State Aid control
Legislation > Transparency of public undertakings
Application of Articles 92 and 93 of the EEC Treaty to public authorities' holdings
Bulletin EC 9- 1984, Extracts: es da de el en fr it nl pt
Public authorities' holdings in company capital
The Commission's position
The Commission has sent Member States a paper explaining its general
approach to the acquisition of shareholdings by the public authorities
and setting out Member States' obligations in the field.
'Public holding' means a direct holding of central, regional or
local government, or a direct holding of financial institutions
or other national, regional or industrial agencies (1) which are
funded from State resources within the meaning of Article 92(1)
of the EC Treaty, or over which central, regional or local government
exercises a dominant influence.
The Commission has already had occasion in the past to consider
the question of public holdings in company capital from the angle
of policy on State aid; in most cases, in view of the particular
circumstances, it has regarded them as constituting State aid.
This position is spelt out clearly in the steel and shipbuilding
The steel code states that 'the concept of aid includes ... any
aid elements contained in the financing measures taken by Member
States in respect of the steel undertakings which they directly
or indirectly control and which do not count as the provision
of equity capital according to standard company practice in a
market economy' (Commission Decision No 2320/81/ECSC of 7 April
1981 establishing Community rules for aid to the steel industry:
(2) recital II, last paragraph, and Article 1). Pursuant to that
Decision the Commission has usually regarded any contribution
of capital to companies as State aid.
The shipbuilding code contains a formula identical to the one
in the steel code (Council Directive No 81/363/EEC of 28 April
1981 on aid to shipbuilding: (3) last recital and Article 1(e)).
1. The Treaty establishes both the principle of impartiality with
regard to the system of property ownership (Article 222) and the
principle of equality between public and private undertakings.
This means that Commission action may neither penalize nor favour
public authorities which provide companies with equity capital.
Nor is it for the Commission to express any opinion as to the
choice companies make between methods of financing - loan or equity
- whether the funds are of private or public origin.
Where, applying the guidelines laid down in this paper, it is
apparent that a public authority which injects capital by acquiring
a holding in a company is not merely providing equity capital
under normal market economy conditions, the case has to be assessed
in the light of Article 92 of the EC Treaty.
2. Four types of situation can be distinguished in which public
authorities may have occasion to acquire a holding in the capital
(a) the setting up of a company,
(b) partial or total transfer of ownership from the private to
the public sector,
(c) in an existing public enterprise, injection of fresh capital
or conversion of endowment funds into capital,
(d) in an existing private sector company, participation in an
increase in share capital.
3. On this basis four cases can be distinguished.
3.1. Straightforward partial or total acquisition of a holding
in the capital of an existing company, without any injection of
fresh capital, does not constitute aid to the company.
3.2. Nor is State aid involved where fresh capital is contributed
in circumstances that would be acceptable to a private investor
operating under normal market economy conditions. This can be
taken to apply:
(i) where a new company is set up with the public authorities
holding the entire capital or a majority or minority interest,
provided the authorities apply the same criteria as provider of
capital under normal market economy conditions;
(ii) where fresh capital is injected into a public enterprise,
provided this fresh capital corresponds to new investment needs
and to costs directly linked to them, that the industry in which
the enterprise operates does not suffer from structural overcapacity
in the common market, and that the enterprise's financial position
(iii) where the public holding in a company is to be increased,
provided the capital injected is proportionate to the number of
shares held by the authorities and goes together with the injection
of capital by a private shareholder; the private investor's holding
must have real economic significance;
(iv) where, even though the holding is acquired in the manner
referred to in either of the last two indents of Section 3.3 below,
it is in a small or mediumsized enterprise which because of its
size is unable to provide adequate security on the private financial
market, but whose prospects are such as to warrant a public holding
exceeding its net assets or private investment;
(v) where the strategic nature of the investment in terms of markets
or supplies is such that acquisition of a shareholding could be
regarded as the normal behaviour of a provider of capital, although
profitability is delayed;
(vi) where the recipient company's development potential, reflected
in innovative capacity from investment of all kinds, is such that
the operation may be regarded as an investment involving a special
risk but likely to pay off ultimately.
3.3. On the other hand, there is State aid where fresh capital
is contributed in circumstances that would not be acceptable to
a private investor operating under normal market economy conditions.
