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Ticket to ride
28 Apr 2025 eu Print

Ticket to ride

Recovery of illegal state aid can be made against a subsequent transferee of the aid-recipient business. Marco Hickey gets on the bus

Article 107 of the Treaty on the Functioning of the European Union (TFEU) prohibits state aid unless approved by the commission.

More specifically, article 107(1) states that any aid granted by a member state or through state resources in any form whatsoever that distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between member states, be regarded as incompatible with the internal market.

EU state-aid law provides for the grant of an exemption in certain circumstances. In January 2015, the EU Commission ordered Italy (decision 2015/1075) to recover state aid from Buonotourist, a bus transport company that had been granted aid in breach of the EU state-aid rules.

Buonotourist appealed unsuccessfully both to the General Court (Case T-185/15) and then to the Court of Justice of the European Union (Case C-586/18 P).

One of the issues that arose before the courts was in relation to the application of a principle of EU state-aid law that provides that the payment of compensation to an undertaking performing a public-service obligation can fall outside of the EU state-aid rules where certain conditions are met – these are known as the ‘Altmark conditions’.

Each of the judgments of the General Court and CJEU endorsed the commission’s assessment that a public-service obligation could not be imposed ex post on Buonotourist in order to enable it to receive compensation so as to cover its operating losses.

Both courts agreed with the commission that being licensed to transport passengers was not the same as being obliged to provide public-transport services.

A local Italian regional administrative court, on a request by Buonotourist, had ordered the regional authority, Regione Campania, to pay “compensation” to Buonotourist.

The regional authority then notified the payment to the commission, which concluded that, since the payment constituted incompatible state aid, the regional authority was required not to comply with the ruling of the local court.

Tickets please

In May 2019, Scai leased from Buonotourist its staff and buses for the operation of local public-transport services. 

Subsequently, AIR Campania purchased those assets from Scai in order to provide transport services pursuant to a contract it was awarded by Regione Campania.

In 2020, Buonotourist was declared insolvent. After attempting unsuccessfully to recover the state aid from Buonotourist, Regione Campania ordered Scai to repay that aid, on the basis of the existence of economic continuity between Buonotourist and Scai.

The recovery order was contested by Scai on the ground that it was not identified in the original recovery decision (commission decision 2015/1075).

The Italian court asked the CJEU for guidance on whether Scai was liable for the aid that had been granted to Buonotourist, and whether recovery from Scai would violate its right to good administration and fair trial, safeguarded by articles 41 and 47 of the Charter on Fundamental Rights of the European Union.

Take your seats

The court highlighted that it should be noted that the fourth paragraph of article 288 of the TFEU provides that a decision of the EU institutions, including the commission, “shall be binding in its entirety” and that, where it “specifies those to whom it is addressed”, it is to be binding only on them.

The court noted that it followed from article 31 of regulation 2015/1589 that decisions finding the notified aid to be incompatible with the internal market (‘negative decisions’) adopted pursuant to article 9(5) of that regulation and decisions ordering the recovery of the aid adopted pursuant to article 16 of that regulation are to be addressed to the member state concerned (Falck and Acciaierie di Bolzano v Commission).

The CJEU underlined that the commission’s recovery decision of 19 January 2015 was addressed only to the Italian Republic, and that Buonotourist, described in that decision as the beneficiary of the state aid at issue, was not the addressee of that decision.

The above is the typical approach of recovery state-aid decisions of the commission.

The CJEU stressed that it had to be borne in mind that, according to settled case law, the member state to which a decision requiring recovery of unlawful aid is addressed is obliged under article 288 TFEU to take all measures necessary to ensure implementation of that decision (Fossil (Gibraltar)).

The court noted that, in that regard, it was apparent from recital 25 and the first sentence of article 16(3) of Regulation 2015/1589 that recovery of aid is to be effected without delay and in accordance with the procedures under the national law of the member state concerned, provided that they allow the immediate and effective execution of the commission’s decision.

To that end, the member states concerned must, in accordance with the last sentence of article 16(3) of Regulation 2015/1589, “take all necessary steps” that are available in their respective legal systems, including provisional measures, without prejudice to EU law (Scott and Kimberly Clark and Commission v Germany).

The member state must actually recover the sums owed (Commission v Italy).

