Vol 17 (2020) - Issue 6

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Judgment of the EU General Court of 24 September 2019 (Fortischem v Commission, T-121/15) and State Aid Law Implications for Insolvency Lawyers and Practitioners

Synopsis
On 24 September 2019, the General Court of the European Union (the 'Court') delivered its judgment in case T-121/15, Fortischem v Commission (the 'Judgment'), in which the Court upheld the European Commission's decision of 15 October 2014 finding that certain measures provided by Slovakia to Novácké chemické závody, a.s. v konkurze ('NCHZ') constitute unlawful aid incompatible with the internal market and extending the liability for this illegal aid to Fortischem, a.s.
('Fortischem') as the purchaser of NCHZ's assets (the 'Decision'). Although the Judgment deals with state aid law, it may be interesting for insolvency lawyers and practitioners for three primary reasons. Firstly, the European Commission (the 'Commission') relied in this case on a specific European Union law concept of economic continuity to impose an obligation to repay illegal state aid on the investor (Fortischem) acquiring the assets of the aid recipient (NCHZ), despite the fact that the assets were acquired from the insolvency administrator of NCHZ (that is, out of NCHZ's insolvency proceedings). This is not the first time the Commission has used the economic continuity principle, including in the context of insolvency, to recover illegal aid from a person other than the (insolvent) aid recipient. It may seem, however, that in this case the Commission applied the principle in a particularly aggressive manner and, at least to a certain extent, inconsistently with its views presented in other similar cases. Secondly, the granting of the illegal aid to NCHZ was rooted in the NCHZ insolvency proceedings themselves. NCHZ was found to receive the illegal state aid as a direct result of Slovakia's adoption of a special law designed to guarantee continued operations of 'strategic companies' during their insolvency proceedings and the Slovak government's decision to apply this law to NCHZ. The special law required NCHZ's insolvency administrator to continue the business operations of NCHZ even though these operations were unprofitable and led to the accumulation of further unpaid debts by NCHZ vis-à-vis public creditors after the opening of insolvency proceedings.
Thirdly, regardless of one's opinion about the outcome of this case, it provides further guidance on the potential impact EU state aid law may have on the insolvency practice. The reasoning presented by the Commission and the Court highlights the issues that should be considered when structuring and executing a sale of assets of an insolvent company that might have benefited from the illegal state aid in order to minimise the risk of the investor becoming inadvertently required to repay that aid. This case also shows that sometimes measures adopted in the course of insolvency proceedings to continue the operations of the insolvent company's business, when not supported by economic logic, may draw fire from the Commission's state aid enforcement arm.
This article focuses only on selected state aid issues arising in the context of the Fortischem v Commission case which may be relevant for insolvency practice.
As such, it does not seek to answer whether or not the outcome reached in this case by the Commission and the Court is correct from the state aid law standpoint or to discuss all legal issues that may be seen as material
from a purely state aid law perspective.