Simultaneity of Investments by Public and Private Investors is a Necessary but not Sufficient Condition for Public Investments to be Free of State Aid

If a public authority guarantees a loan to a company that is in financial difficulty and charges a low premium, the whole loan, not just the difference between the market rate of premium and the rate actually charged, will be considered to be State aid. Simultaneous capital injection by public and private investors is not enough to eliminate State aid if the private investor is also a creditor to the company that has received the capital. Incompatible aid has to be recovered even from a company that is an empty shell and has hardly any assets of any value.

In this article I review Commission Decision 2014/539[1] on State aid to Larco, a Greek, state-owned mining company. This company was the subject of another Commission Decision that was reviewed in the blog in August.[2] The earlier Decision concerned the sale of parts of the company. The Greek authorities persuaded the Commission that they had put in place arrangements to exclude the inadvertent granting of any State aid to the buyers of certain assets of the company. Of course, that left the company with its liabilities and the various measures of public support that the Commission had to examine in this Decision whether they contained State aid and, if yes, whether the aid was compatible.Here is a summary of the background of this case. The company was owned by the Greek state whose shareholding amounted to 55%. The company appeared to have benefitted from six different measures [these six measures were the subject of the new Commission Decision]:

  1. 1998 debt arrangement: An old debt to the Ministry of Finance was agreed to be repaid at 6% interest.
  2. 2008 state guarantee: It covered 100% of a EUR 30 million loan at a premium of 1% p.a.
  3. 2009 capital increase: The state injected EUR 45 million in the company. Another private shareholder also injected capital of about EUR 20 million.
  4. 2010 state guarantee: It covered 100% of a EUR 10.8 million loan at a premium of 2% p.a.
  5. 2010 letter of guarantee: By a Greek court decision, the company was allowed to contest a tax fine and instead of having to pay a proportion of that fine in advance [which amounted to about EUR 25 million], it was permitted to offer a letter of guarantee. This letter was supplied by the state. The letter of guarantee was for an amount of EUR 1.5 million.
  6. 2011 state guarantee: It covered 100% of two loans amounting to a total of EUR 50 million at a premium of 1% p.a.

Do you know we also publish a journal on State aid?

EStAL banner
The European State Aid Law Quarterly is available online and in print, and our subscribers benefit from a reduced price for our events.


Commission assessment: Existence of State aid

The first issue in the Commission’s assessment was whether Larco was a viable company or not. Since it had lost more than half of its capital and its debt kept rising, the Commission concluded that it was a company in financial difficulty. This finding determined the economic rationality of the six measures taken by the state in Larco’s favour.

Measure 1: The Commission concluded that the debt arrangement of 1998 did not constitute State aid because the terms of the arrangement were the same as those that would apply to other tax debtors [despite the fact that later on Larco stopped servicing that debt].

Measure 2: The 2008 guarantee was State aid because the market would not have provided a guarantee at a premium of only 1% to a company in financial difficulty. The amount of State aid was the whole amount of the loan covered by the guarantee.

Measure 3: In view of the financial situation of the company and the absence of any restructuring plan, the capital injection was found to be State aid whose amount was equal to the amount of the new capital. Interestingly, the Commission rejected the Greek argument that the simultaneous capital contribution by a private investor proved the economic rationality of the capital increase. The Commission referred to the judgment of the General Court in case T-565/08, Corsica Ferries v Commission, according to which “simultaneity cannot in itself, even where significant private investments have been made, suffice for a finding that there has been no aid within the meaning of Article 107(1) TFEU without taking into consideration the other relevant facts and points of law.” [paragraph 122]

This is an important clarification on the role of simultaneity. According to the General Court in the Corsica Ferries case, simultaneity creates a presumption but no proof that there is no State aid. All relevant factors must be taken into account. Indeed, the other investor was also a creditor of Larco and its investment was also intended to protect its other interests in Larco.

