Brussels, 15 October 2014
State aid: Commission orders recovery of incompatible Slovak state aid from NCHZ and Fortischem
The European Commission has concluded that the Slovak chemical company Novácké chemické závody a.s. (NCHZ) benefitted from incompatible state aid during its bankruptcy procedure and that this aid has to be paid back. Moreover, the investigation showed that Fortischem, who acquired practically the entire NCHZ business, is the economic successor of NCHZ and thus also benefitted from the aid. Therefore, both NCHZ and Fortischem are liable to pay back the aid.
Joaquín Almunia, Commission Vice-President in charge of competition policy, said "Fair competition and the application of EU competition rules cannot be circumvented by special laws. The state aid granted to NCHZ must now be recovered."
NCHZ was a chemical company in Slovakia with around 2000 employees. In October 2009, the company filed for bankruptcy. In November 2009, Slovakia adopted a law requiring administrators to ensure the continued operation of strategic companies during bankruptcy proceedings. In December 2009, NCHZ was proclaimed by the Government to be a strategic company. The law expired in December 2010 and NCHZ is the only company to which it ever applied.
The Commission opened an in-depth investigation into the measures in favour of NCHZ in July 2013 (see IP/13/638). The investigation related to two periods:
In both periods, the continued operation of the loss-making company led to an accumulation of public liabilities (e.g. social security and health insurance contributions) at the expense of the Slovak taxpayers.
In relation to period (i) the Commission has concluded that the special law deprived the administrator and the creditors of their discretion to decide whether the continued operation was economically beneficial. The administrator only ordered a comprehensive economic analysis and called a meeting of the company's creditors to decide whether to operate NCHZ further or not when the special law was about to expire. Under the special law, NCHZ was only required to pay social security and health insurance contributions in part and therefore received an undue advantage over competitors who had to meet their obligations in full. This advantage, in the form of the accumulated public liabilities, amounts to around €4.8 million and now needs to be returned to Slovak taxpayers.
In relation to the second period, the Commission found that none of the public creditors had a veto right in the creditors' committee. Therefore they could not block the other creditors or take decisive influence in the decision whether to continue operations. This decision is therefore not imputable to the state. Moreover, the creditors' decision was based on a detailed economic analysis prepared by the administrator, which concluded that it was in the interest of the creditors to continue operations and sell the business as a going concern. The proposal was accepted by all creditors (public and private). The different state entities represented in the creditors' bodies thus behaved as any private creditor would have done in the same circumstances in accordance with the so-called market economy investor principle. For these reasons the continued operation of NCHZ in the second period did not involve state aid.
Finally, the Commission's investigation established that NCHZ was sold in a bundle to an investor who took over the large majority of the employees and continued the same business strategy as NCHZ. The buyer, Fortischem, is therefore the economic successor of NCHZ who still retains the undue advantage procured by the incompatible aid.
In 2009 the Commission fined NCHZ for participating in a cartel on the markets for calcium carbide (see IP/09/1169). NCHZ appealed the fine and at the same time filed for bankruptcy. In 2012, the EU General Court upheld NCHZ's fine (see MEMO/12/985).
In 2012 NCHZ was sold to Via Chem Slovakia, a Czech company. One day later, Via Chem Slovakia sold the chemical division business of NCHZ (with more than 95% of the employees) to Fortischem.
To comply with a Commission decision ordering the recovery of incompatible aid, it is well established EU court jurisprudence that insolvent beneficiaries have to be wound up in accordance with national bankruptcy procedures, the liabilities relating to the repayment of the aid must be registered in the schedules of liabilities, and their assets have to be sold under market conditions, provided that the bankruptcy procedures lead to their exit from the market.
The EU courts have also made it clear that, when the aid has not been entirely recovered from the insolvent beneficiary and a company has been created to continue some of its activities, the pursuit of these activities (so-called "economic continuity") may prolong the distortion of competition brought about by the advantage that the incompatible aid had procured. Accordingly, the newly created company may, if it retains that advantage, be required to repay the aid in question.
To determine whether aid has been passed on to new owners in an asset sale, the Commission assesses whether there is economic continuity between the new and previous owner. The Commission uses a set of indicators, such as the scope of the sold assets (assets and liabilities, maintenance of workforce, bundle of assets), the sale price, the identity of the buyer(s), the moment of the sale and the economic logic of the operation.
Public interventions in companies that carry out economic activities can be considered free of state aid in the meaning of the EU rules when they are made on terms that a private player operating under market conditions would have accepted (the market economy investor principle – MEIP).
If the MEIP is not respected, the public intervention constitutes state aid because it procured an economic advantage to the beneficiary that its competitors did not have. The Commission will then proceed to assess, whether such aid can be found compatible with the common EU rules that allow certain categories of aid.
The non-confidential version of the decision will be made available under the case number SA.33797 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.