Recovery of State Aid and Penalty for Failing to Recover Incompatible Aid

Extension of an existing aid measure results in the granting of new aid. Only conditions of absolute impossibility can justify non-recovery of incompatible aid. Member States have to exhaust all possible options to recover incompatible aid and, if necessary, have to force the closure of the recipient of the aid.

In this article I examine two recent judgments both of which deal with recovery of incompatible State aid. In the first case, the contested issue was whether the aid to which the recovery order applied was existing or new aid. The second case reduced even further the already very limited discretion that Member States have in seeking the recovery of incompatible State aid. It is not enough that they register their claims against aid recipients. They must ensure that any insolvency proceedings can end with the closure of the undertaking in question.T‑542/11, Alouminion v European Commission

On 8 October 2014, the General Court ruled in case T‑542/11, Alouminion v European Commission.1 The Greek company Alouminion appealed against Commission Decision 2012/339. The ruling was surprising and added an important clarification on the difference between new and existing aid.

In 1960, Alouminion, which produced aluminium, entered into an agreement with the state-owned electricity company [DEI], the then incumbent and sole generator of electricity, to buy electricity at preferential tariffs. The agreement was to remain in force until 2006. The agreement also contained provisions on renewal or termination.

In 1992 the Commission, in Decision NN 83/1991, examined the preferential tariff and concluded that it did not constitute State aid.

In 2006, DEI informed Alouminion that it would not renew the agreement. Alouminion then initiated court proceedings and succeeded to secure the suspension of the termination of the agreement.

In 2008, the Commission received complaints that State aid was granted to Alouminion through the preferential tariff. In 2010, the Commission decided to initiate the formal investigation procedure and in July 2011, it adopted Decision 2012/339. In that Decision, the Commission reversed its earlier position and found that Alouminion had received State aid that was incompatible with the internal market. It ordered Greece to recover it.

Alouminion advanced ten pleas, but the General Court ruled on the case just after examining the first plea. That plea was that the aid was “existing”. Alouminion contended that the aid was not new and therefore did not have to be notified to the Commission for approval. Moreover, even if it were incompatible with the internal market, existing aid did not have to be recovered. Indeed, the Commission may only propose “appropriate” measures to the Member State concerned and require the termination or modification of the aid measure, but it may not order recovery.

The General Court observed that the duration of the agreement was until 2006. The subsequent extension of the agreement constituted the granting of new aid. This is because the concept of new aid also covers existing aid which is modified after it is approved by the Commission or after the accession of the granting country into the EU. Although the aid was granted before Greece acceded to the EU, it was modified, by being extended, after Greece became a Member State. The extension of existing aid can be tantamount to an act equivalent to the granting of new aid. [paragraphs 49-53]

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The Court, however, also added that not every modification results in new aid. The modification must affect the substance of the initial aid measure [paragraph 54]. The suspension secured by Alouminion, which resulted in the agreement remaining in force, did not change any of the substantive provisions of the agreement. It only kept it in force until the dispute between Alouminion and DEI could be resolved. Hence, the Court concluded, the aid continued to be existing aid [paragraphs 55-57].

In response to the counter-argument of the Commission that in several previous cases the General Court accepted that prolongation of aid measures made the aid new even though the measures were not substantially modified, the General Court replied that those measures were extended through legal or administrative acts. In the Greek case the prolongation was the result of a judicial decision attempting to resolve a dispute without modifying at all the initial aid measure. [paragraphs 61-64]

On the basis of the above reasoning, the General Court annulled Commission Decision 2012/339.


This is a well argued judgment. It does not break new ground but adds an important nuance to the current understanding of the distinction between new and existing aid. A modification of existing aid transforms it to new aid if it alters the substance of the aid. Prolongation or extension of an aid measure is a substantive alteration. But the alteration must be the result of a legal or administrative act.

