The eligibility of an aid applicant and the legality of the aid are determined at the point when the aid is granted. If afterwards the aid recipient ceases to be an SME or enters in financial difficulties it is not a relevant issue.
Introduction
When Member States grant aid on the basis of the General Block Exemption Regulation [Regulation 651/2014] they must comply with all of the requirements of the GBER, especially with its exclusions. That is, national measures must explicitly state that who is eligible for aid and who is not eligible for aid. This is because the GBER does not apply to certain sectors [e.g. primary agricultural production], export aid, aid conditional on the use of domestic products, aid measures infringing fundamental principles of EU law [e.g. freedom of movement or establishment] and companies in difficulties.
Misapplication of the GBER can lead to national legal proceedings. Although national courts have no competence to assess the compatibility of State aid with the internal market, they can determine whether the GBER, as well as the de minimis aid Regulation, is correctly implemented.
In order to reduce the incidence of misapplication, the GBER is designed to be easy to use. For example, the need for aid must be established ex ante only for large enterprises receiving ad-hoc aid [apart from the absolutely essential check that aid is not granted after the start of a project]. Another example, is the assessment of the viability of aid beneficiaries. The checks required by the GBER are simpler than those laid down in the Rescue and Restructuring Guidelines. [The checks in the de minimis aid Regulation are even simpler].
Indeed recital 14 of the GBER explains that:
“Aid granted to undertakings in difficulty should be excluded from the scope of this Regulation, since such aid should be assessed under the Community guidelines on State aid for rescuing and restructuring firms in difficulty of 1 October 2004 as prolonged by Commission communication concerning the prolongation of the application of the Community guidelines on State aid for rescuing and restructuring firms in difficulty of 1 October 2004 or their successor Guidelines, in order to avoid their circumvention, with the exception of aid schemes to make good the damage caused by certain natural disasters. In order to provide legal certainty, it is appropriate to establish clear criteria that do not require an assessment of all the particularities of the situation of an undertaking to determine whether an undertaking is considered to be in difficulty for the purposes of this Regulation.”
Article 1(4) of the GBER stipulates that:
“This Regulation shall not apply to […]
(c) aid to undertakings in difficulty, with the exception of aid schemes to make good the damage caused by certain natural disasters.”
Then Article 2(18) of the GBER provides the relevant definition:
“Undertaking in difficulty means an undertaking in respect of which at least one of the following circumstances occurs:
(a) In the case of a limited liability company (other than an SME that has been in existence for less than three years or, for the purposes of eligibility for risk finance aid, an SME within 7 years from its first commercial sale that qualifies for risk finance investments following due diligence by the selected financial intermediary), where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital. For the purposes of this provision, ‘limited liability company’ refers in particular to the types of company mentioned in Annex I of Directive 2013/34/EU (1) and ‘share capital’ includes, where relevant, any share premium.
(b) In the case of a company where at least some members have unlimited liability for the debt of the company (other than an SME that has been in existence for less than three years or, for the purposes of eligibility for risk finance aid, an SME within 7 years from its first commercial sale that qualifies for risk finance investments following due diligence by the selected financial intermediary), where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses. For the purposes of this provision, ‘a company where at least some members have unlimited liability for the debt of the company’ refers in particular to the types of company mentioned in Annex II of Directive 2013/34/EU.
(c) Where the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors.
(d) Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan.
(e) In the case of an undertaking that is not an SME, where, for the past two years:
(1) the undertaking’s book debt to equity ratio has been greater than 7.5 and
(2) the undertaking’s EBITDA interest coverage ratio has been below 1.0.”
The underlined text above was recently the subject of a ruling of the Court of Justice. Although the ruling interpreted the provisions of the previous GBER, it is also valid to the corresponding provisions of the current GBER because they are identical.