This raises an important question: Would a prospective investor who is also creditor value the capital injection differently? Under normal conditions, the answer is in the affirmative. To see why, consider an investment in the form of capital injection of EUR 1. Assume that there is a 60% probability that the investment will generate a return of 60%. That is, given the precarious situation of Larco, there is only a 60% chance that one euro will become 1.60. Normally, a return of 60% is impressive. But now the expected pay off, given the probability of success, is only 1.60 x 0.6 = 0.96. No rational investor would commit one euro to get back only 96 cents. But since our investor is also a creditor who will lose with 100% certainty the pervious loan he had granted to Larco, he will now also take into account the loss of the loan. If he does not invest, he loses, say, EUR 0.10 of a loan. If he invests, he gets back 0.96 + 0.10 = 1.06. Therefore, the investment of EUR 1 returns EUR 1.06. The General Court and the Commission have correctly concluded that a simultaneous investment would be valued differently by a private investor that has more to lose than just the amount of capital he injects.

Measure 4: Since the premium for the 2010 guarantee was just 2% p.a., the Commission concluded again that no private investor would offer a guarantee at such a low premium given Larco’s financial situation. The whole amount covered by the guarantee constituted State aid.

Measure 5: Because Larco was able to offer the letter of guarantee following a court decision and because the court had applied the same criteria as they would apply to any other company in the same situation, the Commission accepted that Larco did not obtain a selective advantage and therefore, the measure did not constitute State aid.

Measure 6: Similarly to the other two measures involving guarantees, the Commission found that this measure was also State aid because no private investor would offer a guarantee at a mere 1% premium to a company in Larco’s dire financial situation.

In conclusion, the total amount of State aid received by Larco through measures 2, 3, 4 and 6 was EUR 135.8 million.

Compatibility of the State aid with the internal market

The Greek authorities chose to argue that the measures above did not fall within the scope of Article 107(1). That was a risky strategy. Perhaps they felt that they could not prove that the State aid was compatible with the internal market. At any rate, they did not provide the Commission with any argumentation or evidence that the measures were compatible with any of the State aid rules.

In the absence of any information on the compatibility of the State aid, the Commission considered whether it fulfilled the requirements of the rescue and restructuring guidelines. Since Larco had not drawn up any restructuring plan, offered no compensatory measures and provided no proof that the aid was the minimum necessary, the Commission easily reached the conclusion that the conditions of the rescue and restructuring guidelines were not satisfied. As a result, the aid was incompatible with the internal market.

Unavoidably, the Commission requested Greece to recover the incompatible State aid. However, as was noted recently in another article on this blog, Larco has in the meantime been sold. The Greek authorities notified the sale to the Commission because they wanted a declaration from the Commission that the sold assets would be free of State aid. Indeed, in its Decision SA.37954[3], the Commission found that no State aid would be passed on to the new owner as long as the assets were sold at market prices and the new company had no links to the old company. This means what remains of Larco is a largely empty shell with most of the liabilities but hardly any assets. Under these conditions, recovery will not amount to much. Yet, recovery still has to be carried out. There is little doubt that Larco will eventually be forced into liquidation, if that has not already happened. But that is the natural consequence of recovery of incompatible aid from a company that runs into debt.


[1] The text of the Commission Decision is published in OJ L254, 28/8/2014 and can be accessed at:

[2] It can be accessed at:

[3] The Commission decision 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.

Zusammenhängende Posts

01. Feb 2022
State Aid Uncovered von Phedon Nicolaides
I. The Commission Need not Always Open the Formal Investigation Procedure before Correcting a Faulty Decision II. Fines for Failure to Recover Incompatible Aid - WhatsApp Image 2022 01 31 at 15.42.44

I. The Commission Need not Always Open the Formal Investigation Procedure before Correcting a Faulty Decision II. Fines for Failure to Recover Incompatible Aid

The formal investigation procedure need not be re-opened when the fault lies in the legal assessment of the measure in question. Incompatible State aid has to be recovered quickly and effectively, even from insolvent undertakings. Introduction This article examines two recent judgments concerning Greece. The first judgment explains when the Commission does not have to re-open the formal investigation procedure […]
07. Sep 2021
State Aid Uncovered von Phedon Nicolaides
Assignment of Public Service Obligations - wordyannik mika GjFbKfI874o unsplash

