Restructuring Aid Research Articles

Rescue and Restructuring Aid

Rescue and Restructuring Aid

Rescue and Restructuring Aid

Rescue and Restructuring Aid

One Time, Last Time, or Why the CE Oltenia Lignite Restructuring Aid Approval Makes for an Accident, Not a Precedent · Commission Decision on State Aid SA.59974 Complexul Energetic Oltenia SA · Annotation by Clemens Ziegler

The author considers the European Commission’s approval of the Romanian restructuring aid for Complexul Energetic Oltenia of January 2022 to be an accident. Allowing State aid for bankrupt undertakings’ investments in new fossil gas capacities without the conditions that are imposed on their competitors that would receive aid under the Commission’s Climate, Energy and Environmental Aid Guidelines leads to incoherence in the Commission’s State aid practice. It distorts the market situation for decades in a way contradicting the spirit of the Commission’s Green Deal. The Decision also shows the need for improving civil society actors’ participation rights in State aid proceedings and related court proceedings.

A Critical Analysis of Rescue and Restructuring Aid

Rescuing and restructuring aid (R&R aid) is one of the most controversially debated categories of State aid and perceived very critically by the Commission. In the course of the State aid modernisation programme in 2014, the Commission has tightened the requirements to grant such aid by introducing a non-exhaustive list of balancing criteria. This counterfactual analysis increasingly shifts the focus to the economic effects of R&R aid and the incentives it creates. The modernised R&R aid therefore primarily aims at promoting a more reliable assessment of all the effects of an intervention whilst enhancing the predictability of decisions. Despite the efforts the Commission has put into improving R&R rules, this article asserts that due to R&R aid’s pervasive and distortive nature, it can hardly ever be justified and should consequently be replaced with other, less distortive market instruments, such as harmonised insolvency proceedings. Considering the fact that the EU consists of 28 countries with various national interests, the currently very restrictive practice of R&R aid could, however, be seen as a temporary compromise solution between Member States and the Commission. Keywords: Rescue and Restructuring Aid; State aid Modernisation; Justifiability of Rescue and Restructuring Aid

EU rescue and restructuring state aid guidelines

Undertakings in difficulty, having exhausted all market options, may resort to State aid to rescue and/or restructure its operations in order to return to viability. the author looks closer into the opportunity for such undertakings to change within so as to abandon practices which may have represented at least one of the roots of the deficiencies leading them to difficulties. The stringent rules of rescue and restructuring of firms in difficulties provide a second chance to restore their business, account of debts, take stock of actions and potentially rise again. Yet, the overall restructuring given as a second chance by the State aid and the role of the state, should not present a carte blanche for old policies and approaches to be repeated with the taxpayers’ money. The restructuring should also be a stock-taking opportunity, an internal scrutiny where the corporate culture and the governance of the undertaking changes as well. There should be room to (re)consider corporate governance and audit of corporate culture as elements of restructuring process as well as restructuring plans, to prevent the undertaking on the receiving end of State aid to lapse again. Being given a second chance, applying practices and exercising behaviour that (may) have lead the undertaking to its difficulties, is not a guarantee of successful restructuring and return to viability but may, indeed, represent an internal subjective peril to the objective restructuring goals to be achieved. Hence, the author explores whether non-tangible elements such as an enhanced corporate governance and change of corporate culture, should be introduced as mandatory in the course of undertaking restructuring. The author does not probe into corporate governance and corporate culture as such, but perceives them as welcoming factors to achieve the desired outcome of restructuring aid, namely a successful return to viability using restructuring aid.

The impact of state aid on the survival and financial viability of aided firms

We estimate the causal impact of restructuring aid granted by the European Commission between 2000 and 2012 on the survival and financial viability of aided firms. Using a comprehensive dataset we find that restructuring aid decreases the hazard rate of a market exit by 58–68% and increases firms’ average survival time by 8–15 years, depending on the definition of firm survival. We also find that aid receiving firms have a significantly higher probability to improve their financial viability than the counterfactual group in the longer run.

Podatkowe instrumenty pomocy publicznej

During the period 2007–2013 grants were the dominant instrument of state aid and de minimis aid in Poland. They were followed by fiscal (passive) instrument, which accounted for 8.7% of total aid and 6% of de minimis aid in 2013, mainly in the form of tax relief and exemptions (A2) provided by the tax authorities and local government. The instrument was used as rescue and restructuring aid but also as development aid.

