TB is a joint stock company which in 2004 had own capital of around PLN 20 million (EUR 5 million). The majority shareholder of TB, with about 78,1 %, is Górnośląski Fundusz Restrukturyzacyjny S.A. (Upper Silesian Restructuring Fund, hereinafter ‘GFR’), whose main shareholder, with 51,3 %, was, until 30 December 2005, Eurofaktor SA (hereinafter ‘EF’). EF’s shareholders are private investors, such as Bonum Sp. z o.o. (37,25 %), ING TFI (13,40 %), Polmetal Sp. z o.o. (11,31 %) and Stabilo Group Sp. z o.o. (10,93 %). EF subsequently sold its shares to Stabilo Group Sp. z o.o. The Treasury was a minority shareholder in GFR.

1. (a)

   Buczek Automotive Sp. z o.o (hereinafter ‘BA’, originally named P.U.R.M. (Przedsiębiorstwo Usług Remontowo Mechanicznych) ‘REMEBUD’ Sp. z o.o.), is today 51 % owned by TB. It originally provided machinery and equipment maintenance services to TB. In December 2005 TB also transferred its main business for the automotive sector to BA (at that time 100 % owned by TB) and renamed it BA. In addition to the 76 employees in the original company, a further 227 employees were transferred to BA on 1 December 2005. On 1 January 2006 TB and BA signed a lease agreement, of unlimited duration, on the basis of which BA operates TB's automotive assets. In November 2006 EF executed the pledge on the shares of BA because of TB’s unpaid debts and acquired a 49 % stake in BA. BA is a steel producer within the meaning of the EU State Aid rules.

2. (b)

   Huta Buczek Sp. z o.o. (hereinafter ‘HB’, 100 % owned by TB) is TB’s spun-off rolling mill facility. It has 227 employees. HB was created on 3 December 2004 with PLN 100 000 (around EUR 25 000) share capital. In 2005 and the first half of 2006 TB increased the HB’s capital through several capital injections totalling PLN 14 811 600. HB is not a steel producer within the meaning of the EU State Aid rules.

3. (c)

   Buczek — HB — Zakład Produkcji Rur Sp. z o. o. (hereinafter ‘ZPR’, 18 % owned by TB, with the remaining shares held by the company’s employees) which manufactures drawn tubes and provides tube cutting and processing services, with 100 employees. It was taken over by TB's employees in 2001 to prevent its closure. TB still owns TB-ZPR's production equipment, which is leased to it.

4. (d)

   SAMKOL (100 % owned by TB) is a transport service provider, which was founded in 1997 and whose capital was last increased in 2001. It used to provide 80 % of its services to TB but currently only 20 % of its revenue is derived from work for TB.

The business plan indicated the total cost of the potential investments as PLN 25 million. In addition to the main investments in production and processing of pipes for automotive applications and welded tube manufacturing lines, this included projects such as computerisation, modernisation of other minor projects and purchase of fixed assets. Investments in the rolling department were also desired but were judged unrealistic and therefore postponed.

The restructuring of TB did not develop as envisaged in the restructuring plan but resulted in bankruptcy in 2006 for several reasons:

Point 1 of Protocol No 8 states that ‘notwithstanding Articles 87 and 88 of the EC Treaty, State Aid awarded by Poland for restructuring purposes to specified parts of the Polish steel industry shall be deemed to be compatible with the common market’ if, inter alia, the conditions laid down in the Protocol are met.

Consequently, while Articles 87 and 88 TEC would normally not apply to aid awarded before accession and not applicable after accession, Protocol No 8 extends State Aid monitoring under the EC Treaty to cover any aid awarded for the restructuring of the Polish steel industry between 1997 and 2006.

According to Article 87(1) TEC, State Aid is any aid awarded by a Member State or through state resources in any form whatsoever which distorts, or threatens to distort, competition by favouring certain undertakings, in so far as it affects trade between Member States, and is thereby incompatible with the common market.

Poland was authorised by Protocol No 8 to grant restructuring aid to TB in order to implement its restructuring plan.