Mind the gap

The CJEU affirmed that, according to the case law of the court, given that the main purpose of the repayment of unlawfully paid state aid is to eliminate the distortion of competition caused by the competitive advantage afforded by the unlawful aid, such aid must be recovered from the company that carries on the economic activity of the undertaking that initially benefited from the advantage associated with the grant of state aid and that therefore retains the actual benefit thereof (SNCF Mobilités v Commission).

The CJEU held that the above considerations precluded article 288 TFEU from being interpreted as meaning that the member states are required to recover state aid that has been declared unlawful and incompatible by a commission decision solely from the beneficiary of the aid identified in that decision.

As regards a recovery decision specifically identifying the beneficiary of individual aid, it should be noted that that identification corresponds only to an assessment of the situation carried out when that decision was adopted, on the basis of the information available at that precise time.

Therefore, that decision cannot be interpreted as preventing the member state concerned from recovering the aid in question from another undertaking where that other undertaking carries on the economic activity of the beneficiary of the aid and retains the actual benefit of the competitive advantage associated with the grant of the aid.

All aboard there, boss

The court highlighted that the competitive advantage associated with the grant of individual aid may have passed on to another undertaking after the adoption of the commission recovery decision, for example, by way of a transfer of assets.

The CJEU, in the context of a transfer of assets, pointed out that economic continuity between companies that are parties to the transfer is assessed in the light of the subject matter of the transfer (assets and liabilities, maintenance of the workforce, bundled assets, etc); the transfer price; the identity of the shareholders or owners of the acquiring undertaking and the original undertaking; when the transfer is effective (after the commencement of the investigation, opening of the procedure or the final decision); and “the economic logic of the operation” (SNCF Mobilités v Commission).

Consequently – in the context of their task of recovering the aid, and in order to ensure the full effectiveness of a commission recovery decision specifically identifying the beneficiary of the aid, and to effectively eliminate the distortion of competition caused by the competitive advantage linked to the receipt of the aid – the national authorities and courts are required to identify an undertaking, other than that identified in that recovery decision, where the advantage linked to the aid in question has actually been transferred, after the adoption of that recovery decision.

The existence of such an obligation borne by national authorities is confirmed by the settled case law of the court, which recalls that the national courts and the commission fulfil complementary and separate roles (RegioJet and Student Agency), and that proceedings may be brought before national courts in matters relating to state aid that require them to interpret and apply the concept of ‘aid’ referred to in article 107(1) TFEU – but that national courts do not have jurisdiction to give a decision on whether state aid is compatible with the internal market, that being an assessment that falls within the exclusive competence of the commission, subject to review by the EU courts (Buonotourist v Commission).

Keep away from the doors

The national court asked about the legal status of notes and informal instructions provided by the commission’s services to the national authorities for the purpose of carrying out the analysis of economic continuity.

The CJEU referred to its precedent that such statements of position are not among the acts that may be adopted on the basis of Regulation 2015/1589 – and cannot be regarded as being binding on the national court.

The court confirmed its precedent that, to the extent that such statements of position, as well as the commission opinions that may be sought by the national court, are intended to facilitate the accomplishment of the task of the national authorities in the immediate and effective execution of the recovery decision and, having regard to the principle of cooperation in good faith laid down in article 4(3) of the TFEU, the national court must take them into account as a factor in the assessment of the dispute before it, and must state reasons having regard to all the documents in the file submitted to it (Mediaset).

Next stop, please

The court stated that it was necessary, as regards articles 41 and 47 of the charter, to distinguish between, on the one hand, the possibility for an undertaking in a situation, such as that of the applicant in the main proceedings, of participating in the procedure for the examination of state aid by the commission and, where appropriate, challenging the commission decision declaring that aid unlawful and incompatible; and, on the other hand, the possibility for that undertaking of participating in the procedure before a national authority, which may lead to a decision finding the existence of economic continuity between that undertaking and the beneficiary of the aid (identified in the commission decision) and requiring that undertaking to repay the aid in question, and, where appropriate, the possibility of challenging that national decision.

The CJEU highlighted the following points. First, as regards the procedure before the commission, the court stated that it had to be observed that the procedure for reviewing state aid is, in view of its general scheme, a procedure initiated in respect of the member state responsible, in the light of its obligations under EU law, for granting the aid.

Accordingly, in that procedure, interested parties other than the member state concerned cannot themselves seek to engage in an adversarial debate with the commission in the same way as is offered to that member state.

That procedure is not a procedure initiated against the recipient or recipients of aid, entailing rights on which it or they could rely, which are as extensive as the rights of the defence as such (Commission v Gmina Miasto Gdynia and Port Lotniczy Gdynia Kosakowo).