On 6 July 2017, the Court of Justice delivered its judgment in case C‑245/16, Nerea SpA v Regione Marche. The judgment was in response to a request for preliminary ruling by a court in Italy that was dealing with a dispute on the interpretation of the General Block Exemption Regulation that was in force until June 2014, Regulation 800/2008.[1]
The then GBER, like the current GBER [Regulation 651/2014], excluded from its scope any State aid that was granted to companies in difficulty. The general definition is that a company is in difficulty when, without State aid, it is likely to go bankrupt. This most often happens when the company has lost much of its capital either because debt servicing is unsustainably high or liquidity is very low and cannot cover even its day-to-day expenses.
On 13 April 2011, Nerea applied for State aid. On 20 March 2012, the authorities of Regione Marche granted it EUR 144,053 calculated against eligible expenditure of EUR 665,263. The aid was provided from EU structural funds in the context of the regional operating programme.
On 24 December 2013, Nerea applied to a district court for an arrangement with creditors as a going concern. The court opened the relevant procedure on 15 October 2014. On 11 February 2015, Nerea was notified by the granting authority that the aid was withdrawn because Nerea did not satisfy the requirements of the GBER [Article 1(7)(c) of Regulation 800/2008]. Naturally, Nerea brought action before the referring national court disputing the legality of the request for repayment of the aid. The referring national court stayed the proceedings and asked the Court of Justice a number of questions seeking clarification on the interpretation of the GBER.
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Collective insolvency procedures
The first question was on whether Article 1(7)(c) of Regulation 800/2008 meant that the concept of “collective insolvency proceedings” covered only procedures which had to be opened by the administrative or judicial authorities of the Member States of their own motion or whether it also covered those which could be opened at the request of the undertaking.
According to the Court of Justice, “(23) if the concept of ‘collective insolvency proceedings’ was to be interpreted as covering only the proceedings opened by the competent court of its own motion, it would not cover the arrangement with creditors as a going concern and Article 1(6) and (7) of Regulation No 800/2008 would therefore not apply to Nerea’s situation.”
“(24) In that connection, it must be recalled that, in accordance with Article 1(6)(c), Regulation No 800/2008 does not apply to aid to undertakings in difficulty. Recital 15 of that regulation states that aid granted to undertakings in difficulty should be assessed under the Guidelines in order to avoid their circumvention.”
“(25) Article 1(7)(c) of Regulation No 800/2008 provides that an SME must be regarded as being an undertaking in difficulty where it fulfils the criteria under its domestic law for being the subject of collective insolvency proceedings.” “(26) Thus, that provision refers to national law for the determination of the conditions in which an SME is subject to collective insolvency proceedings.”
“(27) However, it must be observed that neither that provision nor any other provision of Regulation No 800/2008 makes any distinction between the various existing collective insolvency proceedings in the different national legal systems according to whether they are opened by the administrative and judicial authorities of the Member States or whether they are opened at the request of the undertaking.” “(28) Thus, although it is true that Article 1(7)(c) of Regulation No 800/2008 refers to the ‘criteria […] for being the subject’ of collective insolvency proceedings, that provision cannot be interpreted as referring only to proceedings opened on the initiative of the authorities against undertakings, to the exclusion of proceedings opened at the request of the undertakings.”
“(29) Therefore, Article 1(7)(c) of Regulation No 800/2008 must be interpreted as meaning that the concept of ‘collective insolvency proceedings’ that it refers to covers all collective insolvency proceedings for undertakings provided for by national law, whether they are opened by the national administrative or judicial authorities of their own motion or on the initiative of the undertaking concerned.”
Qualification as undertaking in difficulty
The second question was whether Article 1(7)(c) of Regulation 800/2008 meant that the fact that an undertaking was in collective insolvency proceedings made it ineligible to receive State aid or that aid had to be returned if it had already been granted, or whether it had to be actually established that the undertaking was in difficulty.