The Rescue and Restructuring Aid Guidelines of the European Commission: An Economic Point of View

In the context of its ambitious State Aid Modernization work, the European Commission presented new guidelines on Rescue and Restructuring (R&R) aid in 2014. In this article, the consequences for generic R&R aid and in particular the balancing test for State aid proposed by the guidelines are discussed. Given the severe and pervasive harm of R&R aid explicitly recognized by the guidelines, granting R&R aid can only be justified under the proposed balancing test if the R&R aid contributes strongly to an objective of common interest. This objective of common interest may either be addressing a market failure or increasing social or economic cohesion. As is argued here, R&R aid can, by definition, not address or alleviate a market failure. Regarding social and economic cohesion, while R&R aid may plausibly prevent the increase of unemployment in a particular region or prevent the interruption of a service of general economic interest, it is rather doubtful that R&R aid is an appropriate policy instrument in these circumstances. In summary, in all but possibly two special cases R&R aid would fail the balancing test. To the extent that the economic principles set out in the new guidelines are taken seriously, the guidelines for R&R aid may therefore ultimately mean nothing less than the abolition of R&R aid in practice.

EU Competition Law Developments in the Aviation Sector: July to December 2014

The second half of 2014 has seen a dramatic increase in competition law activity in all areas, from mergers, to State aid as well as private enforcement. The European Commission ('Commission'), in particular, wrapped up no less than eighteen aviation related State aid investigations, perhaps reflecting the desire of the outgoing Commissioner's desire to clear the backlog of cases, but also probably relating to the Commission's adoption of the new Aviation Guidelines published in February this year and supplemented with new guidelines for rescue and restructuring aid to non-financial undertakings. Only four of the eighteen cases related solely to State aid granted to airlines and fourteen cases related to aid granted to airports with some cases also considering the potential State aid grated to one or more carriers operating at the airport. With an increase in the number of follow-on damages actions (taken by those affected by allegedly anti-competitive activity) there has also been an increase in the number of judgments handed down and still awaited clarifying specific points of law, particularly at the moment surrounding the complainant's access to the Commission's decision and documents on its file. The Commission's airfreight decision is notable insofar as there are now follow-on damages actions being taken in Germany, The Netherlands, Norway and the UK, as well as in the US. In the context of mergers, the Commission was notified of at least nine aviation related mergers, of which two related to airlines (Alitalia and CSA Czech Airways), two related to airports (in Croatia and the UK), four related to ancillary services (fuel, IT, pilot training and aircraft leasing) and final merger related to space launchers, satellite subsystems and missile propulsion.

The Rescue & Restructuring Aid Guidelines of the European Commission - An Economic Point of View

In the context of its ambitious State Aid Modernisation work, the European Commission presented new guidelines on Rescue and Restructuring (R&R) aid in 2014. In this paper the consequences for generic R&R aid and in particular the balancing test for State aid proposed by the guidelines are discussed. Given the severe and pervasive harm of R&R aid explicitly recognized by the guidelines, granting R&R aid can only be justified under the proposed balancing test if the R&R aid contributes strongly to an objective of common interest. This objective of common interest may either be addressing a market failure or increasing social or economic cohesion. As is argued here, R&R aid can, by definition, not address or alleviate a market failure. Regarding social and economic cohesion, while R&R aid may plausibly prevent the increase of unemployment in a particular region or prevent the interruption of a service of general economic interest, it is rather doubtful that R&R aid is an appropriate policy instrument in these circumstances. In summary, in all but possibly two special cases R&R aid would fail the balancing test. To the extent that the economic principles set out in the new guidelines are taken seriously, the guidelines for R&R aid may therefore ultimately mean nothing less than the abolition of R&R aid in practice.

Consolidation or Fragmentation? European Competition Law in the EU Air Transport Sector: A Policy Analysis

This article analyses the priorities of European competition law in the air transport sector in the light of the ongoing process of the industry’s consolidation. The oligopolistic nature of the airline business results in a natural tendency towards its concentration. From the standpoint of regulatory oversight, the question is how to manage or counteract this tendency in order to achieve defined policy goals. In this vein, European competition law has departed from the model whereby the competitive process in itself is the priority and turned to an instrumental approach, with preference given to the welfare of customers. This analysis will highlight three policy areas relevant to the discussed subject. It begins with antitrust law, with special emphasis on the sector-specific phenomenon of airline alliances; then discusses merger control, especially in the context of pro-competitive remedies, and finally State aid, with particular focus on the effects of the compensatory scaling-down of operations which are imposed on recipients of a rescue and restructuring aid grant.

