C-42/93
ECLI:EU:C:1994:113
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SPAIN v COMMISSION
OPINION OF ADVOCATE GENERAL JACOBS delivered on 23 March 1994 "
My Lords, in 1972 by the Spanish Ministry of Agricul ture. In 1987 the company changed its name to Merco. At the time of the contested deci sion, its public shareholders were the Patri monio del Estado (part of the Ministry of Finance) with 69.3% capital participation and the FORPPA (Fondo para la Ordena ción y Regulación de la Producción de los 1. In this case the Kingdom of Spain chal Precios Agrarios, a public body coming lenges a Commission decision finding that under the Ministry of Agriculture) which Spain had granted State aid in breach of Arti held a 30.7% share. cles 92 and 93 of the Treaty. The decision in issue is Commission Decision 93/133/EEC of 4 November 1992 concerning aid granted by the Spanish Government to the Merco company (agricultural processing industry). ' The issues in this case are in some respects similar to those in three other cases in which Spain challenges Commission decisions on State aid, Joined Cases C-278/92 to 3. Merco was engaged in marketing agricul C-280/92 ([1994] ECR 1-4103), which were tural products. It had a capital of PTA 8 782 heard on the same day as the present case. million and employed 900 people. It carried on its activities in 55 agricultural purchasing centres established at the points of produc tion, which marketed agricultural products in Spain and abroad.
The facts
4. In 1990 the company's turnover was 2. The public company Mercorsa (Mercados about PTA 71 000 million, which meant that en Origen de Productos Agrarios) was set up it ranked as one of the largest companies in Spain. The main divisions of the company dealt in fruit and vegetables, in olive oil, in * Original language: English. cereals and grains, and in oilseed products 1 — OJ 1993 L 55, p. 54. and cotton.
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5. According to an auditing report (for 9. In the proceedings before the Commis the 1990 financial year) carried out by Price sion, the Spanish Government took the view, Waterhouse in 1991, Merco had a deficit in comments submitted by a letter dated 4 in 1990 of over PTA 8 727 million, to which October 1991, that the injection of capital of were to be added the deficits from earlier PTA 5 900 million was not State aid within financial years amounting to nearly the meaning of Article 92 of the Treaty; the PTA 9 800 million. Thus on 31 Decem decision, taken by the company's public ber 1990 the total deficit amounted to over shareholders, had been based on economic PTA 18 000 million. criteria since the Spanish Government had decided to reorganize the company and to restrict it to profitable activities.
6. Following a complaint, the Commission, by telex messages dated 20 December 1990 and 23 April 1991, asked the Spanish Gov ernment for information concerning aid which it had allegedly granted to Merco, in 10. That reorganization consisted on the one the form of an injection of capital amounting hand of the closure of the oil division and on to PTA 5 900 million. the other of an injection of capital amount ing to PTA 5 900 million. The oil division was the cause of a major part of the compa ny's profitability problems. In 1990 that division had cost about PTA 2 022 million.
7. By letter dated 27 May 1991 the Spanish Government confirmed that in 1990 the sum of PTA 5 900 million had been paid to Merco, pursuant to a decision by its two public shareholders, the Patrimonio del Estado and the FORPPA, in the form of an injection of capital. 11. Nevertheless, the Spanish authorities considered that even if the injection of capi tal were to be regarded as State aid it would be compatible with the common market on the ground that financial assistance was nec essary to give effect to the plans to cut back 8. On the basis of the information at its dis the company's activities through the closure posal the Commission took the view that of the oil division. In addition, since the that injection of capital of PTA 5 900 million activities of that division were principally was State aid within the meaning of Arti concentrated in less-favoured regions, the aid cle 92(1) of the Treaty, and decided to initiate should be declared compatible with the com the procedure provided for in Article 93(2) mon market under Article 92(3)(a) and (c) of of the Treaty. the Treaty.
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12. However, the Spanish Government notification of the decision, of the measures admitted that the injection of capital of taken to comply with it. PTA 5 900 million was not sufficient to ensure that Merco would become profitable and recognized that other reforms would have to be undertaken, in particular with regard to the company's financial structure.
