Court of Justice qualifies declarations of government support as State aid
France Télécom SA (‘FT’) was formed in 1991 as a legal person governed by public law, and since 31 December 1996 had had the status of a public limited company. Since October 1997, FT had been listed on the stock exchange. In 2002 the French State’s participation in FT’s capital was 56.45%, the remainder being divided between the public (32.25%), France Télécom itself (8.26%) and employees of the company (3.04%).
In the
period from March to June 2002, Moody’s and Standard & Poor’s downgraded
FT’s rating and also downgraded its prospects to negative. In particular, on 24
June 2002 Moody’s downgraded FT’s rating for long and short term credit notes
to the lowest investment grade. At the same time, FT’s share prices fell
significantly.
France Télécom SA (‘FT’) was formed in 1991 as a legal person governed by public law, and since 31 December 1996 had had the status of a public limited company. Since October 1997, FT had been listed on the stock exchange. In 2002 the French State’s participation in FT’s capital was 56.45%, the remainder being divided between the public (32.25%), France Télécom itself (8.26%) and employees of the company (3.04%).
In the
first quarter of 2002, FT published its accounts for 2001, which showed a net
debt of EUR 63.5 billion and a loss of EUR 8.3 billion.
In the
period from March to June 2002, Moody’s and Standard & Poor’s downgraded
FT’s rating and also downgraded its prospects to negative. In particular, on 24
June 2002 Moody’s downgraded FT’s rating for long and short term credit notes
to the lowest investment grade. At the same time, FT’s share prices fell
significantly.
In light of
FT’s financial situation, the French Minister for Economic Affairs, Finance and
Industry, in an interview published on 12 July 2002, stated, in essence, that
if FT were to face any financing problems, the French State would take whatever
decisions were necessary to overcome them.
On the same
date, S & P downgraded FT’s rating for long term credit notes to the lowest
investment grade, stating that this grade was maintained only as a result of
the French State’s comments regarding FT.
On 13
September 2002, FT published its half-yearly accounts, which confirmed that, as
at 30 June 2002, FT’s consolidated own funds became negative to the amount of
EUR 440 million, and that its net debt reached EUR 69.69 billion, including EUR
48.9 billion of bond debt falling due for repayment during the period from 2003
to 2005.
In a press
release of 13 September 2002 on FT’s financial situation, the French
authorities stated, in essence, that the French State would contribute to the
strengthening of FT’s capital base and would, if necessary, take steps to
prevent FT from being faced with any financing difficulties. The authorities inter
alia announced that French State’s entire shareholding in FT would be
transferred to Entreprise de recherches et d’activités pétrolières (Petroleum
Research and Activity Corporation) (ERAP), a public industrial and commercial
entity. The latter will borrow on the financial markets in order to finance the
French State’s share in the strengthening of FT’s capital base.
On the same
day, Moody’s changed the outlook of FT’s debt from negative to stable owing to
the French State’s confirmation of its commitment to support FT.
On 2
October 2002, a new chief executive officer was appointed to FT. The press
release announcing that appointment, in essence, repeated the statement in the
press release of 13 September 2002.
At FT’s
board meeting of 4 December 2002, the new management of FT presented an action
plan entitled ‘Ambition France Télécom 2005’ aimed essentially at rebalancing
FT’s balance sheet by strengthening its capital base to the amount of EUR 15
billion.
The
presentation of the Ambition 2005 plan was accompanied by a press release by
the Minister of Economic Affairs, Finance and Industry of 4 December 2002 (‘the
announcement of 4 December 2002’), which confirmed the French State’s support
for the action plan approved by FT’s board of directors on 4 December .
On 11 and
12 December 2002, FT launched two successive bond issues for a total amount of
EUR 2.9 billion.
On 17
December 2002, S & P indicated that since July 2002 the French State’s
support had been one of the key factors in maintaining FT’s investment-grade
rating, and that its announcement concerning the shareholder loan and the
commitment to subscribe in proportion to its shareholding to a EUR 15 billion
recapitalisation operation confirmed that support.
On 20
December 2002, ERAP sent FT an initialed and signed draft shareholder loan
contract. FT did not sign that draft contract and the shareholder loan was
never implemented.
On 15
January 2003, FT raised loans in the form of bond issues for a total amount of
EUR 5.5 billion. Those bond issues were not covered by a State security or
guarantee. On 10 February 2003, FT renewed part of a maturing syndicated loan
to the amount of EUR 15 billion.