This is the case:
(i) where the financial position of the company, and particularly
the structure and volume of its debt, is such that a normal return
(in dividends or capital gains) cannot be expected within a reasonable
time from the capital invested;
(ii) where, because of its inadequate cash flow if for no other
reason, the company would be unable to raise the funds needed
for an investment programme on the capital market;
(iii) where the holding is a shortterm one, with duration and
selling price fixed in advance, so that the return to the provider
of capital is considerably less than he could have expected from
a capital market investment for a similar period;
(iv) where the public authorities' holding involves the taking
over or the continuation of all or part of the nonviable operations
(4) of an ailing company through the formation of a new legal
(v) where the injection of capital into companies whose capital
is divided between private and public shareholders makes the public
holding reach a significantly higher level than originally and
the relative disengagement of private shareholders is largely
due to the companies' poor profit outlook;
(vi) where the amount of the holding exceeds the real value (net
assets plus value of any goodwill or knowhow) of the company,
except in the case of companies of the kind referred to in the
fourth indent of Section 3.2. above.
3.4. Some acquisitions may not fall within the categories indicated
in Sections 3.2 and 3.3 so that it cannot be decided from the
outset whether they do, or do not constitute State aid.
In certain circumstances, however, there is a presumption that
there is indeed State aid.
This is the case where:
(i) the authorities' intervention takes the form of acquisition
of a holding combined with other types of intervention which need
to be notified pursuant to Article 93(3);
(ii) the holding is taken in an industry experiencing particular
difficulties, without the circumstances being covered by Section
3.3; accordingly, where the Commission finds that an industry
is suffering from structural overcapacity and even though most
such cases will be within the scope of Section 3.3, it may consider
it necessary to monitor all holdings in that industry, including
those coming under Section 3.2.
4. Leaving aside the fact that the Commission has at all times
the right to request information from the Member States casebycase,
the obligations devolving on Member States in the light of the
Commission's practice to date and the approach outlined here should
be set out anew and specified in detail.
4.1. In the case referred to at 3.1, there is no need to place
any particular obligations on Member States.
4.2. In the cases referred to at 3.2, the Commission would ask
Member States to inform it retrospectively by means of regular,
and normally annual, reports on holdings acquired by financial
institutions and directly by public authorities. The information
given should include the following at least, possibly as part
of the financial institutions' reports:
(i) name of the institution or authority which acquired the holding,
(ii) name of the company involved,
(iii) amount of the holding,
(iv) capital of the company before the holding was acquired,
(v) industry in which the company operates,
(vi) number of employees.
4.3. As regards the cases referred to in Section 3.3, since these
do constitute State aid, Member States are required to notify
the Commission pursuant to Article 93(3) of the EC Treaty before
they are put into effect.
4.4. With regard to the cases referred to in Section 3.4 in which
it is not clear from the outset whether or not they involve State
aid, Member States should inform the Commission retrospectively
by means of regular and normally annual reports in the manner
described in Section 4.2.
In cases of the kind described in Section 3.4 where there is a
presumption of State aid, the Commission should be informed in
advance. On the basis of an examination of the information received,
it will decide within 15 working days whether the information
should be regarded as notification for the purposes of Article
93(3) of the EC Treaty.
4.5. Without prejudice to the Commission's right to ask for information
on specific cases, the obligation to supply regular retrospective
information only applies to shareholdings in companies where one
of the following thresholds is exceeded:
(i) balancesheet total: ECU 4 million,
(ii) net turnover: ECU 8 million,
(iii) number of employees: 250.
The Commission may review these thresholds in the light of future
5. Member States also use certain forms of intervention which,
while not having all the features of a capital contribution in
the form of acquisition of a public holding, resemble this sufficiently
to be treated in the same way. This is the case notably with capital
contributions taking the form of convertible debenture loans or
of loans where the financial yield is, at least in part, dependent
on the company's financial performance.
The criteria in Section 3 also apply in respect of these forms
of intervention, and Member States are under the obligations set
out in Section 4.
6. In certain cases the Commission has authorized aid measures
which also include the acquisition of holdings in certain circumstances.
The various procedural clauses in the authorization decisions
are not affected by the provisions in this paper.
7. This paper also applies to holdings in agricultural undertakings.
It may be adapted to take account of any new circumstances arising
from the accession of new Member States.
(1) This includes public undertakings as defined in Article 2
of Commission Directive 80/723/EEC of 25 June 1980 on the transparency
of financial relations between Member States and public undertakings
(OJ L 195, 29.7.1980).
(2) OJ L 228, 13.8.1981.
(3) OJ L 137, 23.5.1981.
(4) Excluding the straightforward takeover of the assets of a
company which has become insolvent or gone into liquidation.