16. Spain advances four submissions in sup port of its action. I shall examine them in turn.
13. By Article 1 of the contested decision the Commission found that the aid granted First submission — the existence of an aid to Merco in the form of an injection of cap ital of PTA 5 900 million was illegal because it was granted in violation of the procedural rules laid down in Article 93(3) of the Treaty. Article 1 also found that the aid was incom patible with the common market under the terms of Article 92(1) since it did not fulfil 17. In its first submission Spain contends the conditions laid down by Article 92(3). that the injection of capital was not an aid within the meaning of Article 92(1) of the Treaty if the criteria applied in the Court's case-law are applied. The Court has held that an appropriate way of establishing whether a subscription of capital is a State aid is to apply the criterion of determining to what extent the undertaking would be able to 14. Article 2 of the decision required the obtain the sums in question on the private Kingdom of Spain to withdraw the aid capital markets and to consider whether a referred to in Article 1 and to order Merco private shareholder would have subscribed to repay the sum in question within two 2 the capital in question. In another case the months of receipt of notification of the deci Court applied the test whether a private sion. Repayment was to be made in accor investor operating under normal market dance with the procedures and provisions economy conditions would have entered into laid down by national legislation. 3 the financial transactions in question. According to the Spanish Government the Commission, in applying those criteria, omitted to take account of a fundamental element, namely the purpose of the interven-
15. Article 3 of the decision required the 2 — Sec Case 40/85 Bclļium v Commission [I986] ECR 2321, Spanish Government to inform the Commis paragraph 13 of the judgment. 3 — See Case C-142/87 Belgium v Commission [1990] ECR sion, within two months from the date of I-959, paragraph 29 of the judgment.
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tion. That intervention, far from seeking to authorities informed the Commission that maintain artificially the undertaking's activ Merco wanted to cease its activities in the oil ity, was on the contrary limited to facilitating sector by 30 March 1992. The Commission the liquidation in the least burdensome man also points out that none of the objectives ner of one division of the undertaking, that now attributed by the Spanish Government of oils, which represented about 50% of the to the intervention was mentioned in the undertaking's total activities. Consequently, course of the proceedings before the Com it was not appropriate to assess the increase mission. The inference must I think be that in capital in relation to the maintenance of the purpose of the intervention was not, as the undertaking's activities in its entirety. the Spanish Government now claims, to facilitate the liquidation of part of Merco's activities but on the contrary to maintain Merco in operation for a further period and to put off the evil day of liquidation.
18. The Spanish Government also contends that, as appears from the analysis of the accounts annexed to its application, the increase in capital which is the subject of the contested decision has made possible both 4 the 'recovery of the company's assets' and the payment of a substantial amount of debts to small farmers whose very existence would have been endangered if the debts had not 20. As regards the reliance by the Spanish been paid. Government on the recovery of assets and the payment of debts to small farmers, it is again significant that those considerations were not mentioned by the Spanish authori ties in the course of the proceedings before the Commission. The Commission also points out that the Spanish Government has not established any link between the increase 19. For the reasons given in the Commis in capital and the recovery of assets. More sion's defence, it is difficult to accept the over, the accounts annexed to the application suggestion that the purpose of the interven do not support the existence of any such tion was to close down the oil division. The connection. As regards the payment of debts, intervention was made in 1990, while the the Commission submits that such factors decision to abandon the oil division was not are not relevant in considering the attitude of taken until 1991, according to the Spanish a private investor. Moreover, the Commis Government's own statements. Moreover in sion states that Merco's balance sheet for the a letter dated 20 March 1992, the Spanish year ended 31 December 1990, supplied to the Commission by a third party, shows that most of Merco's creditors were not small 4 — The meaning of this expression is not entirely clear; nor does farmers: the debts were not essentially com it emerge from the documents annexed to Spain's applica mercial (PTA 5 220 million) but debts to tion.
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financial establishments (PTA 21 511 mil 23. In the contested decision the Commis lion). sion based its finding about the effect on trade between Member States simply on the fact that all the agricultural products mar keted by Merco were traded between Mem ber States. The Commission produced in its decision a statistical table showing the extent of trade between Spain and the other Mem ber States in the various product categories. The Commission stated that, if financial aid granted by public authorities strengthens the 21. In its reply, Spain makes very little position of certain undertakings as against attempt to meet the convincing refutation of their competitors in the Community, it must its contentions. The reply confines itself to be considered to affect the latter; and that two assertions: first, that the recovery of that was all the more tme when — as in the assets and the payment of debts to small case in point — the aid served to prop up the farmers had been effected, and secondly, that financial position of an undertaking which, the process of winding up Merco's activities, as the Commission expresses it, ought in the embarked upon, according to the Govern normal course of events to have disappeared. ment, in 1990, was now (May 1993) practi cally completed. Those assertions, even if well founded, do not meet the Commission's case. Spain's first submission must therefore be rejected.