Assignment of Public Service Obligations

The compensation for public service obligations may include reasonable profit and incentives for cost reduction. Introduction Member States have discretion to define services they consider to be in the general economic interest [SGEI]. However, they need to justify that definition. The Court of Justice has ruled on numerous occasions that an SGEI has “special characteristics” that set it apart from […]
12. Mai 2020
State Aid Uncovered von Phedon Nicolaides
Road sign "Wrong Way"

Advantage Must be Proven, Not Assumed

The European Commission has to consider whether the private investor principle is applicable in cases of state investments. It is for Member States to prove that their investments conform with the private investor principle. Temporary Framework As of 9 May 2020, the European Commission had approved 113 State aid measures to combat covid-19. Their legal basis was: Article 107(2)(b): 10; […]
05. Mai 2020
State Aid Uncovered von Phedon Nicolaides
corona virus poster

Non-recovery of Incompatible State aid Is Costly

Legal and practical difficulties in the recovery of incompatible State aid do not constitute justifiable “absolute impossibility”. Temporary Framework On 1 May, the total number of State aid measures to combat covid-19 approved by the European Commission reached 102. Their legal basis was: Article 107(2)(b): 9; Article 107(3)(b): 86; Article 107(3)(c): 7   Introduction The 2020 Temporary Framework for State […]
27. Apr 2020
State Aid Uncovered von Phedon Nicolaides
corona virus poster

Identification of Undertakings in Difficulty

A company is in difficulty if, in practice, its accumulated net losses exceed 50% of its subscribed capital, regardless of whether the subscribed capital is formally written down. The classification of a company as being in difficulty is independent of the sector in which it operates and of whether a private investor would be willing to invest in it. Temporary […]
09. Apr 2020
Guest State Aid Blog von Lexxion Publisher
Woman sitting by the computer

Follow Up Webinar with Phedon Nicolaides on ‚COVID-19 and State Aid Law‘ on 20 April

The European Commission is working on quickly adapting the existing State aid legal framework to address the current Covid-19 pandemic. Join us on 20th April from the comfort and safety of your (home) office to get an insider update on the Covid-19 response by State aid experts from the European Commission and national governments. ✓ Join from wherever you are – […]
21. Feb 2020
State Aid Uncovered von Phedon Nicolaides
From Waste to Energy - StateAidHub blogpost7 waste to energy

From Waste to Energy

State aid to incentivise the use of waste to produce energy must be individually notified. Introduction Waste management is an increasingly important aspect of policies aiming to prevent environmental degradation and slow down climate change. As the market for recycling expands and waste management becomes more profitable, there is also a higher risk of harm to competition by State aid. […]
27. Dez 2019
State Aid Uncovered von Lexxion Publisher
5 Most Read Articles on StateAidUncovered in 2019 - 5 most read articles 2019

5 Most Read Articles on StateAidUncovered in 2019

Groundbreaking judgments like “Eesti Pagar”, applications of the private investor principle in air transport or questions of interpretation of the GBER besides many more, have moved and shaped this year’s judgments on State aid. Also Brexit and its meaning for State aid control in the UK has still been on everyone’s mind. See which articles by Prof. Phedon Nicolaides were […]
10. Dez 2019
State Aid Uncovered von Phedon Nicolaides
Retroactive Application of the GBER - m

Retroactive Application of the GBER

When an aid scheme is adjusted by limiting the eligible beneficiaries, it becomes “new” aid and must be notified to the Commission. The GBER can be applied retroactively to aid that was granted before it came into force.   Introduction In July 2016, Dilly’s Wellnesshotel wrote legal history for being the first undertaking to contest the application of the General […]
13. Mrz 2019
State Aid Uncovered von Phedon Nicolaides
How Can Incompatible State Aid Be Passed-on from one Company to another to Avoid Recovery? - StateaidHub blogpost10 2019 commission judgement nvestment state aid lexxion

How Can Incompatible State Aid Be Passed-on from one Company to another to Avoid Recovery?

Introduction State aid that is incompatible with the internal market has to be paid back, unless the repayment would be contrary to a general principle of EU law. Last November the Court of Justice ruled in case C‑622/16 P, Scuola Elementare Maria Montessori v European Commission that “(79) the principle that ‘no one is obliged to do the impossible’ is among the […]