T-268/13, Italy v Commission

On 21 October 2014, the General Court ruled in case T-268/13, Italy v Commission.2 Italy applied for annulment of Commission Decision C (2013) 1264 final of 7 March 2013, ordering Italy to pay into the “own resources” account of the EU the sum of EUR 16.5 million as penalty.

By Decision 2000/128, the Commission ordered Italy to recover illegal and incompatible aid granted in the context of employment measures. An appeal by Italy against that Decision was dismissed by the Court of Justice on 7 March 2002 in case C-310/99, Italy v Commission.

In a subsequent judgment delivered on 1 April 2004, in case C-99/02, Commission v Italy, the Court of Justice upheld an action brought by the Commission against Italy for failing to take timely and necessary measures to recover the aid. The total amount of aid was estimated to be more than EUR 500 million and had been granted to hundreds of companies. It was true that Italy encountered problems in recovering such a large amount from so many different beneficiaries.

The Commission lodged a new action against Italy in November 2009 for still failing to comply with the previous judgment instructing Italy to recover the aid. For this reason the Commission asked the Court to impose a penalty on Italy. In November 2011, the Court of Justice [in case C-496/09] concluded that it was indeed appropriate to impose on Italy a periodic penalty until recovery was completed. The penalty was to be calculated every six months as a percentage of the aid that remained unrecovered multiplied by the basic amount of EUR 30 million [i.e. penalty = EUR 30 million x (outstanding aid/total amount of aid)].

In its judgment in case C-496/09, the Court of Justice took into account the amount of penalty proposed by the Commission. The Commission, referring to the method of calculation set out in its Communication SEC (2005) 1658 of 13 December 2005 [updated by Communication SEC (2010) 923 of 20 July 2010], proposed a daily penalty of EUR 244,800. It arrived at that amount by multiplying a basic flat-rate of EUR 600 [that applies to all Member States] with a coefficient of 8 for the seriousness of the infringement, a coefficient of 3 for the duration of the infringement and factor n of 17 for the size of the Italian economy [244,800 = 600 x 8 x 3 x 17]. A daily rate of EUR 244,800 over a period of six months [i.e. 180 days] leads to an amount of EUR 44.1 million. However, the Court of Justice reduced it to EUR 30 million.

Since there was aid that was still outstanding, the Commission ordered Italy in March 2013 to pay an amount of EUR 16.5 million [this implies that about half of the initial aid of EUR 500 million had not been recovered]. On its part, Italy contested that amount on the grounds that many of the aid recipients were involved in insolvency proceedings, that the Italian government had acted in due diligence to register claims against them and that it could not conclude the recovery of the incompatible aid as long as the insolvency proceedings were not completed.

The General Court rejected this argument because the only valid reason that can be invoked for non-recovery is “absolute impossibility” [paragraph 55]. Furthermore, the Court noted that the fact that a beneficiary is insolvent or subject to bankruptcy proceedings does not affect its obligation to repay the incompatible aid [paragraph 56].

The General Court observed that insolvency proceedings do not always result in the closure of companies. They may also aim to achieve the continuation of their activities once their debts are settled or written off. The Court went on to specify that registering a claim against the recipient of incompatible aid is not enough unless the Member State concerned can prove that the company in question is the subject of bankruptcy proceedings intended to lead to its liquidation, that is to say to the cessation of its activities rather than their continuation, and that the Member State is likely to cause the closure of the company if it fails to pay back the full amount of aid. [paragraph 61]


It has been long understood that it is not sufficient for Member States to claim absolute impossibility but must prove that it is indeed impossible to recover the aid after they have tried every possible option. But how can they prove that they have exhausted all possible options? This judgment provides an answer in a roundabout way. If the complete amount of the incompatible aid is not recovered, then the only option left to Member States is to drive to bankruptcy or achieve the closure of the recipient of incompatible aid which is still outstanding. Any other option that would leave the recipient in operation would not be acceptable under EU law because the remaining incompatible aid would continue to cause an undue distortion to competition.




[1] The text of the judgment can be accessed at:

[2] The text of the judgment can be accessed at:



Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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