Federal Republic of Germany v Commission of the European Communities.
Date: 2004-04-29
20. In this respect it should be noted, first of all, that the Court has consistently held that all derogations from the general principle, laid down in Article 87(1) EC, that State aid is incompatible with the common market must be construed narrowly (see Case C-156/98 Germany v Commission [2000] ECR I-6857, paragraph 49, and Case C-334/99 Germany v Commission [2003] ECR I-1139, paragraph 117).
21. Furthermore, as the Court has held, in interpreting a provision of Community law it is necessary to consider not only its wording but also the context in which it occurs and the objects of the rules of which it forms part (Case 292/82 Merck  [1983] ECR 3781, paragraph 12, Case 337/82 St Nikolaus Brennerei und Likörfabrik  [1984] ECR 1051, paragraph 10, Case C-156/98 Germany v Commission , cited above, paragraph 50, and Case C-334/99 Germany v Commission , cited above, paragraph 118).
24. It follows that, as a condition for the application of a scheme derogating from the principle, laid down in Article 87(1) EC, that State aid is incompatible with the common market, the term ‘privatisation’ must be construed narrowly in the context of the Treuhandanstalt aid schemes. If such an interpretation is adopted, a privatisation can be taken to exist, for the purpose of these schemes, only where a private investor acquires a proportion of the shares capable of affording him control of the undertaking in question.
39. In that regard, it should be observed that the legality of a decision concerning State aid is to be assessed in the light of the information available to the Commission when the decision was adopted. A Member State therefore cannot rely on information which it failed to bring to the attention of the Commission in the course of the administrative procedure when contesting the legality of such a decision (see, inter alia, Joined Cases C-278/92, C-279/92 and C-280/92 Spain  v Commission  [1994] ECR I-4103, paragraph 31, and Case C-382/99 Netherlands v Commission [2002] ECR I-5163, paragraph 76).
46. After the reunification of Germany that provision was not repealed either by the Treaty on European Union or by the Treaty of Amsterdam (see, inter alia, Case C-156/98 Germany v Commission , cited above, paragraph 47).
49. In addition, although, following the reunification of Germany, Article 87(2)(c) EC falls to be applied to the new Länder, such application can only be on the same conditions as those applicable in the old Länder during the period preceding the date of that reunification (Case C-156/98 Germany v Commission , cited above, paragraph 51).
50. In this case, the phrase ‘division of Germany’ refers historically to the establishment of the dividing line between the two occupied zones in 1948. Therefore, the ‘economic disadvantages caused by that division’ can only mean the economic disadvantages caused in certain areas of Germany by the isolation which the establishment of that physical frontier entailed, such as the breaking of communication links or the loss of markets as a result of the breaking off of commercial relations between the two parts of German territory (Case C-156/98 Germany v Commission , cited above, paragraph 52).
51. By contrast, the idea that Article 87(2)(c) EC permits full compensation for the undeniable economic lack of development suffered by the new Länder disregards both the nature of that provision as a derogation and its context and aims (Case C-156/98 Germany v Commission , cited above, paragraph 53).
52. The economic disadvantages suffered by the new Länder as a whole were not directly caused by the geographical division of Germany within the meaning of Article 87(2)(c) EC (Case C-156/98 Germany v Commission , cited above, paragraph 54).
53. It follows that the differences in development between the original and the new Länder are explained by causes other than the geographical rift caused by the division of Germany and in particular by the different politico-economic systems set up in each part of Germany (Case C-156/98 Germany v Commission , cited above, paragraph 55).
56. Lastly, as regards the complaint relating to the defective statement of reasons for the contested decision, it must be observed that, as the Commission asserts, the German Government relied on the applicability of the derogation laid down in Article 87(2)(c) EC for the first time in its application. In addition, that decision was adopted in a context well known to the German Government and belongs to a well-established line of decisions relating to the interpretation of that provision (Case C-156/98 Germany v Commission , cited above, paragraph 105).
68. On the other hand, as far as the sale of the beneficiary company’s assets to third companies is concerned, the Commission draws a distinction depending on whether the assets have been sold separately or ‘en bloc’.
69. In cases where those assets have been sold separately, at the market price, the buyers are not required to repay the aid. Because of this separate sale, the subsidised activity disappears, which leaves scope for the beneficiary company’s competitors. In this way, the recovery of aid from the seller, whether it be from the beneficiary company itself or from the assets of the bankrupt or liquidated company, makes it possible to eliminate the distortion of competition.