Sharing the Burden-the New Obligations Imposed on Banks Seeking Restructuring Aid

Sharing the Burden-the New Obligations Imposed on Banks Seeking Restructuring Aid

The European Commission's Programme for State Aid Modernization

The European Commission has set out a modernization programme for state aid. This affects both substantive state aid law and administrative procedures. On substance, while the Commission has no power to change the meaning of state aid, which is derived from Article 107 TFEU and is a matter of law ultimately for the CJEU, it intends to issue a detailed Notice on the notion of aid, in particular in relation to fiscal aid and application of the market investor principle. More proactively, the Commission is revamping the system of assessment and exemption, with a plan to reform the general block exemption and the various guidelines on, for example, environmental protection, research and development and innovation, risk capital and restructuring aid. A more analytical approach, weighing up the economic effects, will be carried out in assessing compatibility. On the procedural side, the main reform is intended to lessen the Commission's administrative workload by reducing the number of complaints that require a Commission decision. Whereas, at present, all complaints must be acted on, regardless of the interest of the complainant, it is intended that henceforth complainants would have to show that they were interested parties within the meaning of the Procedural Regulation. Complaints from other persons would merely be treated as information tools. The Commission also is seeking to introduce new powers for gathering market information from sector participants.

Restructuring Aid Granted Prior to the Accession of a Member State to the EU: “Existing Aid” under Article 1(b) of Regulation No 659/1999?

Restructuring Aid Granted Prior to the Accession of a Member State to the EU: “Existing Aid” under Article 1(b) of Regulation No 659/1999?

Compensating Competitors or Restoring Competition? EU Regulation of State Aid for Banks During the Financial Crisis

We contrast the theory underpinning state aid for failing banks with that for failing firms in the non-financial sector. We argue that there is little justification for measures to ‘compensate’ rivals when the bank has been saved for reasons of systemic stability. The Commission’s approach to bank restructuring aid takes insufficient notice of this. Furthermore, the use of punitive divestitures is not the best way of addressing moral hazard. Worse, such divestitures can impede competition by creating weak rivals. We provide four detailed case studies to illustrate the problems. We conclude that the Commission provided a useful constraint in the midst of a crisis of unprecedented scale and complexity, but its approach could have been improved by more systematic attention to effective competition relative to the appropriate counterfactual.

The limitations of European Union control of state aid

The European Union (EU) is one of the few jurisdictions in the world that has introduced specific legal provisions for controlling state aid. The treaty provisions are structured in such a way that the Commission is in principle obliged to authorize every single grant of aid. This has proved to be practically impossible, the more so with 27 members of the EU. As a result, the Commission has issued a number of exemption and de minimis rules, for which notification is not required, that suggest that the bulk of state aid is beneficial. In order for state aid policy to become more rigorous, the 2005 State Aid Action Plan rightly enhanced the role of economic analysis. This means rethinking the exemption regulations and the way individual decisions are taken. One important step forward would be to make sure that distortions of competition are noticeable before a state measure is declared incompatible. As a result, at least with respect to individual decisions, EU policy would stop addressing cases where the distortions of competition are minimal. Furthermore, the Commission would stop imposing irrelevant constraints on subsidized forms. This is particularly the case for restructuring aid, where the restoration of the healthiness of the firm is the final objective of the aid. However, even in recent decisions taken as a result of the financial crisis, the Commission uses competition-type considerations only to overcome moral hazard by attaching a number of intrusive conditions to its authorization decisions (prohibition of reducing prices before a competitor does, introduction of capacity or sales caps, merger prohibitions, caps on managers’ salaries, etc.). Very often these conditions reduce, not increase, the probability that these companies restructure successfully. Moral hazard can only be eliminated by not allowing the aid, by limiting the aid to what is strictly necessary, or by making sure that it is a once-and-for-all option, and not by constraining the company from competing. Copyright 2012, Oxford University Press.

