New guidelines set forth Commission approach to saving companies in difficulty
European Commission - IP/04/856 07/07/2004
Brussels, 7 July 2004
The new guidelines clarify the approach the Commission intends to take in individual cases where the State financially supports a rescue and restructuring operation in favor of individual enterprises. These guidelines are an essential State aid policy instrument because they make Commission decisions in individual cases more predictable for companies and the public at large.
“The new guidelines reflect an increasing focus on large enterprises that trade across the EU. These enterprises usually have larger market share and State support in their favor affects competition and trade more significantly. In line with the increased focus on economically significant distortions of the competitive marketplace, we have introduced stricter rules on the efforts that these big beneficiaries have to make to finance their own survival. Big companies in the future should carry around 50% of the restructuring cost,” Commissioner Monti commented today.
The new guidelines are based on the core principle that in any restructuring operation the aid beneficiary should be obliged to finance a large part of its restructuring cost. Large undertakings that are active throughout the Community and receive subsidies should make a significant contribution to their own restructuring. This can be achieved either by using funds they obtained by selling assets that are not essential to the firm's survival, or from external financing obtained at market conditions.
The 1999 guidelines did not address the issue of how substantial a company’s own contribution to the restructuring effort should be. The new guidelines quantify a minimum percentage threshold of the restructuring cost that the aid beneficiary has to carry with its own means. For large undertakings the threshold of this own contribution should be around 50% of the overall restructuring cost. For medium-sized undertakings whose activities do not distort competition within the Union in the same way, the thresholds is fixed at 40% while PMEs only have to carry around 25% of their restructuring cost.
The new guidelines also introduce a uniform standstill period during which the aid recipient should not rely on follow-up aid. The “one time last time principle” as it is currently drafted in the 1999 rescue and restructuring guidelines states that aid for long-term restructuring should only be granted once every ten years. The guidelines did not envisage that short-term rescue loans would be awarded during the 10-year standstill period. The new guidelines will therefore introduce a uniform period of ten years that should elapse after the award of restructuring aid before new aid in whatever form is envisaged. This is also a socially responsible policy: companies which do not survive for ten years after their last restructuring effort may not provide very stable employment.
Why these guidelines?
The enforcement of State aid rules is essentially a Commission policy. Because the European Courts allow the Commission considerable discretion in enforcing State aid policy, the Commission felt the need to set forth its administrative policy in a general document. Adopting general guidelines make our rescue and restructuring decisions more predictable and accessible to the public at large. In addition, setting forth future policy in a general document reflects good administrative practice and fosters a discipline in the Commission’s decision-making.
When will the new procedures be in place?
The 1999 rescue and restructuring guidelines expire in October 2004. The new guidelines will replace the existing text as of 10 October 2004 and will apply to all aid notified after 10 October 2004.