JULY 2013

Legal Focus

73

The EU State Aid Framework and the Legal Risks

Recently the EU launched an investigation into whether a €7 billion guarantee granted by the French government to PSA Peugeot Citroen complied with state aid rules and also ensures its long-term viability. To find out more, we speak to Ursula O’Dwyer, an Irish solicitor and partner with Philip Lee Solicitors, who practices EU State aid law and international trade law in Brussels.

What are your opinions on the EU’s investigation?

Last month the Commission opened an in depth investigation into restructuring plans for the French PSA Peugeot Citroen Group (PSA), consisting of a 7 Billion Euro guarantee to subsidiary Banque PSA Finance (BPF) and grants and repayable advances of Euro 85.9 million. This follows temporary conditional approval in February for an initial tranche of 1.2 billion Euros in guarantees to BPF pending the submission of a restructuring plan for the group. The initial approval was given under a more lenient legal basis used since 2008 for the financial services sector in the context of the economic crisis and the French Government will have to comply with the Banking Communication in demonstrating a return to viability.

However, the Commission considers that BPF’s viability depends on that of the group, which itself will also benefit from the guarantee. It has therefore required PSA to present a restructuring plan for the whole group, which complies with the stricter test of the Rescue and Restructuring Guidelines, under which it is obliged to undertake compensatory measures in order to minimize the effect on competition, such as divesting assets or reducing capacity and contribute to the restructuring by selling off non- essential assets.

The Commission has doubts on the viability both of BPF and PSA, which is taking too optimistic a view of market evolution. In addition PSA has partly based its plan on an aided R&D project

for hybrid cars while abandoning a joint venture with BMW to develop and produce hybrid cars. From the French point of view involving an R&D&I project is probably a good strategy. Currently the only way for large companies to receive large amounts of State aid is through the R&D&I Framework, which the Commission applies very leniently but tax payers may wonder if it is efficient to abandon one hybrid project for another.

More generally, the rules are getting stricter. The Commission is reforming the State aid rules to make spending more efficient and address the disparity in Member States’ spending power. France has in the past been responsible for a large share of total EU spend on regional aid but new Regional Aid Guidelines for 2014-20 will only allow aid to large companies in the poorest regions of the EU unless they are diversifying into new activities. The Commission has a difficult task and will have to do a robust investigation. Aid for the survival of national champions, where many jobs are at stake has always been controversial and political. In this case a competitor has already filed a complaint and no doubt will be prepared to challenge any positive decision before the General Court.

What challenges do companies face under the state aid rules?

Companies, receiving aid need to be careful that the rules are respected because illegal aid ultimately has to be repaid with interest and national courts have the power to block aid that has not been notified to the Commission.

www.lawyer-monthly.com What potential risks do they raise?

In my practice I have seen more and more interest in State aid over the past year. Government and State bodies want advice on what vehicles are open to them to grant aid in a way which is compatible with the rules, while companies want to challenge aid to their competitors by bringing complaints to the Commission or taking action in the national courts.

Is there anything else you would like to add?

An area to watch for the future is access to capital

through financial engineering

instruments, which the Commission is pushing because the revolving nature of the aid means that public money goes further. LM

Contact:

Ursula o´dwyer Partner

Philip Lee Solicitors Rond Point Schuman 9 B-1040 Brussels Belgium

tel (32) (2) 640 3890 Fax (32) (2) 648 2279 Email: uodwyer@philiplee.be