Revising the Rescue and Restructuring Aid Guidelines for the Real Economy – A Practitioner’s Wishlist

A review of the Community Guidelines on State aid for rescuing and restructuring firms in difficulty (R&R Guidelines) is overdue. The financial and economic crisis had shown that the current R&R Guidelines were inadequate for dealing with the particular issues of that crisis, and the temporary solutions that were put in place no longer apply to large companies in the real economy. This article provides some thoughts from a practitioner’s point of view, as to the issues tha

A Critical Look at the Conditions Attached to the Restructuring Plans for Ailing Banks Under the European Commission’s Restructuring Communication

EU Member States that during the global financial crisis granted financial support to banks have notified or are to due to soon notify restructuring plans for rescued banks. The guidelines on restructuring aid to banks released by the European Commission set out the criteria for the drafting of the restructuring plans. Through these plans the Commission tries to reconcile the objectives of restoring financial stability and maintaining a healthy competition. Importantly, the conditions attached to the restructuring plans may affect to a significant extent the activities and organization of the rescued banks. This article provides for a detailed account of which restructuring measures the Commission has so far imposed. It also outlines the effects that the implementation of these measures are likely to have on the market position of each bank concerned and on the competitiveness of the European banking industry as a whole.

The Application of the Principles of Restructuring Aid to Banks during the Financial Crisis

The financial crisis and the responses to it from Member States and market participants have presented significant and unique challenges to the Commission’s state aid policy, both in terms of the volume and nature of the aid measures being implemented and the speed with which they have been proposed and market conditions have evolved. It is unsurprising then that the Commission’s approach to assessing state aid in the financial crisis has also evolved over the last 15 months, with apparently quite dramatic changes in both the substance and procedure of state aid control. After a period of a cautious approach between October 2008 and March 2009 with a strong focus on the stability of the financial sector, the Commission has increasingly tightened state aid control in the banking sector through the application of the principles of restructuring aid. These principles have been developed in the context of industries with overcapacity and often with firms suffering from idiosyncratic difficulties, and rely on assumptions which lead to results consistent with a proper effects-based analysis (albeit not an unstructured “rule of reason” analysis) in those cases. The banking industry during the current financial crisis, however, differs in fundamental ways from the earlier restructuring cases, in particular the under-supply of lending due to a general lack of confidence and the systemic causes of the recipient banks’ difficulties. As a result, several of the assumptions underlying the restructuring principles do not hold and the restructuring principles lead to a fundamentally different outcome then under an effects-based analysis. By applying the restructuring principles in a fundamentally different context, the Commission risks pursuing a policy which not only fails to achieve any benefits but which is highly likely to make a bad situation worse, harming consumers, the banking industry and the economy at large. The paper is structured as follows: Section 2 describes the causes and effects of the financial crisis in Europe while Section 3 summarises the Commission’s state aid policy response to the financial crisis from the days prior to the collapse of Lehman Brothers to the recent publication of the Financial Crisis Restructuring Guidelines. Section 4 provides a brief overview of the elements of an economics-based analysis which is subsequently applies to restructuring aid under Article 87(3)(c) (in Section 5). The rationale of “normal” restructuring aid cases is then contrasted with restructuring aid to banks in the financial crisis: Section 6 sets out the case for and the implications of an effects-based assessment of restructuring aid under Article 87(3)(b) while the following section looks at the impact of the Commission’s remedies. Section 8 concludes.

European State Aid Policy in Search of a Standard - What is the Role of Economic Analysis?

In the early years of enforcement of antitrust and of State aid in Europe, given the integration objectives that the European Treaty pursues, fairness seemed the most natural standard to choose. In antitrust it took more than forty years to convince the Commission and the Courts of the soundness of the effect based approach. By enhancing the role of economic analysis, the objective of the 2005 State Aid Action Plan was to modernize State aid policy. Unfortunately the Commission did not go as far as suggesting that distortions of competition be noticeable before a State measure is declared incompatible. As a result, EU policy continues to be over extensive addressing cases where the distortions of competition are minimal. This is particularly the case for restructuring aid, where the effects of the aid on competition are hardly analyzed in the Commission decisions. In these cases the restoration of the healthiness of the firm is the final objective of the aid. However the Commission, while often authorizing the aid, tries to overcome moral hazard by attaching a number of very intrusive conditions to its authorization decisions (prohibition of reducing prices before a competitor does, introduction of capacity or sales caps, etc). These conditions reduce, not increase, the possibility of these companies to successfully restructure. Moral hazard can only be eliminated by not allowing the aid, not by constraining the company from competing. Finally when the anticompetitive effect of the aid is only indirect, restitution of the aid requires a very difficult calculation of the added value of the aid on the market equilibrium. A very complex calculation to be performed and hardly capable of being established by a Court. A new and different criterion should be devised for sanctioning indirect aid.