On 4 March
2003, the operation to strengthen the capital base as envisaged by the Ambition
2005 plan was launched. On 24 March 2003, FT carried out a capital increase of
EUR 15 billion. The French State participated in that operation to the amount
of EUR 9 billion in proportion to its share in FT’s capital. That operation was
terminated on 11 April 2003.
FT ended
the 2002 financial year with a loss of EUR 21 billion and a net financial debt
of EUR 68 billion. Its accounts for showed a rise of 8.4% in turnover, of 21.1%
in the operating result before amortisation and of 30.9% in the operating
result. On 14 April 2003 the French State held 58.9% of FT’s capital, of which
28.6% through ERAP.
On 22
January 2003, the Bouygues companies, two companies governed by French law, of
which Bouygues Télécom SA is active on the French market for mobile telephony,
submitted a complaint to the Commission concerning, in particular, two cases of
aid allegedly granted by the French State to FT, as a result of, first, the
public declarations made by the French authorities in favour of FT from July
2002 and, secondly, the announcement of
4 December 2002 of the shareholder loan offer in the amount of EUR 9 billion.
The Commission
The
Commission found that in July 2002, FT was facing a crisis of confidence
threatening to hinder the planned refinancing and to create risks for its
liquidity in 2003. It stated that, in light of the press releases by the French
authorities on 13 September 2002 and 2 October 2002, the rating agencies
Moody’s and S & P had changed their assessment of the management of FT’s
debt and noted an increase in market confidence.
The
Commission noted that the declaration of 12 July 2002 certainly had an effect
on the markets and conferred an economic advantage on FT. However, following
its analysis of numerous legal arguments, the Commission took the view that it
did not have sufficient information to enable it to demonstrate that that
declaration was, at least potentially, of such a character as to commit State
resources.
By
contrast, the Commission considered that the shareholder loan offer conferred
an advantage on FT and potentially committed State resources. First, the loan
would have enabled FT to increase its means of financing and to reassure the
market as to its capacity to meet its maturities. Secondly, a potential
additional burden on State resources had been created by the announcement of
the provision of the shareholder loan, coupled with the fulfilment of the
preconditions for that provision, by the impression given to the market that
the loan had actually been provided and, lastly, by the dispatch of the loan
offer.
The
Commission also took the view that, in the competitive telecommunications
sector, advantages such as those which benefited FT distorted or threatened to
distort competition to a particularly appreciable extent, and were likely to
affect trade between Member States.
In
paragraphs Commission considered that, in light of the impact on the market, in
particular the declarations from July 2002, the measures notified satisfied
neither the test of the prudent private investor in a market economy, nor those
relating to aid for rescuing or restructuring firms in difficulty. Therefore,
it concluded that the measures referred to constituted State aid incompatible
with the common market.
However,
considering that the impact of this aid could not be evaluated with precision,
and that the overall analysis of the elements of that aid, apart from the
shareholder loan offer, in light of their compatibility with the rules on State
aid was new, the Commission took the view , that respect for the rights of the
defence and the principle of the protection of legitimate expectations stood in
the way of recovery of the aid.
The General Court
The General
Court found that the declarations from July 2002 could not be regarded as a
guarantee or interpreted as exposing the resources of the French State to a
risk that constituted a transfer of State resources, and rejected the Bouygues
companies’ application for annulment of Article 1 of the contested decision in
that the Commission refused to characterise the declarations from July 2002 as
State aid.
As to the
announcement of 4 December 2002, the General Court held, in paragraph 293 of
the judgment under appeal, that neither the Commission nor the Bouygues
companies had maintained that that announcement, in itself, contained a
sufficiently precise, firm and unconditional commitment supporting a finding of
the existence of a transfer of State resources within the meaning of Article
87(1) EC. Moreover, in paragraphs 294 to 298 of the judgment, the General Court
held that the Commission had not demonstrated that the announcement of 4
December 2002 involved a transfer of State resources.
As to the shareholder loan offer, the General
Court held that, in so far as the Commission had not established satisfactorily
any advantage deriving from it, it was not, a fortiori, possible for the Court
to find the existence of any transfer of State resources linked to that
advantage.
