CJEC, 5th chamber, March 22, 2001, No C-17/99

THE COURT (Fifth Chamber),

1 By application lodged at the Court Registry on 25 January 1999, the French Republic brought an action under the first paragraph of Article 173 of the EC Treaty (now, after amendment, the first paragraph of Article 230 EC) for annulment of Commission Decision 1999-378-EC of 4 November 1998 on aid granted by France to Nouvelle Filature Lainière de Roubaix (OJ 1999 L 145, p. 18, hereinafter the contested decision).

Legal background

2 When the contested decision was adopted, the Commission appraised State aid for rescuing and restructuring firms in difficulty by reference to the Community guidelines published in the Official Journal of the European Communities in 1994 (OJ 1994 C 368, p. 12, hereinafter the Guidelines).

3 Pursuant to point 3.2.1 of the Guidelines:

Aid for restructuring raises particular competition concerns as it can shift an unfair share of the burden of structural adjustment and the attendant social and industrial problems on to other producers who are managing without aid and to other Member States. The general principle should therefore be to allow restructuring aid only in circumstances in which it can be demonstrated that the approval of restructuring aid is in the Community interest. This will only be possible when strict criteria are fulfilled and full account is taken of the possible distortive effects of the aid.

4 Under point 3.2.2 of the Guidelines, in order for the Commission to approve aid, a restructuring plan must satisfy the general conditions relating inter alia to the long-term restoration of viability of the undertaking, avoidance of undue distortions of competition and the proportionality of the aid in relation to the restructuring costs and benefits.

5 With regard, first, to the restoration of viability, the first subparagraph of point 3.2.2 (i) of the Guidelines states:

The sine qua non of all restructuring plans is that they must restore the long-term viability and health of the firm within a reasonable time scale and on the basis of realistic assumptions as to its future operating conditions. ...

6 Next, in order to avoid undue distortions of competition, measures must be taken to offset as far as possible adverse effects on competitors. In particular, the second subparagraph of point 3.2.2 (ii) states:

Where on an objective assessment of the demand and supply situation there is a structural excess of production capacity in a relevant market in the European Community served by the recipient, the restructuring plan must make a contribution, proportionate to the amount of aid received, to the restructuring of the industry serving the relevant market in the European Community by irreversibly reducing or closing capacity production. ...

7 Finally, with regard to the proportionality of the aid to the costs and benefits of restructuring, the first subparagraph of point 3.2.2 (iii) states:

The amount and intensity of the aid must be limited to the strict minimum needed to enable restructuring to be undertaken and must be related to the benefits anticipated from the Community's point of view. Therefore, aid beneficiaries will normally be expected to make a significant contribution to the restructuring plan from their own resources or from external commercial financing. To limit the distortive effect, the form in which the aid is granted must be such as to avoid providing the company with surplus cash which could be used for aggressive, market-distorting activities not linked to the restructuring process. Nor should any of the aid go to finance new investment not required for the restructuring. ...

The facts

8 In May and September 1996, the Commission received several complaints concerning aid which had been or might be granted by the French Government to the company Nouvelle Filature Lainière de Roubaix for the purposes of court-supervised restructuring of the SA Filiature Lainière de Roubaix group (hereinafter the disputed aid). The complaints criticised the moratorium of eight years granted to the group by the Inter-Ministerial Committee for Industrial Restructuring for the payment of its social-security and tax debt of FRF 82 000 000 and also an application for intervention by that committee to prevent that company from becoming insolvent.

9 In response to a request for information from the Commission, the French authorities informed it, by letters of 18 June and 15 July 1996, that the SA Filiature Lainière de Roubaix group had, since the early 1990s, been experiencing serious operational difficulties resulting in considerable cash-flow problems and arrears of social-security and tax payments. After being taken over in 1993 by Mr Verbeke, the group submitted a restructuring plan under which that debt would be paid in full, provided that the repayments were spread over a period of eight years. However, new economic and financial difficulties arose in and after 1995. The management was unable to make payments when they fell due and accordingly it lodged a declaration of cessation of payments with the Tribunal de Commerce (Commercial Court), Roubaix (France), which, on 30 April 1996, initiated the procedure for it to be placed under compulsory administration.

