On 4 May 2022, the General Court of the European Union (the “General Court”) upheld the decision of the European Commission (the “Commission”) approving the rescue aid granted by Romania to the Romanian airline TAROM (T-718/20). With this judgment, the General Court clarifies the concepts used by the Commission when assessing whether aid can be authorised under the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (“R&R Guidelines”).

The judgment is noteworthy as it interprets for the first time the starting point of the 10-year period during which it is forbidden to provide anew rescue or restructuring aid to an ailing company (the so-called “one time, last time” principle).

Background

In the present case, TAROM, the Romanian flagship air carrier, benefited from a restructuring aid between 1997 and 2003. The restructuring aid consisted of a loan and a State guarantee on several other loans. After the loan guarantees were granted, TAROM immediately defaulted on their loan obligations. Therefore, as the guarantor, Romania was under an obligation to make the loan payments on TAROM’s behalf. Over the duration of the loan agreements and until 2019, Romania continued to make loan payments pursuant to the guarantees. These payments were subsequently converted into share capital increases in TAROM in favour of the Romanian State as part of the restructuring aid.

In 2020, Romania notified a new rescue aid of EUR 36,600,000 to the Commission, which was approved the same year. In its decision, the Commission concluded that the rescue aid complied with the “one time, last time” principle because the series of capital increases were a mere implementation of the loan and the guarantees granted to TAROM.

Wizz Air Hungary Zrt (“Wizz Air”) challenged the decision before the General Court. In its judgment of 4 May 2022, the General Court upholds the reasoning of the Commission and dismisses Wizz Air’s action.

The principles

Granting aid to ailing companies is in principle precluded by EU State aid law due to its high distortive effect on competition in the internal market. In the Commission’s view, such aid should remain exceptional and granted as a solution of last resort, i.e., ailing companies must have exhausted all market options. The R&R Guidelines lay down the conditions to grant rescue and restructuring aid. In the case at hand, Wizz Air argued that the aid to TAROM did not comply with the “one time, last time” principle.

Every year wounds, the last one kills

According to the “one time, last time” principle, aid granted under the R&R Guidelines may only be granted once over a 10-year period. In other words, an aid beneficiary cannot receive another restructuring or rescue aid before 10 years have elapsed from the first aid.

To determine this time period, the Commission will compute the period beginning with the last to occur of the following events: (i) the granting of the aid, (ii) the end of the restructuring period, or (iii) the halt of the implementation of the restructuring plan (point 71 of the R&R Guidelines). The General Court did not decide on when the 10-year period started in this case. However, it gives practical guidance on how to interpret the starting point of that period. In particular, the starting point of the 10-year period should not be confused with the implementation of the aid.

Granting of the aid. It is settled case law that an aid is granted at the moment the right to receive support is conferred on the beneficiary under the applicable national legislation, irrespective of whether the aid has or has not been disbursed. In the present case, the General Court considers that the payments made in the context of the guarantees, which extended over the entire loan period, i.e., until 2019, did not affect the date on which the aid was granted, i.e., between 1997 and 2003. Additionally, the conversion of TAROM’s debts into capital increases up to 2019 was a mere implementation of that aid.