The Court of Justice replied that “(31) it must be recalled that, under Article 1(6)(c), Regulation No 800/2008 excludes from its scope aid to undertakings in difficulty, that is to say in particular, undertakings which, in accordance with Article 1(7)(c) of that regulation, satisfy the criteria for being subject to collective insolvency proceedings in accordance with the national law applicable to those undertakings.”
“(32) As is clear from recital 36 of Regulation No 800/2008, the aid covered by Article 107(1) TFEU should be considered to be granted at the moment the legal right to receive the aid is conferred on the beneficiary under the applicable national legal regime.”
“(33) Therefore, […], it is at that time that the undertaking’s eligibility to receive aid must be assessed, with regard to the conditions laid down by Regulation No 800/2008”.
“(34) It must then be noted, as is clear from recital 15 of Regulation No 800/2008, that the definition of what is to be considered an ‘undertaking in difficulty’ should be simplified as compared to the definition used in the Guidelines in order to reduce the administrative burden for Member States when granting aid covered by this regulation to SMEs. Consequently, Article 1(7) of Regulation No 800/2008 simply reproduces the information about the concept of ‘undertaking in difficulty’ set out in point 10 of the Guidelines, but does not reproduce those set out in point 11 thereof.”
“(35) It would be contrary to the objective of simplification to require the competent authorities of the Member States, in order to decide whether to grant State aid to an undertaking in accordance with Regulation No 800/2008, to determine themselves specifically, when they assess its eligibility, whether that undertaking is in difficulty.”
“(36) Moreover, Article 1(7)(c) of that regulation does not impose on the authorities the obligation to carry out an independent examination of the undertaking’s actual situation, but merely to ensure not to grant aid to an undertaking which satisfies the criteria for being subject to collective insolvency proceedings in accordance with that regulation.”
“(37) It follows that an undertaking, such as Nerea, which, on the date on which it was granted aid, did not satisfy the conditions for being subject to collective insolvency proceedings laid down by the national law applicable to it, which is for the referring court to ascertain, cannot be regarded as an undertaking in difficulty under Article 1(6) of Regulation No 800/2008.”
“(38) It also follows that aid granted to an undertaking in accordance with Regulation No 800/2008, and in particular the negative condition laid down in Article 1(6) thereof cannot be withdrawn solely on the ground that that undertaking was subject to collective insolvency proceedings subsequent to the date on which it was granted the aid.”
On those grounds, the Court of Justice ruled that:
“Article 1(7)(c) of Commission Regulation (EC) No 800/2008 … must be interpreted as meaning that the concept of ‘collective insolvency proceedings’ that it refers to covers all collective insolvency proceedings for undertakings provided for by national law, whether they are opened by the national administrative or judicial authorities of their own motion or on the initiative of the undertaking concerned.”
“Article 1(7)(c) of Regulation No 800/2008 must be interpreted as meaning that the fact that an undertaking satisfied the conditions for being subject to collective insolvency proceedings according to national law, …, is sufficient to prevent State aid being granted to it under that regulation or, if such aid has already been granted to it, to hold that it could not be granted in accordance with that regulation provided that those conditions were satisfied on the date on which that aid was granted. However, aid granted to an undertaking in compliance with Regulation No 800/2008 and, in particular, Article 1(6) thereof, cannot be withdrawn solely on the ground that that undertaking has been subject to collective insolvency proceedings subsequent to the date on which that aid was granted to it.”
Conclusions
Three lessons can be drawn from this judgment. First, the eligibility of an aid applicant and the legality of the aid are determined at the point the aid is granted. If afterwards the aid recipient ceases to be an SME or enters in financial difficulties is not a relevant issue.
Second, national authorities must comply with the requirements of the GBER. Some of these requirements do not necessitate in-depth assessment of the viability or future prospects of the aid applicants’ recipients.
Third, mistakes in the interpretation and/or application of the GBER can lead to domestic legal proceedings where national courts will have responsibility to determine the correctness of the decisions of granting authorities.
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[1] The full text of the judgment can be accessed at:
