Nerea: Eligibility as State Aid Beneficiary and the Concept of Undertaking in Difficulty

Nerea: Eligibility as State Aid Beneficiary and the Concept of Undertaking in Difficulty Abstract Granting authorities must verify the eligibility conditions at the time the aid is granted, including whether the applicant is in difficulties, and cannot withdraw aid to a beneficiary which is later subject to collective insolvency proceedings. I. Legal context On 6 July 2017 the Court of Justice of the European Union (‘the CoJ’) ruled on a preliminary reference regarding the assessment of the eligibility of undertakings as aid recipients and the notion of undertaking in difficulties for state aid purposes. II. Facts The Regione Marche granted financial assistance to Nerea, an Italian SME, in the context of a European Regional Development Fund programme. The contract notice for the grant of aid required that ‘at the time of submission of an application, undertakings should not be in a situation of difficulty within the meaning of article 1(7) of Regulation 800/2008.’1 On 13 April 2011, Nerea lodged an application for assistance which was accepted in 2012. Having received 50 per cent of the assistance by way of an advance, Nerea made the investments to which it had committed. On 18 November 2013, it submitted a declaration of expenditure and requested the settlement of the remaining 50 per cent of the total aid, amounting to EUR 72 026.29. There is no clear reference in the judgement or the opinion of the Advocate General but it would seem that the Italian authorities did not pay the outstanding balance. On 24 December 2013, Nerea applied to a district court for an arrangement with creditors as a going concern. Nine months later, in October 2014, the court opened the relevant procedure. On 11 February 2015, Nerea was notified that the Regione Marche had launched a procedure for withdrawing the assistance granted because the company no longer fulfilled the old GBER conditions since it had applied for a collective insolvency proceeding. The Regione Marche withdrew the aid granted and requested Nerea to reimburse the advance, plus interest. Nerea brought an action before the referring court against those decisions, which decided to stay the proceedings and to refer two questions to the CoJ for a preliminary ruling about the interpretation of Article 1 (7) (c) of the old GBER. The first question concerns the definition of the terms ‘collective insolvency proceedings’ in Article 1 (7) (c), and more precisely whether this article covers only the procedures that may be opened by administrative or judicial authorities of the Member States of their own motion or whether it also covers those opened at the request of the economic operator or its creditors. The second question seeks to determine whether the granting authorities should carry out an independent assessment of whether a firm is in difficulty and the date on which it should be assessed whether a company is ‘in difficulty’ within the meaning of the state aid rules. Undertakings in difficulty can only receive state aid in compliance with the Rescue and Restructuring Aid Guidelines2 and thus that qualification entails exclusion from the scope of application of the other rules amongst other the GBER. III. Analysis Under the first question, the CoJ explained that if the concept of ‘collective insolvency proceedings’ was to be interpreted as referring only to the proceeding opened by the competent court of its own motion, it would not cover the arrangement with creditors as going concern. The Italian ‘concordato preventivo’ procedure is not opened by the court of its own motion but by the competent court at the request of the undertaking concerned. The CoJ first recalled that the company must fulfil the criteria under its domestic law for being the subject of collective insolvency proceedings. Furthermore, it observed that the provisions of the GBER do not make any distinction between the various existing insolvency proceedings in the different national legal systems nor differentiate according to whether they are opened by the authorities of their own motion and or opened at the request of the undertakings. Therefore, the CoJ concluded that the concept of collective insolvency proceedings in the old GBER refers to all collective insolvency proceedings applicable to undertakings under the relevant national law (see paras 27–29). Reference was also made to another condition for the grant of the aid under the contract notice which was project viability. Indeed, insolvency proceedings should allow the concerned undertaking to continue in the market and thus ensure viability and therefore the continuation of the project invested in. Regarding the second question, following the opinion of the Advocate General, the CoJ first emphasised that the situation of an undertaking which applies for aid must be assessed when that aid is granted to it. It is at that time that the undertaking’s eligibility to receive aid must be assessed. The CoJ considered, however, that it would be contrary to the objective of simplification to require the competent authorities when assessing the eligibility to determine themselves specifically, carrying out an independent examination, whether the undertaking is in difficulty. Furthermore, an undertaking cannot be considered as a firm in difficulty for the purposes of the GBER when it does not satisfy the conditions for being subject to collective insolvency proceedings under its domestic law at the time aid is granted to it (see paras 35–37). Hence, the CoJ concluded that, since Nerea could not be qualified as an undertaking in difficulty on the date on which it was granted aid, the financial assistance could not be withdrawn on the grounds that Nerea has subsequently been subject to collective insolvency proceedings (see paras 37–39). IV. Practical significance Due to the significant number of state aid cases that are not fully reviewed by the Commission following the application of the GBER, judgements like the one at hand are fundamental in providing legal certainty and developing tools for granting authorities and national jurisdictions. Firstly, the CoJ reiterated that the conditions for eligibility must be assessed at the time the national authorities grant the aid. This is consistent with the interpretation of the grant of aid established in previous case law, which considers an aid is granted at the time that the right to receive it is conferred on the beneficiary under the applicable national rules.3 The CoJ's statement that it is not possible for a granting authority to withdraw aid solely on the ground that the beneficiary undertaking was subject to insolvency proceedings subsequent to the grant is of fundamental importance in terms of legal security. Indeed, the beneficiary undertaking committed to certain investments following the grant of aid and for mere business or economic reasons needs to have the legal certainty that the conditions for this aid will not be amended a posteriori including a possible withdrawal or recovery of the amounts granted. Secondly, the CoJ insisted on the importance of simplifying the rules for SMEs and in particular in respecting the undertaking in difficulty’s simplified definition for the SMEs in the GBER. In line with the approach taken inter alia in the Axa case,4 the CoJ held that it follows from the need for a uniform application of EU law that the terms of a provision of EU law must normally be given an autonomous and uniform interpretation throughout the European Union. Guidance from the CoJ is particularly important for the uniform application of the provisions of the GBER throughout the vast and varied territory of the European Union and beyond, as it is also applied in the EFTA countries signatories of the EEA Agreement, Iceland, Liechtenstein and Norway. Thirdly, the CoJ clarified the scope of the review by national authorities of whether an applicant for aid can be considered as a firm in difficulty which triggers that any aid granted to it must be subject to the conditions and requirements of the Guidelines for rescue and restructuring aid. The CoJ stated that the competent authorities should only ensure that the undertakings are not subject to a collective insolvency proceeding at the time aid is granted. It delimited the duty of assessment for granting authorities which are not required to carry out an independent examination of the undertaking’s actual situation. Even though the old GBER has been replaced by Regulation No 651/2014 (‘new GBER’)5 as of 1 July 2014, a substantial number of its provisions, including the principle that the GBER is not applicable to firms in difficulty, have been taken over. Therefore, the clarifications of the CoJ in this judgement are very important for the understanding of the new provisions and will surely prove very useful for an important number of authorities through the different Member States also in the application of the new GBER. Footnotes 1 Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 87 and 88 of the Treaty (OJ 2008 L 214/3) (‘Old GBER’). 2 Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty OJ C 249/1. 3 Judgement of 21 March 2013, Magdeburger Mühlenwerke, C-129/12, EU:C:2013:200 paragraph 40. 4 Judgement of 15 October 2015, Axa Belgium, C-494/94 EU:C:2015:692, paragraph 21. 5 Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ 2014 L 187/1) (‘new GBER’). Author notes Judgement of 6 July 2017, Nerea, C-245/16, EU:C:2017:521 © The Author 2017. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oup.com http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Competition Law & Practice Oxford University Press