10 After determining that the group's economic and financial situation was such that no restructuring scheme was possible and after issuing a call for bids for acquisition of the business, the Tribunal de Commerce, Roubaix, by judgment of 17 September 1996, ordered transfer of the group to Mr Chapurlat for the price of FRF 4 278 866, the transferee having undertaken to honour the employment contracts of 225 of the 587 employees making up the workforce and to pay the sum of FRF 50 000 for each redundancy occurring in the year following the transfer. In addition, that court authorised the dismissal of 362 employees and appointed a liquidator to wind up the SA Filiature Lainière de Roubaix group, that being an automatic consequence of its judgment.

11 In September 1996, the French authorities notified the Commission of the restructuring measure which they envisaged adopting in favour of the new company set up by Mr Chapurlat under the name Nouvelle Filature Lainière de Roubaix, the capital of which was FRF 510 000. That aid measure, involving a total sum of FRF 40 000 000, was made up of an equity loan in the sum of FRF 18 000 000 and a grant in the sum of FRF 22 000 000.

12 At the Commission's request, the French Government then provided further information concerning the abovementioned aid measure.

13 By letter of 18 August 1997, the Commission notified the French Government of its decision to initiate the procedure under Article 93 (2) of the EC Treaty (now Article 88(2) EC). That decision incorporated a detailed description of the facts and a provisional assessment thereof by the Commission by reference to the Guidelines. The Commission also referred to the inadequacy of the information provided with a view to its making a final assessment and, in particular, approving the disputed aid. Against that background, the absence of a restructuring plan complying with Community requirements was a matter to which the Commission specifically drew attention. In conclusion, the Commission formally called on the French authorities to send to it any further information which they considered relevant to appraisal of the disputed aid.

14 The French Republic submitted its observations in a letter dated 24 September 1997 and provided further information by letters of 8 May, 21 July, and 16 and 30 October 1998, which drew attention in particular to the fact that, in 1997, the company Nouvelle Filature Lainière de Roubaix incurred an operating loss of FRF 897 497.

15 The procedure under Article 93 (2) of the EC Treaty concluded with the adoption of the contested decision, the operative part of which is worded as follows:

Article 1

The aid in the form of an investment premium granted by France to Nouvelle Filature Lainière de Roubaix amounting to FRF 7.77 million may be considered to be compatible with the common market on the basis of Article 92 (3) (c) of the Treaty.

Article 2

The aid in the form of an investment premium granted by France to Nouvelle Filature Lainière de Roubaix amounting to FRF 14.23 million is incompatible with the common market.

Article 3

1. The equity loan of FRF 18 million constitutes aid in so far as the rate applied by France is lower than the reference rate of 8.28% applicable at the time the loan was granted.

2. The aid referred to in paragraph 1 granted by France to Nouvelle Filature Lainière de Roubaix is incompatible with the common market.

Article 4

1. France shall take all necessary measures to recover from the recipient, Nouvelle Filature Lainière de Roubaix, the aid referred to in Article 2 which has already been illegally paid.

2. Repayment shall be made in accordance with the procedures and provisions of French law. The amounts to be repaid shall bear interest from the date on which the aid was paid to the recipient until the date on which it is effectively recovered. The interest shall be calculated on the basis of the reference rate used to calculate the net grant equivalent of regional aid.

3. France shall without delay abolish the aid referred to in Article 3 by applying normal market conditions corresponding at least to the reference rate of 8.28% applicable at the time the loan was granted.

Article 5

France shall inform the Commission within two months of the date of notification of this Decision of the measures it has taken to comply with it.

Article 6

This Decision is addressed to the French Republic.

16 It was in those circumstances that the French Republic brought the present action against the contested decision.

17 At the hearing on 23 November 2000, the agent for the French Republic informed the Court that, in the meantime, Nouvelle Filature Lainière de Roubaix had been wound up by court order.

Substance

18 In support of its action, the French Government relies upon three pleas in law, alleging, first, breach of the obligation to make an order prior to adopting a decision relating to State aid, second, breach of the obligation to state reasons and, third, infringement of Article 92 of the EC Treaty (now, after amendment, Article 87 EC).

Breach of the obligation to make a prior order

19 By its first plea, the French Government maintains that, throughout the administrative procedure, it cooperated fully with the Commission, systematically, responding in detail to all requests for information addressed to it and declaring its willingness to produce any further information sought by the Commission. Notwithstanding that attitude on the part of the French authorities, the contested decision was based mainly on the assertion that the French Government did not provide the Commission with a restructuring plan, with the result that the Commission did not have sufficient information to enable it to assess, in full knowledge of the facts, the long-term viability of the company to which the disputed aid was granted. In the French Government's view, even if that had been the case, the Commission should not have adopted a final decision but should have confined itself to adopting interim measures requiring the French authorities to provide it with all the information needed for the assessment in question.

20 By adopting the contested decision, the Commission failed to observe the case-law of the Court (Case C-301-87 France v Commission [1990] ECR I-307 the Boussac Saint Frères case and Joined Cases C-324-90 and C-342-90 Germany and Pleuger Worthington v Commission [1994] ECR I-1173) and departed from a rule by which it had nevertheless acknowledged itself to be bound, in particular in its publication Competition law in the European Communities, Volume IIB, Explanation of the rules applicable to State aid: Situation in December 1996, and from its decision-making practice.

21 The Commission maintains, first of all, that the premiss underlying the first plea in law is incorrect. The contested decision is certainly not based on the lack of a restructuring plan since the Commission referred to the lack of a plan only briefly in the preamble to the decision. The Commission states that the analysis contained in part IV.3 thereof shows that the decision was prompted by the absence of the factual circumstances under which, in accordance with the Guidelines, the disputed aid could be authorised and not by the absence, as such, of information relating to that aid.

22 Next, the Commission maintains, in the alternative, that the first plea is based on a legally incorrect interpretation of the procedural rules applicable to the monitoring of State aid.

23 The Commission argues that, according to settled case-law, a Member State wishing to be allowed to grant aid to an undertaking has a duty to provide all the information needed to enable the Commission to verify that the conditions for doing so are fulfilled (Case C-364-90 Italy v Commission [1993] ECR I-2097, paragraph 20). In that regard, in its judgment in Boussac Saint Frères, cited above, the Court responded to the Commission's argument that, if aid is unlawful through having been implemented by a Member State in breach of the procedure prescribed by Article 93 (3) of the Treaty, the fact that such aid is compatible with the common market under Article 92 (3) of the Treaty cannot expunge its unlawfulness and, accordingly, the Commission may order that the aid be recovered. According to the Commission, it was in that context that the Court observed that the Commission is empowered to adopt conservatory measures in order to maintain the status quo where the effect of practices engaged in by certain Member States is to render nugatory the system established by Articles 92 and 93 of the Treaty. When adopting such measures, the Commission should nevertheless take care to protect the legitimate interests of the Member States. The Commission is thus entitled, but not required, to prescribe such conservatory measures. In the event of the Member State's refusing to provide the Commission with the information requested for the purposes of the decision it intends adopting, the Commission is empowered to terminate the procedure and make its final decision on the basis of the information available to it.

24 According to the Commission, the judgment in Germany and Pleuger Worthington, cited above, likewise does not support the interpretation, contended for by the French Government, of the rules governing the procedure for monitoring State aid since, first, in that case, by contrast with this one, the Member State concerned refused to cooperate with the Commission in any way and, second, that judgment related to the very existence of an aid programme and not to the Commission's assessment of the compatibility of the aid with the common market.

25 Finally, the Commission submits that the publication to which the French Government referred does not constitute an official statement of the Commission's position but was written by a lawyer and is certainly not binding on the Commission. Similarly, the contested decision does not conflict in any way with the Commission's decision-making practice in relation to State aid, in that the Commission has sent formal orders only to Member States which have refused to cooperate and to provide the substantive information necessary for it to give a decision as to the existence of aid.

26 It must be held, in that regard, that the first plea in law is based on a misreading of the contested decision.

27 Whilst it is true that the decision states that the French Government did not submit a restructuring plan, that statement forms part of a lengthy discussion specifically concerned with the compatibility of the disputed aid with Article 92 (3) (c) of the Treaty. Accordingly, far from expressing the idea that the Commission did not have information needed to enable it to carry out that assessment, it emphasises that the conditions to be met if restructuring is to be approved in accordance with the Guidelines, in particular the very existence of a sound restructuring plan when the aid is granted, were not fulfilled in this case.

28 In those circumstances, it was not appropriate for the Commission, which was in a position to make a definitive assessment as to the compatibility of the disputed aid with the common market on the basis of the information available to it, to require the French Republic, by means of an interim decision, to provide it with further information which might have established the existence of an adequate restructuring plan at the date on which the disputed aid was granted.

29 As the Advocate General observes in points 49 and 50 of his Opinion, that is particularly so in view of the fact that, in its decision to initiate the procedure under Article 93 (2) of the Treaty, the Commission specifically drew the attention of the French authorities to the fact that, in the light of the relevant information available to it, the only possible conclusion was that no credible restructuring plan existed.

30 In that connection, the French Government seeks specifically to assure the Court that, during the administrative procedure, it endeavoured to cooperate fully with the Commission and gave systematic and detailed answers to all requests for information made to it by the Commission. However, that argument bears out the fact that the contested decision was not taken by the Commission because of inadequate information, which the French authorities could have supplemented if the Commission had asked them to do so, but that the decision was adopted as a result of non-compliance by those authorities with the conditions laid down by the Guidelines, as is apparent from the information provided by the French Government in the course of the administrative procedure, taken as a whole.

31 The first plea in law must therefore be rejected as unfounded.

Breach of the obligation to state reasons

32 By its second plea, the French Government maintains that the Commission breached its obligation to state reasons, as laid down in Article 190 of the EC Treaty (now Article 253 EC) by criticising the French authorities on numerous occasions for failing to provide it with the information needed for its assessment of the compatibility of the disputed aid with the common market. By so doing, the Commission sought manifestly to justify the many instances of a total lack, or inadequacy, of reasoning in the contested decision.

33 According to the French Government, the decision is also vitiated by a defective statement of reasons on specific points. That is so, first, where the Commission infers from the high prices charged by the recipient of the aid on the Lycra wool market that that company was among the least competitive in the market. Next, the Commission failed to take account of facts capable of confirming the long-term viability of that company, which were set out in the communication from the French Government of 30 October 1998. Finally, the Commission's decision is not sufficiently precise and detailed regarding the requirement of avoiding undue distortions of competition.

34 The Commission replies that the contested decision satisfies the requirements concerning statements of reasons laid down in the settled case-law of the Court (see, in particular, Case C-367-95 Commission v Sytraval and Brink's France [1998] ECR I-1719, paragraph 63).

35 In that connection, it must be borne in mind that the obligation to state reasons is an essential procedural requirement, as distinct from the question whether the reasons given are correct, which goes to the substantive legality of the contested measure. The statement of reasons required by Article 190 of the Treaty must be appropriate to the act at issue and must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent court to exercise its power of review (Commission v Sytraval and Brink's France, cited above, paragraphs 67 and 63).

36 As the Commission has rightly pointed out, that requirement must be appraised by reference to the circumstances of each case, in particular the content of the measure in question, the nature of the reasons given and the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 190 of the Treaty must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question (see, in particular, Commission v Sytraval and Brink's France, cited above, paragraph 63).

37 In this case, it is undisputed that the contested decision sets out the reasons for which the disputed aid was not justified under the Guidelines, namely, in essence, the lack of an adequate restructuring plan, the absence of sufficient proof of the long-term viability of the company Nouvelle Filature Lainière de Roubaix, and the lack of proportion between the aid and the contributions made by the beneficiaries thereof.

38 It would be inappropriate to examine, in considering fulfilment of the obligation to state reasons, the substantive legality of the reasons relied on by the Commission to justify the contested decision. That examination falls within the scope of the third plea, alleging infringement of Article 92 of the Treaty.

39 In those circumstances, the second plea in law must also be rejected.

Infringement of Article 92 of the Treaty

40 By its third plea in law, the French Government maintains that the Commission committed several manifest errors of assessment in declaring the disputed aid incompatible with the common market on the basis of Article 92 (3) (c) of the Treaty. That applies in particular to the parts of the contested decision concerned with restoration of the long-term viability of the company which received the aid, the proportionality of the aid in relation to the costs and benefits of restructuring and the alleged distortions of competition resulting from the grant of such aid. It also misapplied the Guidelines. The French Government adds that the contested decision contains a number of contradictions which undermined the Commission's reasoning and that the statement of the reasons on which it is based is inadequate.

