17.01.2015 | KPMG Law Insights

ECJ clarifies framework for EU aid to economically distressed companies

Dear Readers,

We are starting this first newsletter of the new year with a discussion of a ruling: The European Court of Justice has made a pleasingly clear statement on the extent to which state authorities can grant EU subsidies to companies and what role the so-called private investor test can play in this.

There were also some developments in higher education and public procurement law at the end of last year: The Federal Social Court (Bundessozialgerichtshof) ruled on the scope of accident insurance coverage for students during stays abroad and university sports activities. Read our second article on this topic.

The fact that bidding consortiums are considered permissible per se and that public contracting authorities – such as universities and, if applicable, public institutions of higher education – are not allowed to use such consortiums. The Düsseldorf Higher Regional Court has clearly stated that the German Federal Ministry of Economics and Technology – also as a research institution – does not have to initiate an antitrust review or demand a statement to this effect from the bidding consortium without further concrete grounds. For more details, please refer to our third article. In addition, we have summarized for you the essential news from the field of education/research.

Sincerely yours

Public Sector Team of KPMG Rechtsanwaltsgesellschaft mbH

Mathias Oberndörfer Dr. Anke Empting

Lawyer Attorney

Private investor test for aid to economically distressed companies

Can the EU grant state support measures in favor of public companies when they are in economic difficulties? In this regard, the European Court of Justice (ECJ, judgment of January 15, 2015, Case T-1/12, “SeaFrance”) recently stated: Such supplementary aid is subject to special requirements for EU state aid control.

A state-owned company of the French Republic (France) had granted state funds in the form of the provision of several credit lines to a wholly owned subsidiary due to its financial difficulties. France had notified this to the EU Commission as rescue aid and had it approved. Some time later, France again notified an aid measure in favor of the subsidiary. This time it concerned restructuring aid in the form of an increase in the subsidiary’s capital.

A competitor of the subsidiary filed a complaint against this with the EU Commission. After a detailed investigation, the Commission came to the conclusion that both measures were incompatible with the internal market and therefore had to be recovered. The restructuring aid does not meet the relevant “private investor test” for the exclusion of aid.

Accordingly, a private investor in a market economy would not have made comparable injections of funds. The ECJ confirmed that the measures were illegal under state aid law.

Relevance of the ECJ ruling to EU state aid law

The court makes it clear that state measures must always be assessed under EU state aid law in light of all prior measures in favor of the company or entity in question. On the other hand, the ruling shows that the EU Commission and the European Courts take an exclusively market-oriented approach when applying the “private investor test” and focus primarily on the return prospects of the beneficiary company.

Accident insurance coverage of students also exists abroad and at university championships

The fact that students are protected by the statutory accident insurance of universities (so-called “student insurance”) when participating in university sports is expressly stipulated in the Seventh Social Code (SGB VII). However, it is not clear from the statutory provision whether the insurance coverage also extends to special events organized by universities, such as a skiing course abroad or the holding of university championships.

At the end of last year, two landmark rulings were issued by the Federal Social Court (BSG, rulings dated December 4, 2014, Ref.: B 2 U 13/13 Rund B 2 U 10/13 R).

The BSG first fundamentally stated that students are also covered by the statutory accident insurance in the case of skiing trips abroad offered by their university and carried out by ski instructors of the university sports department of this university. However, this necessarily requires that participation is essentially only open to students.

However, the BSG did not specify when “participation is essentially open only to students.”

Regarding insurance coverage for college championships:

The second BSG case involved a student who participated in the German University Championships as a member of his university’s basketball team. During a game, the plaintiff injured his knee. Here, too, the defendant accident insurance institution refused to establish an occupational accident.

The BSG confirmed comprehensive insurance coverage for the plaintiff student. Participation in the basketball game was part of his education and training.

Bidding consortiums are not per se in violation of antitrust law

To the delight of bidding consortiums, the Düsseldorf Higher Regional Court stated in its decision of December 17, 2014 (Verg 22/14) that bidding consortiums are not subject to any general suspicion of antitrust violations.

In the first-instance review proceedings before the Federal Procurement Chamber (decision of June 16, 2014 – VK 1-38/154) and the second-instance proceedings before the Düsseldorf Higher Regional Court (decision of 17 December 2014 – Verg 22/14), the applicant, a member of a bidding consortium, had complained, among other things, that its services as a simple member of a bidding consortium had not been taken into account in the evaluation of the criterion “previous successes and quality”.

The respondent claimed, among other things, that the applicant had joined forces with other bidders in violation of antitrust law.

What does the court say?

The Düsseldorf Higher Regional Court stated, among other things:

  • Bidding consortia are provided for by law (in this case Section 6 (1) sentence 1 VOL/A) as bidders in principle;
  • The bidding consortium does not have to provide evidence that it complies with the antitrust law together with the bid, but only after a separate request by the contracting authority.
  • the contracting authority shall require such a statement of reasons if indications of an inadmissible bidding consortium are evident.

Furthermore, the Higher Regional Court stated: The failure to take into account the previous performance of an ordinary member of a bidding consortium violates the principle of competition and equal treatment under public procurement law.

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