
particular from the subsidiaries Huta Buczek Sp. z o.o and
in proportion to the benefit
Buczek Automotive Sp. z o.o,
actually obtained by them. Accordingly, Poland shall recover
PLN 13 578 115 from Huta Buczek Sp. z o.o and PLN
7 183 528 from Buczek Automotive Sp. z o.o.

Poland shall

2.
the misused aid referred to in
Article 2 awarded to Technologie Buczek Group from Tech-
nologie Buczek S.A.

recover

3.
The amounts to be recovered shall bear interest from the
date on which they were made available to the recipient until
their actual recovery.

Interest shall be calculated on a compound basis in
4.
accordance with Chapter V of Commission Regulation (EC)
No 794/2004 of 21 April 2004 implementing Council Regu-
lation (EC) No 659/1999 laying down detailed rules for the
application of Article 93 of the EC Treaty (68).

1. Within two months of notification of
Poland shall
Commission:

following

submit

the

this Decision,
information to the

(a)

the total amount (principal and interest) to be recovered
from the recipients;

(b) a detailed description of the measures already taken and
planned with a view to complying with this Decision;

(c) documents demonstrating that

the recipients have been

ordered to repay the aid.

Poland shall keep the Commission informed of
the national measures taken to implement

the
2.
progress of
this
Decision until recovery of the aid referred to in Articles 1
and 2 has been completed in full. It shall immediately submit,
at the request of the Commission, information on the measures
already taken and planned with a view to complying with this
Decision. It shall also provide detailed information concerning
the amounts of aid and interest already recovered from the
recipient.

Article 4

Article 6

This Decision is addressed to Poland.

Recovery of the aid referred to in Articles 1 and 2 shall be

1.
immediate and effective.

Done at Brussels, 23 October 2007.

Poland shall ensure that

2.
within four months of the date of notification thereof.

this Decision is implemented

For the Commission

Neelie KROES
Member of the Commission

(68) OJ L 140, 30.4.2004, p. 1. Regulation as last amended by
Commission Regulation (EC) No 1935/2006 of 20 December
2006 (OJ L 407, 30.12.2006, p. 1).