Ring the bell

The court stressed that, as regards the situation in which the actual beneficiary of aid (designated as such in a national-recovery measure on account of the existence of economic continuity with the earlier beneficiary) would not have been entitled to bring an action for annulment under article 263 TFEU against the commission decision declaring that aid unlawful and incompatible and ordering its recovery, an actual beneficiary of that type is nevertheless guaranteed judicial protection by EU law.

The CJEU noted that it was apparent from the case law of the court that the review by the national court of a national measure seeking the recovery of unlawful and incompatible state aid must be viewed simply as an expression of the right to effective judicial protection enshrined in article 47 of the charter (Scott and Kimberly Clark).

In that context, the actual beneficiary may also challenge before the national courts the validity of the commission decision declaring the aid unlawful and incompatible, where that actual beneficiary would not, beyond any doubt, have been entitled to bring a direct action under article 263 TFEU against that decision (Bolton Alimentari).

The court stated that, admittedly, national courts have no jurisdiction themselves to declare such a decision invalid, since only the CJEU is empowered to determine that EU acts are invalid (Lucchini).

However, where a national court or tribunal considers that one or more arguments for invalidity of an EU act put forward by the parties or, as the case may be, raised by it of its own motion are well founded, it is incumbent upon it to stay proceedings and to make a reference to the court for a preliminary ruling on the act’s validity – the court alone having jurisdiction to declare an EU act invalid (Inuit Tapiriit Kanatami and Others).

Second, as regards respect for the rights of the actual beneficiary of aid in proceedings before a national authority that may lead to a decision finding the existence of economic continuity and ordering the recovery of the aid from that actual beneficiary, the court stated that it should be noted that the referring court starts from the premise that the finding of the existence of economic continuity falls within the sole discretion of the commission.

The court held that the above was incorrect. The court held that, in any event, while it followed from the wording of article 41 of the charter that it is not addressed to the member states (YS and Others), the fact remained that, according to the case law of the court, when they take measures that come within the scope of EU law, the authorities of the member states are also, as a rule, subject to the obligation to observe the rights of the defence of addressees of decisions that significantly affect their interests (G and R).

It was therefore for the national authority that intends to adopt a decision to recover aid (that has been declared unlawful from the actual beneficiary of that aid) to ensure that the latter’s rights of defence are observed.

The court held that it must be possible for the actual beneficiary of the aid to have such a decision reviewed by a national court, which, if it has doubts as to the interpretation of EU law, may or, as the case may be, must refer the matter to the court for a preliminary ruling, in accordance with article 267 TFEU.

No smoking upstairs

The CJEU held that, in light of the above, the answer to the questions referred was that the relevant provisions of EU state-aid law (articles 108 and 288 of the TFEU, articles 16 and 31 of Regulation 2015/1589, and articles 41 and 47 of the charter) had to be interpreted as meaning that, in a situation  where a commission decision orders the recovery of state aid from a specifically identified beneficiary, those provisions do not preclude national legislation under which the competent national authorities, in the context of their task of implementing that decision, may order the recovery of that aid from another undertaking on account of the existence of economic continuity between that undertaking and the beneficiary of the aid identified in that decision.

Dr Marco W Hickey SC heads competition, antitrust, and foreign investment regulation at Byrne Wallace Shields LLP.  

ON THE BUSES

The case highlights the need for a purchaser that is in the process of acquiring a target, be it by way of an asset transfer or share purchase, to ensure that the risk of the existence of legacy state-aid issues is addressed.

In this context, a purchaser might consider the following measures as part of the acquisition process/documentation:

  • Raise legal due-diligence queries that fully cover the state-aid history of the target business, including in respect of any past transactions that make up the current composition of the relevant target business,
  • Insert in the share purchase agreement/asset purchase agreement appropriate warranty cover that there are no legacy state-aid issues or liabilities, and/or
  • Insert in the share purchase agreement/asset purchase agreement an indemnity to cover off any risk of the existence of any liability under the state-aid rules – whether as part of a broader indemnity in relation to pre-completion liabilities or as a specific indemnity on EU state aid. An indemnity should particularly be considered where the seller may be disclosing a potential state-aid liability in the disclosure letter. 

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Marco W Hickey
Marco W Hickey is head of the EU Competition and Regulated Markets Unit at LK Shields Solicitors
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