However, the granting of aid was limited by a grace period which expired at end-2003. Thereafter, Poland was no longer authorised to grant restructuring aid under Protocol No 8. Any aid would then be in breach of Point 18(c) of Protocol No 8 prohibiting any granting of additional State Aid to the steel industry and to the benefiting companies indicated in the Protocol in particular.

Notwithstanding this, the Polish authorities continued to give or prolong outstanding loans to TB after 2003 which has to be considered as State Aid within the meaning of Article 87(1) TEC.

Furthermore, even on the basis of a hypothetical restructuring plan, no hypothetical private creditor would have entered into an additional restructuring agreement.

The Commission does not dispute that non-enforcement of the public debts which were eligible for waivers under the IBP/NRP was justified for a certain period of time under the mechanism envisaged in the Act of 30 August 2002. Indeed, enforcement of the liabilities subject to restructuring on the basis of the Act of 30 August 2002 was prohibited pending the completion of restructuring proceedings or discontinuance of proceedings on the grounds enumerated in the Act. Moreover, the Commission notes that as regards additional debts which were not subject to rescheduling, creditors could have counted on an improvement in TB's financial situation following the planned waiver, and therefore might have had reason to suspend debt enforcement until aid was awarded pursuant to the Act of 30 August 2002.

However, it is evident that restructuring on the basis of the Act of 30 August 2002 failed, at least partly because of non-compliance with Protocol No 8 as manifested in the negative opinion of the OCCP (the first, dated 6 February 2004), and partly because of the company’s financial problems which prevented TB from complying with national law. The Commission considers that such failure must have come to the knowledge of the main public creditors such as ZUS, the local authority and the Tax Office, as they all were involved in the original debt restructuring. Similarly, PFRON should have been alerted by the OCCP’s opinion on TB's debt to PFRON.

In the case of TB, a return to viability by end-2004 was highly doubtful, as the company had had a negative operating margin throughout 2003 and 2004 as indicated in recitals (49) to (51). Its turnover was not sufficient to cover its costs. TB did not even benefit from the upturn in the steel sector in 2004. As such, all indications regarding the prospects for TB's future viability were negative.

In addition, given that TB was no longer creditworthy, its debts were steadily rising. As of November 2004, TB was no longer able to pay its current debts, despite being in restructuring. As such, there was no reasonable possibility of recovering the past debt as a result of any hypothetical new restructuring of the debt.

Furthermore, even if a hypothetical restructuring plan proposed some hypothetical asset restructuring, this proposal should not have reduced private creditors' resistance to restructuring. This is because all the assets of a firm as indebted as TB are normally pledged and thus promise hardly any return if sold off. Indeed, although the company announced asset restructuring on several occasions in 2005, it was not able to obtain more than PLN 5 million in cash from the sale of assets.

The Commission understands that in 2004 and subsequently TB made attempts to repay some of the debt but notes that these repayments barely covered the amounts of interest accrued (see the table in recital (34) for the effect of the PLN 5 million repaid in 2004).

Lastly, with a view to providing a complete picture, it should be noted that the September 2005 plan was by no means a proper basis for further rescheduling. Given that the company was to be wound up, it is clear that its business activities would not generate any more profits and that liquidation would be the only solution. Indeed, the plan indicated that ZUS could count on only partial repayment. This was to be generated by the restructuring of assets worth about PLN 20 million up to end-2005, which proved unrealistic for the reasons stated in the previous paragraph. The proposed monthly payments after 2005 of PLN 100 000, subject to TB’s ability to pay, were not feasible either as TB was no longer operating.

Instead, as TB admitted in its 2005 IBP, it saw spinning off its assets into BA as its only hope of restoring the business's viability. That did not just entail the spinning-off of its only profitable business (BA) but also determined TB’s fate, i.e. its liquidation.

In short, the Commission finds that any hypothetical private creditor would have opted for enforcement of his claims as early as end-2004. At that time it became clear that TB was not able to honour its previous rescheduling agreements and would not be able to meet its current engagements. No updated plan had been presented and nor was there any perspective of the company becoming profitable.