  • Granting of the aid. It is settled case law that an aid is granted at the moment the right to receive support is conferred on the beneficiary under the applicable national legislation, irrespective of whether the aid has or has not been disbursed. In the present case, the General Court considers that the payments made in the context of the guarantees, which extended over the entire loan period, i.e., until 2019, did not affect the date on which the aid was granted, i.e., between 1997 and 2003. Additionally, the conversion of TAROM’s debts into capital increases up to 2019 was a mere implementation of that aid.
  • End of the restructuring period. The General Court considers that the R&R Guidelines are based on “the idea that the restructuring period would be short” (paragraph 97 of the judgment). This refers to the period during which the following measures are adopted: the reorganisation and rationalisation of the beneficiary’s activities on to a more efficient basis, typically involving withdrawal from loss-making activities, restructuring of those existing activities that can be made competitive again and, possibly, diversification towards new and viable activities. It typically also involves financial restructuring in the form of capital injections by new or existing shareholders and debt reduction by existing creditors. This period ended in 2005 in the present case. Accordingly, the General Court considers that “such period is therefore separate, in principle, from that during which a State aid measure is implemented” (paragraph 98 of the judgment). Hence, the implementation of State aid measures took place beyond the restructuring period.
  • Halting of the restructuring plan. The General Court recalls that a restructuring aid plan for an ailing company must be linked to a restructuring program designed to reduce or redirect its activities to be considered as a compatible aid with the internal market. However, it does not mean that, as such, that aid forms part of the restructuring plan, since the existence of the restructuring plan constitutes an essential condition for such aid to be considered compatible with the internal market. Accordingly, it is necessary to distinguish between the implementation of the aid and the implementation of the restructuring plan.

Conclusion

The judgement usefully clarifies that the beginning of the 10-year period for the “one time, last time” principle will not be postponed because the first rescue or restructuring aid was implemented over a certain period of time. It remains to be seen whether Wizz Air will appeal the judgment, and subsequently whether the Court of Justice will follow this interpretation.

Photo of Johan Ysewyn Johan Ysewyn

Johan Ysewyn advises on all aspects of EC, international and Belgian antitrust law, including merger control, compliance, cartel and leniency issues and abuse of dominance cases.  He acts as the head of the firm’s EU Competition group, working from our Brussels and London…

Johan Ysewyn advises on all aspects of EC, international and Belgian antitrust law, including merger control, compliance, cartel and leniency issues and abuse of dominance cases.  He acts as the head of the firm’s EU Competition group, working from our Brussels and London offices.

Mr. Ysewyn’s practice has a strong focus on global and European cartel investigations and he has represented companies from a range of sectors.  He is also one of the leading experts on EU state aid issues, working both for beneficiaries and governments.

He regularly speaks at conferences such as GCR, IBC, IBA, Chatham House and other industry events and has written for numerous legal publications.  He is recognised as a leading competition lawyer by Chambers, Legal 500 and other leading industry guides.  Mr. Ysewyn has acted as a non-governmental advisor to the International Competition Network (ICN).

Photo of Sophie Bertin Sophie Bertin

Sophie Bertin is a senior advisor to Covington in their Financial Services and Antitrust practice. Her current focus is on financial services topics, ranging from State aid, implementation of regulations, interplay between various regulations, including the new data protection rules; as well as…

Sophie Bertin is a senior advisor to Covington in their Financial Services and Antitrust practice. Her current focus is on financial services topics, ranging from State aid, implementation of regulations, interplay between various regulations, including the new data protection rules; as well as the impact of new technologies (like Blockchain) on the financial services business models and resulting competition challenges.

Sophie has over 20 years of professional experience and she has broad experience helping banking clients on their strategy, restructuring, reorganization, risk management, regulatory and compliance, back-office operations and automation, as well as, advising on various issues around banking regulation and competition law (most notably State aid).

Photo of Carole Maczkovics Carole Maczkovics

Carole Maczkovics has developed a cutting-edge expertise in State aid law, regulation of network industries and public contracts (including subsidies, public procurement, concessions, and management contracts) with the Belgian and European authorities.

Carole has a proven track record of advising public and private…

Carole Maczkovics has developed a cutting-edge expertise in State aid law, regulation of network industries and public contracts (including subsidies, public procurement, concessions, and management contracts) with the Belgian and European authorities.

Carole has a proven track record of advising public and private entities, which she successfully represents in administrative and judicial proceedings on complex state aid, public procurement and regulatory issues before the European Commission as well as before the Belgian and European courts.

She has published many articles on State aid law and on network industries, and contributes to conferences and seminars on a regular basis.