Second submission — effect on trade between Member States 24. Spain's challenge to the contested deci sion on this issue is essentially a corollary of its first submission. Spain considers that the capital injection in question cannot be regarded as liable to affect trade between Member States since its effect was not, as the Commission had affirmed, to support the activities of Merco, but rather the liquidation of the activities which were the origin of Merco's problems. In Spain's view, it is dif 22. By its second submission Spain chal ficult to argue that the liquidation of an lenges the Commission's finding that the aid undertaking or of one of its branches distorts was such as to affect trade between Member competition by affecting trade between States. Article 92(1) prohibits only such aid Member States when the effect of the disap as 'distorts or threatens to distort competi pearance of an undertaking from one of the tion by favouring certain undertakings or the sectors of its activity is precisely to allow the production of certain goods ... in so far as it remaining undertakings to occupy that sec affects trade between Member States'. tor of the market.
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25. In its defence, the Commission again restructuring plan'. 5 However, there the denies that the increase in capital formed Court was considering, not the effect on part of a plan to close down the oil division. trade or the distortion of competition under In its reply, Spain merely repeats that the Article 92(1) but whether an aid was con purpose of the capital injection was to pay trary to the common interest under Arti off outstanding debts, with a view to wind cle 92(3)(c). Moreover, in the present case the ing up activities in the oil sector. Commission had found that Spain had not produced any adequate restructuring plan, as was required before such aid could be approved under Article 92(3). This point can therefore be considered in the context of Spain's third submission, which raises the issue whether the aid fell within the scope of Article 92(3).
26. The answer to the second submission therefore follows, in my view, from the answer to the first. In any event, the Com mission's reasoning on this point, although not directly challenged as inadequate by the Spanish Government, seems to me to be ade 28. For the reasons given above, I conclude quate in the circumstances. The effect, if not that Spain's second submission must be the intention, of the injection of capital was rejected. to allow Merco to continue trading, and it could reasonably be inferred, given the scale of Merco's activities, that there would be an effect on trade between Member States.
Third submission — applicability of Arti- cle 92(3)
27. The Spanish Government cites in this connection the Intermills case, where the Court held that 'the settlement of an under 29. Spain contends that the capital injection taking's existing debts in order to ensure its in issue fell within the scope of Article survival does not necessarily adversely affect trading conditions to an extent contrary to the common interest... where such an oper 5 — Case 323/82 Intermills v Commission [1984] ECR 3809, ation is, for example, accompanied by a paragraph 39 of the judgment.
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92(3)(a) and (c) of the Treaty. Article 92(3) all serious consequences. Non-payment of provides: the sums due to small farmers in the sector would have unleashed a crisis leading to the ruin of many of them and excluding for the future any possibility of encouraging regional and sectoral development. The mea sure therefore fell within the provisions of Article 92(3)(a) and (c). 'The following may be considered to be compatible with the common market:
(a) aid to promote the economic develop ment of areas where the standard of living 31. The reply to these arguments can be is abnormally low or where there is seri found, in my view, in the Commission's ous unemployment; decision itself. That decision stated inter alia as follows:
(b)...;
'The exemptions provided for at points (a) (c) aid to facilitate the development of and (c) of Article 92(3) in regard to aid to certain economic activities or of certain promote or facilitate the development of par economic areas, where such aid does ticular areas are not applicable. not adversely affect trading conditions to an extent contrary to the common interest ... .'
... Although Merco has been able to expand 30. Spain states that many of Merco's activ some of its activities in areas qualifying for ities were carried out in the least developed regional aid under points (a) and (c) [of Arti parts of Spain which are eligible for regional cle 92(3)] the aid measure in question was aid within the scope of Article 92(3)(a) and not authorized as part of a regional aid pro (c). The capital injection facilitated a reduc gramme but by an ad hoc decision of the tion in the company's activities and avoided Spanish Government, and it took the form of
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arbitrary capital increases granted at the that the continued existence of a company Government's discretion. and the reestablishment of its profitability are in the best interests of the Community.