Thus Poland failed to enforce PLN 20,761 million (PLN 20,267 million was indicated in the fourth Polish restructuring report, but that amount was later rectified by the Polish authorities). This constitutes operating support for the firm to continue its inefficient business and is therefore an advantage granted through state resources which threatens to distort competition in so far as it affects trade between Member States, and is thereby incompatible with the common market in the sense of Article 87 of the EC Treaty.

As regards the budgetary funds indicated as employment restructuring and awarded after 2004, the Commission's doubts have been allayed. Indeed they cannot be considered State Aid as the Polish authorities have explained that they are provided for the sole benefit of redundant workers, who cannot be considered as an undertaking; equally, such payments cannot be related to the employer as they are provided after the workers are laid off and do not diminish any other charges which the company would have to bear if no such aid were provided.

Point 18(a) of Protocol No 8 gives the Commission the power to take ‘appropriate steps requiring any company concerned to reimburse any aid awarded in breach of the conditions laid down in this Protocol […] if monitoring of the restructuring shows that the commitments for the transitional arrangements contained in this Protocol have not been fulfilled.’

The Commission finds that TB did not fully implement its restructuring plan as explicitly stipulated in point 9 of Protocol No 8 and contributed to its bankruptcy with the various measures indicated in recital (56) above. Poland has not disputed this finding.

1. (a)

   TB was not able to obtain financial support from creditors and local financial institutions as stipulated in point 9(c) of Protocol No 8;

2. (b)
   TB only partially reduced its costs as stipulated in point 9(c) of Protocol No 8. The consultant confirmed that this obligation was met only in part45;
3. (c)
   TB managed only partially to implement employment restructuring as parts of its cost savings programme. The number of workers was cut from 550 to 294 only thanks to the spinning-off of the rolls department into HB, not because of reductions in the core business46;
4. (d)

   TB was not able to improve the efficiency and effectiveness of its business management as stipulated in the second recital of point 9(a) of Protocol No 8. In fact, TB’s management board has been replaced several times since 2002.

Since TB failed to meet the conditions set out in Protocol No 8 and did not properly implement its IBP, the restructuring aid has been misused and must be repaid.

The Commission expressed its opinion in the decision to initiate the procedure that the aid recipient is the TB group, including all its subsidiaries with the possible exception of TB-ZPR. This is because HB and BA are clearly part of the same business entity, i.e. the TB group.

1. (a)

   ZPR is not majority owned by TB but by ZPR's employees; under Polish law it is thus not part of the group. Furthermore, no investments were made in the company and nor were any assets or capital transferred to it from TB between 2003 and 2006 (and probably not before then either).

2. (b)

   SAMKOL, while part of the group, is not a steel producer. No investments were made in the company and nor were any assets or capital transferred to it between 2003 and 2006 (and probably not before then either).

On the other hand, the investigation showed that BA and HB profited from the aid. The operating aid did not remain within TB because non-enforcement allowed it to proceed with its business activity and organise its internal restructuring.

Second, transferring assets, workers and capital to its subsidiaries (PLN 14,81 million to HB and PLN 1,55 million to BA, see recitals (60) and (62)) was possible only because the operating aid saved TB from bankruptcy. Without this aid, the two subsidiaries would most probably not have been set up in the first place and would definitely not have been able to operate.

However, the Commission finds that winding up the original aid recipient is unsatisfactory from a competition perspective where the actual benefit of the aid has been passed on. In this case, registration of the claim to the assets of the bankrupt TB would not allow the competitive advantage resulting from the actual benefit derived from the aid, which was passed on to TB’s subsidiaries, to be offset. Targeting TB alone would result in the sale of the subsidiaries as legal persons, but would not affect their economic activity as such, because the sale would not have an impact on the activity itself, the subsidiaries' accounts or their operations.

On the other hand, the Commission is not able to establish that the misused restructuring aid awarded before 2004 was used for the benefit of any of TB’s subsidiaries. It must therefore be recovered from TB.