70. Major problems arise, on the other hand, where the assets have been sold ‘en bloc’ so as to allow the buyer to continue the beneficiary company’s activity. In these circumstances, continuing the subsidised activity could perpetuate the distortion of competition with the result that particular caution is needed in order to prevent the transfer of the beneficiary company’s assets allowing the repayment obligation to be evaded by ‘protecting’ those assets. In the view of the Commission, in such a case, evasion can be ruled out only where, in addition to taking place at the market price, the transfer of the beneficiary company’s assets ‘en bloc’ is made as part of an unconditional procedure that is open to all the company’s competitors. Only in this case are the buyers not required to repay the aid.
73. As a preliminary observation, it should be pointed out that, in accordance with Community law, when the Commission finds that aid is incompatible with the common market, it may require the Member State to recover that aid from the recipient (Case 70/72 Commission v Germany  [1973] ECR 813, paragraph 20, and Joined Cases C-328/99 and C-399/00 Italy and SIM 2 Multimedia v Commission [2003] ECR I-4035, paragraph 65).
74. Removing unlawful aid by means of recovery is the logical consequence of a finding that it is unlawful and seeks to re-establish the previous situation ( Italy and SIM 2 Multimedia , paragraph 66).
75. That purpose is achieved once the aid in question, together where appropriate with default interest, has been repaid by the recipient (Case C-350/93 Commission v Italy  [1995] ECR I-699, paragraph 22) or, in other words, by the undertakings which actually benefited from it (Case C-303/88 Italy  v Commission [1991] ECR I-1433, paragraph 57). By repaying the aid, the recipient forfeits the advantage which it had enjoyed over its competitors on the market, and the situation prior to payment of the aid is restored (Case C-350/93 Commission v Italy , paragraph 22).
76. Consequently, the main purpose of the repayment of unlawfully paid State aid is to eliminate the distortion of competition caused by the competitive advantage afforded by the unlawful aid.
78. As regards the aid granted to SiMI, first of all, it should be noted that, after that aid had been granted, SiMI was sold to MD & D whilst retaining its legal personality. In other words, this was a transfer through a sale of shares, a share deal.
80. The Court has consistently held that where an undertaking that has benefited from unlawful State aid is bought at the market price, that is to say at the highest price which a private investor acting under normal competitive conditions was ready to pay for that company in the situation it was in, in particular after having enjoyed State aid, the aid element was assessed at the market price and included in the purchase price. In such circumstances, the buyer cannot be regarded as having benefited from an advantage in relation to other market operators (Case C-390/98 Banks [2001] ECR I-6117, paragraph 77).
81. In the present case, the undertaking to which unlawful State aid was granted retains its legal personality and continues to carry out, for its own account, the activities subsidised by the State aid. Therefore, it is normally this undertaking that retains the competitive advantage connected with that aid and it is therefore this undertaking that must be required to repay an amount equal to that aid. The buyer cannot therefore be asked to repay such aid.
84. Secondly, as regards the aid granted to SMI, it should be noted that, as can be seen from paragraphs 50 to 52 of the grounds of the contested decision, the Commission regarded SMI, SiMI, MD & D and any firm that acquired the assets of one of these three companies in order to evade the consequences of the decision as beneficiaries of that aid. In addition, at the hearing, the Commission made clear that it considers that all the companies mentioned in Article 3(3) of the contested decision are jointly and severally liable for the repayment obligation.
85. In the light of the fact that in the present case SMI has been in liquidation since bankruptcy proceedings were opened on 1 July 1997, it should be pointed out that, as follows from the case-law on bankrupt undertakings that have received aid, the re-establishment of the previous situation and the elimination of the distortion of competition resulting from the unlawfully paid aid may, in principle, be achieved by registration of the liability relating to the repayment of the aid in question in the schedule of liabilities. In accordance with this case-law, such registration would be sufficient (Case 52/84 Commission v Belgium [1986] ECR 89, paragraph 14, and Case C-142/87 Belgium v Commission (‘Tubemeuse’)  [1990] ECR I-959, paragraphs 60 to 62).
86. 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 undertaking 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. This could be the case, inter alia, where those hive-off companies acquire the assets of the company in liquidation without paying the market price in return or where it is established that the creation of such companies evades the obligation to repay that aid.
95. Not only is this argument not included in the grounds of the contested decision as the basis for the obligation on the part of MD & D to repay the aid granted to SMI, but it follows both from those grounds and from the documents before the Court that the sale in question was supervised by a court and did not take place immediately, but was preceded by unsuccessful attempts with another American company. This information gives reason to suggest that the procedure followed was sufficiently open and transparent. In addition, the Commission has not presented any information to show that SMI’s competitors complained about the lack of transparency that, in the view of the Commission, characterised the operation.