Principles and procedures State aid recovery Principles and procedures

Introduction Principles of recovery Recovery procedure Failure to implement Conclusion

A brief history of recovery Art. 108(3) TFEU Member States are not allowed to implement State aid before it has been notified to and approved by the Commission Kohlegesetz judgment (1973) confirms that the Commission has the power to order recovery of aid Procedural Regulation of 1999: basic rules on recovery Recovery Notice in 2007: general description of recovery policy and best practice guidelines

Who is concerned by recovery? (1)

Who is concerned by recovery? (2) Not all Member States / few cases compared to number of incoming notification or complaints But: recovery is absolutely essential for a credible State aid policy Recovery cases are resource/time consuming (often, coupled with Court action) for the Commission and for Member States

Introduction Principles of recovery Recovery procedure Failure to implement Conclusion

Main applicable texts and sources Article 108(3) TFEU: Member States are not allowed to implement State aid before it has been notified to and approved by the Commission ('standstill obligation') Procedural Regulation 659/1999: basic rules on recovery Recovery Notice 2007: principles of recovery, including case-law and best practice guidelines

Aid illegal and incompatible No aid without prior notification and approval No prior notification = illegality procedures before national courts (order recovery of the illegal aid and/or of the illegality interest AND award damages or interim relief) Negative decision = incompatibility Commission must order Member States to recover the aid (Boussac)

Purpose of recovery Re-establish the situation that existed on the market prior to the granting of the aid Not a penalty, but logical consequence of incompatibility all financial benefits, i.e. must include recovery interests

Recovery: immediate and effective Recovery is governed by national law, provided this allows for immediate and effective recovery immediate: without delay effective: must lead to actual recovery – not only best endeavours (Olympic) national rules preventing effective and immediate execution should be left unapplied (Scott)

Limits to recovery Violation of general principles of law (very strict approach of the Court) legitimate expectations legal certainty Prescription period (10 years) Absolute impossibility only in case of exceptionnal circumstances

Role of EU courts / national courts appeal against recovery decisions (Art. 263 TFEU) application for interim relief (Art. 278 TFEU) National courts: beneficiary can generally not challenge the validity of recovery decisions application for interim relief must respect Atlanta/Zuckerfabrik case-law

Introduction Principles of recovery Recovery procedure Failure to implement Conclusion

2007 Recovery Notice Based on progress to date / jurisprudence General description of recovery policy and best practice guideline for cooperation between the Commission and Member States Consequences of failure to implement Role of national courts also in the 2009 Enforcement Notice

Delay for implementing decisions Since 2007, two deadlines are imposed: 2 months for sending information (amount of aid and interests, actions undertaken, proof of request for repayment) 4 months for actual implementation Possibility of provisionnal implementation blocked account, if the case is pending in Court Principle of loyal cooperation

Example of a standard recovery decision

Main elements of the decision The decision is binding on all organs of the State, including its national courts The Commission and the Member States are bound by a duty of sincere cooperation (Art. 4 TEU) The decision either indicates the incompatible aid element to be recovered, or includes information enabling the national authorities to determine that amount The decision normally contains two deadlines (two months and four months)

Aid amount and recovery interests Aid amount and aid beneficiary(ies) are generally mentioned in recovery decisions if not, the decision sets out a particular methodology for calculating the aid specificities of schemes Recovery interests have to be added: on a compound basis (reference rate + 100 b.p.) from the date the aid was put at the disposal of the beneficiary to its actual repayment

Implementation deadline: 2 months Appeals against recovery decisions do not suspend the execution of a recovery decision at national level The following steps must be undertaken by the Member State within two months after notification of the decision: determine the recovery method ; draw-up the list of beneficiaries (for schemes); determine the amount of aid and interests; send the request for repayment ('recovery order'); provide to the Commission proof of all these actions.

Implementation deadline: 4 months The Member State must provide proof of implementation Recovery decisions are considered implemented: full recovery of aid amounts and interests within time-limit: proof of payment must be provided liquidation of beneficiary under market conditions

Provisional implementation In duly justified cases, possibility of provisional implementation pending litigation in national/EU courts: Acceptable: Blocked accounts: specific provisions must be verified by the Commission Not acceptable: Bank guarantees, insurance certificates and similar: aid amount is still at the recipient’s disposal Delayed payments or instalments: do not amount to immediate recovery

Recovery and insolvency (1) Insolvency does not affect recovery obligation liquidation and termination of economic activity can be a viable alternative to full recovery. It is an obligation if the beneficiary is not in a position to repay the aid (New Interline judgment) national bankrupcy legislation applies, provided it takes Community interest into account (Aid and interests registered in bankruptcy represent 44% of the pending aid principal amount still to be recovered)

Recovery and insolvency (2) Some practical steps must be undertaken: immediate registration of the recovery claim (including interest (at least until the date of initiation of the insolvency procedure) end of the economic activity transfer of assets at market conditions

Recovery and insolvency (3) Member States should appeal decisions of the insolvency administrators if they: refuse to register recovery claims register claims at an incorrect ranking allow continuation of activity in absence of full recovery authorise the transfer of assets below market terms accept settlements between creditors which would reduce the recovery claim to the benefit of other, lower ranking claims (ex: Commission v. Slovakia C-507/08)

Introduction Principles of recovery Recovery procedure Failure to implement Conclusion

Failure to implement / Deggendorf Recovery decisions considered implemented: full recovery within time-limit liquidation of beneficiary under market conditions provisional (blocked account, proper resgistration of State aid claims) Application of Deggendorf case law suspension of new aid where earlier illegal and incompatible aid has not yet been repaid possibility for conditional approval

Failure to implement / Infringement Infringement action under Art. 108(2) TFEU non-implementation by the Member State of the decision rather frequent (slightly less than half of cases) Infringement action under Art. 260 TFEU non-implementation of the Court’s judgment preceeded by letter of formal notice to the Member State lump sum and/or daily penalty less frequent (but increasing number of cases)

Introduction Principles of recovery Recovery procedure Failure to implement Conclusion

'Modern' recovery practice Since 2007, enforcement of recovery decisions has improved: better/more precise drafting of recovery decisions systematic follow-up Court action in case of non-implementation 46 pending cases (stable), in 13 MS (decreasing) € 10,585 million of illegal and incompatible aid recovered since 2004 (82.7%), € 2076 million recovery interest

Trends and challenges Average age of cases increases (> 4 years): stock of old unresolved pending cases (in Court) but (most) new cases treated within reasonable delays (target 2 years) Issues related to the quantification of the aid (consequence of the increasing economic approach in State Aid): tax issues, evaluation (e.g. brand value?) Litigation under Art. 108(2) or 260 increases: 29 cases under Art. 108(2) / 10 cases under Art. 260 specific issue of national courts (despite case-law) Member State behaviour vs. consequence of stricter enforcement?

Links and training Scoreboard, reports, studies http://ec.europa.eu/competition/state_aid/studies_reports/studies_reports.html Cooperation with national courts http://ec.europa.eu/competition/court/overview_en.html Requests for contribution to national training programs COMP-H4@ec.europa.eu