Nerea: Eligibility as State Aid Beneficiary and the Concept of Undertaking in Difficulty

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Abstract

Abstract Granting authorities must verify the eligibility conditions at the time the aid is granted, including whether the applicant is in difficulties, and cannot withdraw aid to a beneficiary which is later subject to collective insolvency proceedings. I. Legal context On 6 July 2017 the Court of Justice of the European Union (‘the CoJ’) ruled on a preliminary reference regarding the assessment of the eligibility of undertakings as aid recipients and the notion of undertaking in difficulties for state aid purposes. II. Facts The Regione Marche granted financial assistance to Nerea, an Italian SME, in the context of a European Regional Development Fund programme. The contract notice for the grant of aid required that ‘at the time of submission of an application, undertakings should not be in a situation of difficulty within the meaning of article 1(7) of Regulation 800/2008.’1 On 13 April 2011, Nerea lodged an application for assistance which was accepted in 2012. Having received 50 per cent of the assistance by way of an advance, Nerea made the investments to which it had committed. On 18 November 2013, it submitted a declaration of expenditure and requested the settlement of the remaining 50 per cent of the total aid, amounting to EUR 72 026.29. There is no clear reference in the judgement or the opinion of the Advocate General but it would seem that the Italian authorities did not pay the outstanding balance. On 24 December 2013, Nerea applied to a district court for an arrangement with creditors as a going concern. Nine months later, in October 2014, the court opened the relevant procedure. On 11 February 2015, Nerea was notified that the Regione Marche had launched a procedure for withdrawing the assistance granted because the company no longer fulfilled the old GBER conditions since it had applied for a collective insolvency proceeding. The Regione Marche withdrew the aid granted and requested Nerea to reimburse the advance, plus interest. Nerea brought an action before the referring court against those decisions, which decided to stay the proceedings and to refer two questions to the CoJ for a preliminary ruling about the interpretation of Article 1 (7) (c) of the old GBER. The first question concerns the definition of the terms ‘collective insolvency proceedings’ in Article 1 (7) (c), and more precisely whether this article covers only the procedures that may be opened by administrative or judicial authorities of the Member States of their own motion or whether it also covers those opened at the request of the economic operator or its creditors. The second question seeks to determine whether the granting authorities should carry out an independent assessment of whether a firm is in difficulty and the date on which it should be assessed whether a company is ‘in difficulty’ within the meaning of the state aid rules. Undertakings in difficulty can only receive state aid in compliance with the Rescue and Restructuring Aid Guidelines2 and thus that qualification entails exclusion from the scope of application of the other rules amongst other the GBER. III. Analysis Under the first question, the CoJ explained that if the concept of ‘collective insolvency proceedings’ was to be interpreted as referring only to the proceeding opened by the competent court of its own motion, it would not cover the arrangement with creditors as going concern. The Italian ‘concordato preventivo’ procedure is not opened by the court of its own motion but by the competent court at the request of the undertaking concerned. The CoJ first recalled that the company must fulfil the criteria under its domestic law for being the subject of collective insolvency proceedings. Furthermore, it observed that the provisions of the GBER do not make any distinction between the various existing insolvency proceedings in the different national legal systems nor differentiate according to whether they are opened by the authorities of their own motion and or opened at the request of the undertakings. Therefore, the CoJ concluded that the concept of collective insolvency proceedings in the old GBER refers to all collective insolvency proceedings applicable to undertakings under the relevant national law (see paras 27–29). Reference was also made to another condition for the grant of the aid under the contract notice which was project viability. Indeed, insolvency proceedings should allow the concerned undertaking to continue in the market and thus ensure viability and therefore the continuation of the project invested in. Regarding the second question, following the opinion of the Advocate General, the CoJ first emphasised that the situation of an undertaking which applies for aid must be assessed when that aid is granted to it. It is at that time that the undertaking’s eligibility to receive aid must be assessed. The CoJ considered, however, that it would be contrary to the objective of simplification to require the competent authorities when assessing the eligibility to determine themselves specifically, carrying out an independent examination, whether the undertaking is in difficulty. Furthermore, an undertaking cannot be considered as a firm in difficulty for the purposes of the GBER when it does not satisfy the conditions for being subject to collective insolvency proceedings under its domestic law at the time aid is granted to it (see paras 35–37). Hence, the CoJ concluded that, since Nerea could not be qualified as an undertaking in difficulty on the date on which it was granted aid, the financial assistance could not be withdrawn on the grounds that Nerea has subsequently been subject to collective insolvency proceedings (see paras 37–39). IV. Practical significance Due to the significant number of state aid cases that are not fully reviewed by the Commission following the application of the GBER, judgements like the one at hand are fundamental in providing legal certainty and developing tools for granting authorities and national jurisdictions. Firstly, the CoJ reiterated that the conditions for eligibility must be assessed at the time the national authorities grant the aid. This is consistent with the interpretation of the grant of aid established in previous case law, which considers an aid is granted at the time that the right to receive it is conferred on the beneficiary under the applicable national rules.3 The CoJ's statement that it is not possible for a granting authority to withdraw aid solely on the ground that the beneficiary undertaking was subject to insolvency proceedings subsequent to the grant is of fundamental importance in terms of legal security. Indeed, the beneficiary undertaking committed to certain investments following the grant of aid and for mere business or economic reasons needs to have the legal certainty that the conditions for this aid will not be amended a posteriori including a possible withdrawal or recovery of the amounts granted. Secondly, the CoJ insisted on the importance of simplifying the rules for SMEs and in particular in respecting the undertaking in difficulty’s simplified definition for the SMEs in the GBER. In line with the approach taken inter alia in the Axa case,4 the CoJ held that it follows from the need for a uniform application of EU law that the terms of a provision of EU law must normally be given an autonomous and uniform interpretation throughout the European Union. Guidance from the CoJ is particularly important for the uniform application of the provisions of the GBER throughout the vast and varied territory of the European Union and beyond, as it is also applied in the EFTA countries signatories of the EEA Agreement, Iceland, Liechtenstein and Norway. Thirdly, the CoJ clarified the scope of the review by national authorities of whether an applicant for aid can be considered as a firm in difficulty which triggers that any aid granted to it must be subject to the conditions and requirements of the Guidelines for rescue and restructuring aid. The CoJ stated that the competent authorities should only ensure that the undertakings are not subject to a collective insolvency proceeding at the time aid is granted. It delimited the duty of assessment for granting authorities which are not required to carry out an independent examination of the undertaking’s actual situation. Even though the old GBER has been replaced by Regulation No 651/2014 (‘new GBER’)5 as of 1 July 2014, a substantial number of its provisions, including the principle that the GBER is not applicable to firms in difficulty, have been taken over. Therefore, the clarifications of the CoJ in this judgement are very important for the understanding of the new provisions and will surely prove very useful for an important number of authorities through the different Member States also in the application of the new GBER. Footnotes 1 Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market in application of Article 87 and 88 of the Treaty (OJ 2008 L 214/3) (‘Old GBER’). 2 Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty OJ C 249/1. 3 Judgement of 21 March 2013, Magdeburger Mühlenwerke, C-129/12, EU:C:2013:200 paragraph 40. 4 Judgement of 15 October 2015, Axa Belgium, C-494/94 EU:C:2015:692, paragraph 21. 5 Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ 2014 L 187/1) (‘new GBER’). Author notes Judgement of 6 July 2017, Nerea, C-245/16, EU:C:2017:521 © The Author 2017. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oup.com

Journal

Journal of European Competition Law & PracticeOxford University Press

Published: Feb 1, 2018

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