Even if the aid in question were to be con sidered regional aid, it would still not be eli gible for the exemptions under Article 92(3) 33. In my view the Commission's decision (a) and (c) since aid granted pursuant to cannot be faulted on these points. those provisions must contribute to the region's long-term development which, in this case, means that the aid would have been used, at the very least, to reestablish the profitability of the company (an aim which Merco has not achieved, according to the information supplied to the Commission) 34. In its defence the Commission refers to without producing any unacceptable nega its decision and adds only that the closure of tive effects on the conditions of competition the company's activities in the oil sector does within the Community. not contribute to the development of the regions in question. Spain adds nothing in its reply and it is clear in my view that there is no basis for challenging the Commission's decision on this ground.
Fourth submission — obligation to recover the aid
32. The Commission in the contested deci sion further stated that 'given that... the aid... was used to offset losses and reduce debts, that it was not linked to a satisfactory restructuring programme and that it could have had a negative impact on the company's Community competitors by maintaining the 35. Spain submits that it is impossible to company's competitiveness through artifi carry out the contested decision in so far as cially improving its financial position, the aid it required the recovery of the aid, since the in question is incompatible with the com company is in liquidation, as was known to mon market'. And the Commission also the Commission from the letters of the stated that it could approve restructuring aid Spanish authorities dated 1 and 31 July 1992, only in special circumstances: such aid must and has no remaining activities, being man be linked to a true restructuring plan and aged by an administrator responsible solely may be granted only where it can be proved for the last rites of winding up the company.
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The Commission contends that Spain could compatibility of the aid with the common nevertheless seek, as a creditor in the wind market: it cannot, as the Commission had ing up, the recovery of the sums paid, in suggested, order recovery of the aid simply whole or in part. on the basis of the Member State's failure to comply with the procedural requirements of the Treaty.
36. In my view the validity of the Commis sion's decision must be assessed in the light of the circumstances in which it was taken. It makes no difference to its validity, in my 38. In reaching that view the Court sought view, if the subsequent course of events to reconcile two conflicting considerations, makes it difficult or even impossible to carry in the light of the repeated failure by certain 6 Member States to comply with their Treaty out the decision. In the present case I have no doubt that the aid in question was obligations in respect of notification of pro granted illegally, both by Spain's failure to posed State aid. On the one hand, if the observe the procedural requirements of the Commission's view were accepted, then aid Treaty and in breach of the substantive pro might be declared unlawful because of pro visions of the Treaty. Equally clearly, the cedural irregularities even though it might be Commission acted correctly in requiring the compatible with the common market. On recovery of the aid. the other hand, it could not be held that the Commission, when faced with aid which has been granted in breach of the procedural requirements, had the same rights and obli gations as when aid is duly notified; such an interpretation would encourage the Member States concerned not to comply with Arti cle 93(3) and would deprive that paragraph 37. I would add that the present case high of its effectiveness. 8 lights a general difficulty in the enforcement of the Treaty provisions on State aid. In the 7 Boussac case the Court held that where a Member State fails to comply with the pro cedural requirements of the Treaty, the Com mission may issue an interim decision requir ing suspension of payment of the aid and requiring the Member State to provide all 39. The solution reached by the Court, in necessary information. If a Member State recognizing the Commission's power to then complies with the Commission's order, order suspension of the aid but requiring the the Commission is required to examine the Commission to proceed to examine the com patibility of the aid with the common mar-
6 — See Case C-142/87, cited above in note 3, paragraphs 58 to 63 of the judgment. 7 — Case C-301/87 France v Commission [1990] ECR I-307. 8 — Ibid., paragraph 11 of the judgment.
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ket, may prove useful in cases where the aid recovery of the aid. I see little force in the has been only partly paid. Where the whole argument that that might lead to orders for of the aid has already been paid, the power the recovery of aid which might prove com to order suspension is of course of no avail; patible with the common market: Member and the fact that the Commission must go on States can avoid that problem precisely by 9 to examine the compatibility of the aid, and complying with their obligation to notify. that the Member State may then challenge the Commission's decision — on however flimsy grounds — in Court proceedings, before the obligation to recover the aid can be definitively established is likely to render that obligation, in some cases, illusory. 40. Both in the present case and in Joined Recovery may by then be in practice impos Cases C-278/92 to C-280/92 many of the sible. It would be preferable, I think, to take difficulties which have been occasioned the view that, when a Member State breaches could have been avoided if Spain had com the requirement of notification, the Commis plied with its obligations under Article 93(3) sion has the power immediately to order of the Treaty.
Conclusion
41 . For the above reasons, I am of the opinion that:
(1) the action should be dismissed;
(2) the Kingdom of Spain should be ordered to pay the costs.
9 — See my Opinion in Boussac (cited above in note 7), para graph 42.
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