41 The Commission refutes the various criticisms made by the French Government and contends, first, that, in order to be declared compatible with Article 92 (3) (c) of the Treaty, aid for undertakings in difficulty must be linked to a restructuring plan designed to reduce or redirect their activities (see Joined Cases C-278-92 to C-280-92 Spain v Commission [1994] ECR I-4103, paragraph 67; see also Joined Cases T-126-96 and T-127-96 BFM and EFIM v Commission [1998] ECR II-3437, paragraph 99). However, in this case, it was stated in part IV.3, fourth subparagraph, of the contested decision, that the French Government did not submit a credible restructuring plan to the Commission and [n]or has any such plan been submitted to the Commission by the French authorities since the proceedings were initiated.

42 The Commission states that, when promising the disputed aid in the course of the procedure which was to culminate in the judgment of the Tribunal de Commerce, Roubaix, the French authorities had not taken a decision in the context of a restructuring plan, as is clear from the fact that that same aid was also subsequently offered to support a competing restructuring proposal which was also regarded by the Tribunal de Commerce as not incorporating adequate guarantees.

43 According to the Commission, the absence of a restructuring plan conforming with the requirements of the Guidelines is, of itself, such as to justify the contested decision.

44 It must be borne in mind that, in the terms of Article 92 (3) (c) of the Treaty, aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest may be considered to be compatible with the common market.

45 As is clear from the Guidelines, in order to be declared compatible with Article 92 (3) (c) of the Treaty, aid to undertakings in difficulty must be bound to a restructuring programme designed to reduce or redirect their activities (see Commission v Spain, cited above, paragraph 67). Any such plan, which must be submitted to the Commission with all necessary clarifications, must, in the terms of point 3.2.2 (i) of the Guidelines, make it possible to restore the long-term viability and health of the firm within a reasonable time scale and on the basis of realistic assumptions as to its future operating conditions whilst at the same time offset[ting] as far as possible adverse effects on competitors (point 3.2.2 (ii)) and ensuring that the aid is in proportion to restructuring costs and benefits (point 3.2.2 (iii)). It is incumbent on the undertaking concerned to implement the restructuring plan, as accepted by the Commission, fully (point 3.2.2 (iv)) and the implementation and satisfactory progress of the plan must be monitored by the Commission, to which detailed annual reports must be submitted (point 3.2.2 (v)).

46 In that connection, it must be pointed out that neither the documents before the Court nor the explanations given at the hearing show conclusively that the French authorities actually possessed, when the disputed aid was granted, a restructuring plan meeting the requirements referred to in the foregoing paragraph of this judgment which could be presented to the Commission, as the Commission had requested those authorities to do in its decision initiating the procedure under Article 93 (2) of the Treaty.

47 In particular, as the Advocate General observes in points 57 and 58 of his Opinion, it is undisputed that the Commission was not supplied with any precise and reliable information concerning the long-term profitability of the recipient of the disputed aid on the basis of a restructuring plan facilitating an assessment of the restoration of the company's long-term viability and the need for such aid. On the contrary, it is clear from the documents before the Court that no figures were given for several headings of the restructuring project referred to by the French authorities and that, in relation to certain other headings, those authorities did not clearly indicate whether the burden of the costs of the project actually had to be borne by that company. As regards the evolution of the company's results, it was not possible, on the basis of the balance-sheet forecasts supplied, to see clearly how the figures given therein could have been achieved.

48 In any event, it is clear from the foregoing considerations that the French Republic has not established that the Commission committed any manifest error of assessment in that respect.

49 In those circumstances, the Commission was right, in the absence of a credible restructuring plan, to refuse to authorise the disputed aid under the Guidelines.

50 Consequently, the third plea must be rejected, it being unnecessary to examine the other charges made by the French Government in support of it.

51 Since none of the three pleas relied on by the French Republic is well founded, the application must be dismissed.

Costs

52 Under Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Commission has applied for costs and the French Republic has been unsuccessful, the latter must be ordered to pay the costs.

On those grounds,

THE COURT (Fifth Chamber)

hereby:

1. Dismisses the application;

2. Orders the French Republic to pay the costs.