The General
Court concluded that the Commission had failed to apply the concept of State
aid within the meaning of Article 87(1) EC by finding that the shareholder loan
offer, when placed in the context of the declarations from July 2002, involved
the conferment of an advantage on FT which resulted from a transfer of State
resources, and annulled Article 1 of the contested decision.
The Court of Justice
The Court first of all reiterated that, under the terms
of Article 107(1) TFEU, save as otherwise provided in the Treaties, any aid
granted by a Member State or through State resources in any form whatsoever
which distorted or threatened to distort competition by favouring certain
undertakings or the production of certain goods, in so far as it affected trade
between Member States, was incompatible with the internal market.
The Court
reiterated that only advantages granted directly or indirectly through State
resources or constituting an additional burden on the State were to be regarded
as aid within the meaning of Article 107(1) TFEU. According to the Court, the
very wording of this provision and the procedural rules laid down in Article
108 TFEU showed that advantages granted from resources other than those of the
State did not fall within the scope of the provisions in question (see Joined Cases C-72/91 and C-73/91 Sloman Neptun
[1993]; Case C-200/97 Ecotrade [1998]; and Case C-379/98 PreussenElektra [2001]).
It should be noted that, according to
settled case-law, it is not necessary to establish in every case that there has
been a transfer of State resources for the advantage granted to one or more
undertakings to be capable of being regarded as a State aid within the meaning
of Article 107(1) TFEU (see Case C
387/92 Banco Exterior de España [1994; Case C 6/97 Italy v Commission [1999];
and Case C-482/99 France v Commission [2002]).
In
particular, measures which, in various forms, mitigated the burdens normally
included in the budget of an undertaking, and which therefore, without being
subsidies in the strict meaning of the word, were similar in character and had
the same effect, were considered to be aid (see Case C-75/97 Belgium v
Commission [1999]; and Case C-156/98 Germany v Commission [2000]).
The Court
pointed out that it was settled case-law that Article 107(1) TFEU defined
measures of State intervention in relation to their effects (Case C-124/10 P
Commission v EDF and Others [2012]).
The Court,
importantly, held that as State interventions took various forms and had to be
assessed in relation to their effects, it could not be excluded, that several
consecutive measures of State intervention must, for the purposes of Article
107(1) TFEU, be regarded as a single intervention.
According
to the Court, that could be the case in particular where consecutive
interventions, especially having regard to their chronology, their purpose and
the circumstances of the undertaking at the time of those interventions, were
so closely linked to each other that they were inseparable from one another
(see, to that effect, Case 72/79 Commission v Italy [1980]).
The Court
therefore concluded that, having found that it was necessary to identify a reduction
of the State budget or a sufficiently concrete economic risk of burdens on that
budget, closely linked and corresponding to, or having as a counterpart, a
specific advantage deriving either from the announcement of 4 December 2002 or
from the shareholder loan offer, the General Court erred in law by applying a
test that immediately excludes those State interventions, depending on their
links with one another and their effects, from being regarded as a single
intervention.
The Court
added that State intervention capable of both placing the undertakings which it
applied to in a more favourable position than others and creating a
sufficiently concrete risk of imposing an additional burden on the State in the
future, might place a burden on the resources of the State. In particular, the Court found reiterated
advantages given in the form of a State guarantee can entail an additional
burden on the State (see Case C-275/10 Residex Capital IV [2011]).
The Court
concluded that for the purposes of establishing the existence of State aid, the
Commission must establish a sufficiently direct link between, on the one hand,
the advantage given to the beneficiary and, on the other, a reduction of the
State budget or a sufficiently concrete economic risk of burdens on that budget
(see, to that effect, Case C-279/08 P Commission v Netherlands [2011 ).
However,
contrary to what the General Court found, it was not necessary that such a
reduction, or even such a risk, should correspond or be equivalent to that
advantage, or that the advantage had as its counterpoint such a reduction or
such a risk, or that it is of the same nature as the commitment of State
resources from which it derives.
The Court also
found that the shareholder loan constitutes an advantage within the meaning of
Article 107(1) TFEU. As to the condition
relating to the commitment of State resources as included in Article 107(1)
TFEU, the Court held that the shareholder loan concerned the opening of a
credit line of EUR 9 billion. The Court held that “while, admittedly, it was
true that FT did not sign the loan agreement sent to it, the beneficiary could
have signed it at any time, thereby acquiring the right to obtain immediate
payment of the sum of EUR 9 billion.”















