State Aid

October 11th, 2017 by James Goudie KC

There is an obligation on public authorities to recover unlawful State Aid. The nature of this obligation has been considered by Advocate General Sharpston in an Opinion delivered on 10 October 2017 in Case C-363/16, European Commission v Hellenic Republic.

She said:-

“44.   The obligation to recover unlawful State aid stems from Article 108(2) TFEU … The Court has consistently held that ‘recovery of illegal aid is the logical consequence of a finding that [the aid] is illegal’.  Recovery serves to restore the status quo ante in so far as possible and to eliminate anticompetitive advantages created by unlawful State aids.

  1. The obligation to recover is an obligation as to the result to be achieved.  Regulation No 659/1999 requires Member States to recover unlawful State aids in accordance with national procedures without delay, whilst the implementation of the recovery decision must be ‘immediate and effective’.  In that respect, according to well-established case-law, Member States are free to choose the means of fulfilling the obligation resulting from the recovery decision, provided that the measures chosen do not adversely affect the scope and effectiveness of EU law.
  2. Recovery must not only be in full but also in time – that is, within the period stipulated in the decision (or the date subsequently fixed by the Commission); delayed recovery cannot satisfy the requirements of the TFEU.
  3. The Court has consistently stated that only absolute impossibility excuses a failure to recover unlawful State aid.  The case-law construes that defence strictly, refusing to accept that ‘mere apprehension of internal difficulties’ amounts to absolute impossibility.  Member States may not plead requirements of their national law, such as the impossibility to recover under national law;  a legal vacuum;  administrative or technical difficulties; or the legal, political or practical difficulties involved in implementing the decision, without taking any real steps to recover the aid from the undertakings concerned and without proposing to the Commission any alternative arrangements for implementing the decision which could have enabled those difficulties to be overcome.
  4. May a Member State argue that because the financial situation of the beneficiary does not permit the recovery of the aid, that constitutes an ‘absolute impossibility’ to recover?
  5. The Court has held that that situation does not constitute proof that implementation is impossible, since the liquidation of the company can also serve to achieve the aim of abolishing the aid. (35) The absence of recoverable assets is the only way to show the absolute impossibility of recovering the aid; and it is incumbent on the State to seek to have the undertaking wound up so that it may enforce its claims against the assets, if there are any and if their ranking permits it.
  6. The defence of absolute impossibility applies to the result to be achieved: the recovery of the unlawful aid. If it could be invoked in respect of the manner in which recovery were effected, it would be all too easy for a Member State to choose a process for recovering the unlawful aid that proved impossible and then claim that it was absolved from its obligation to recover the aid.
  7. Certain complementary duties arise if a Member State encounters difficulties in recovering the aid. A Member State may rely on the defence of absolute impossibility only if it has brought those problems to the attention of the Commission and has tried to resolve the difficulties it is facing.  Thus, a Member State encountering unforeseen and unforeseeable difficulties or becoming aware of consequences overlooked by the Commission should submit those problems to the Commission for consideration, together with proposals for suitable amendments to the decision in question. In such cases, the Commission and the Member State must, by virtue of the rule imposing on the Member States and the EU institutions a duty of sincere cooperation which underlies, in particular, Article 4(3) TEU, work together in good faith with a view to overcoming those difficulties.”

“55.    In a case such as this, where the undertaking concerned does not have the necessary funds to repay the unlawful State aid, the obligation to recover remains. It is indeed firmly established in the Court’s case-law that the obligation to recover unlawful State aid extends to recovery from recipients … United Textiles, which are in difficulty or insolvent.

  1. In such a case ‘the restoration of the previous situation and the elimination of the distortion of competition resulting from the unlawfully paid aid may, in principle, be achieved by registration of the liability relating to the repayment of the aid in question in the schedule of liabilities’.  If necessary, the Member State itself – as a creditor or shareholder of the company – must institute proceedings for its winding-up.
  2. Where the Member States’ authorities are unable to recover the full amount of the aid, registration of the liability in the schedule of liabilities, of itself, is not enough. The insolvency proceedings must ‘result in the winding-up of the undertaking which received the unlawful aid, that is to say, in the definitive cessation of its activities’.
  3. It follows that, when the State cannot recover the full amount of the unlawful aid because of the financial situation of the undertaking, (i) the undertaking must be declared insolvent, and (ii) the liability relating to the repayment of the aid in question must be registered in the schedule of liabilities. When it continues to be impossible to recover the full amount of the aid, the insolvency proceedings must result in the winding-up of the undertaking and the definitive cessation of its activities. Only then is the recovery obligation deemed to be fulfilled.”


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