On 31 January 2023, the European Court of Justice set aside a ruling of the General Court which admitted an action against the Commission’s decision declaring state aid granted by Italy to Banca Monte dei Paschi di Siena compatible with EU law. The Court stated in essence that the applicants lacked standing since they could not be considered as “interested parties”, as the infringement they invoked did not result from the aid at issue but from national measures that were voluntarily presented by the Member State as commitments in a state aid notification procedure (Case C-284/21 P).
Background: state aid measures in favour of an Italian bank amidst the financial crisis
During the 2008 financial crisis, Banca Monte dei Paschi di Siene (“BMPS”) carried out a capital increase of EUR 950 million reserved to J.P. Morgan Securities Ltd (“JPM”). The latter subscribed to shares of BPMS, called “FRESH” shares. At the same moment, JPM concluded with BMPS a usufruct agreement, under which JPM retained bare ownership of the shares while BMPS was entitled to usufruct, and a company swap agreement (the “Fresh Contracts”). JPM obtained the funds necessary to finance this transaction from Mitsubishi UFJ Investor Services & Banking (Luxembourg) SA, which issued EUR 1 billion of bonds for this purpose (the “Fresh Bonds”).
In 2016, results from the EU-wide stress test showed that BMPS had a capital shortfall. By way of consequence, the Italian government adopted two state aid measures to safeguard the solvency of BMPS, which the Commission declared compatible with the internal market. Importantly, the BMPS restructuring plan encompassed the cancellation of the FRESH contracts between BMPS and JPM and provided for burden-sharing measures by existing investors. Disagreeing with these commitments, some FRESH bondholders (Braesch and others) brought actions before the General Court seeking the annulment of the Commission’s decision.
In the context of these proceedings, the Commission argued that the applicants did not have standing since they did not qualify as “interested parties” or “parties concerned” in the sense of Article 108(2) TFEU and Article 1(h) of Council Regulation 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 TFEU (“Regulation 2015/1589”). The General Court rejected this plea and admitted the action, prompting the Commission to launch an appeal before the Court.
The verdict: voluntary commitments made at the preliminary stage of the procedure for reviewing aid under Article 108(3) TFEU cannot be challenged by individuals before the EU Courts
The General Court commences by reiterating the general principles under which natural or legal persons may bring an annulment action against an EU act which is not addressed to them. First, annulment actions are possible in case the act is of direct and individual concern to those persons. Second, such proceedings are possible against a regulatory act not entailing implementing measures if that act is of direct concern to them.
Second, the General Court recalls that, in the context of the procedure for reviewing state aid provided for in Article 108 TFEU, the preliminary stage of the procedure for reviewing aid under Article 108(3) TFEU must be distinguished from the formal stage of the review under Article 108(2) TFEU.
The decision at issue, clearing the Italian aid measures, was adopted at the conclusion of the preliminary examination stage provided for in Article 108(3) TFEU. In order for the applicants to demonstrate that they are directly and individually concerned by this decision, the General Court examines whether they have the status of “parties concerned” in the sense of Article 108(2) TFEU. According to the General Court, “an applicant who has that status satisfies those criteria and is therefore entitled to bring an action for annulment against such a decision in order to safeguard his or her procedural rights”.
The case law concept of “party concerned” is codified in Article 1(h) Regulation 2015/1589, which provides for the analogous concept of “interested party”. The latter is defined as “any Member State and any person, undertaking or association of undertakings whose interests might be affected by the granting of aid, in particular the beneficiary of the aid, competing undertakings and trade associations”. The status of “interested party” does not necessarily presuppose a competitive relationship. It suffices that an undertaking demonstrates that its interests could be adversely affected by the grant of the aid, which requires that that undertaking establish that the aid is likely to have a specific effect on its situation.
The General Court holds that this is not the case. Braesch and others did not dispute that the aid at issue constituted state aid, nor the fact that it is compatible with the internal market. They only called into question some of the notified burden-sharing measures. Crucially, the General Court holds that these burden-sharing measures were not imposed as such by the Commission and that any adverse effects they may have on third parties can therefore not be attributable to the Commission decision.
Substantiating this point, the General Court highlights the distinction between (i) a “conditional decision” in the sense of Article 9(4) Regulation 2015/1589, which is adopted following a formal investigation procedure and by which the Commission itself attaches to its decision clearing state aid certain conditions subject to which the aid can be deemed compatible; and (ii) commitments such as the ones at issue which result solely and voluntarily from acts adopted by a Member State in order to obtain a positive decision in the context of the preliminary examination stage. In the context of the latter, the Commission does not have the competence to impose or prohibit any action by the Member State concerned. It only decides not to raise objections and declares the aid compatible.
In light of this, the General Court holds that the Commission merely authorised Italy to implement the state aid at issue while taking note of the factual framework already defined by the Member State in the restructuring plan and the commitments which it notified. The Commission did not impose, nor render binding, the burden-sharing measures, such as the annulment of the FRESH contracts. The General Court reinforces its point by emphasising that Italy could have notified a restructuring plan and commitments entailing different measures. It was therefore also up to Italy to ensure that the commitments were consistent with national and EU law.
Consequently, if a third party considers its rights to be infringed by burden-sharing measures forming part of a voluntary commitment made in the context of the notification of state aid, those third parties must challenge the legality of those measures before the national courts. If such court were to annul the measures at issue, its ruling would not run counter to the decision at issue since the measures were never imposed by that decision. However, it would be for the Member State concerned to notify new measures to the Commission under Article 108(3) TFEU if that unlawfulness meant that it was no longer able to fulfil all the commitments undertaken vis-à-vis the Commission by implementing the aid notified in accordance with the authorisation granted by the decision at issue. This would also be at the risk of being required to recover the aid already granted on the basis of that decision.
For further information about this case and/or for general legal advice relating to state aid, please contact Jeroen Dewispelaere or Raluca Gherghinaru.