ENVC was a Portuguese shipyard founded in 1944 and nationalised in 1975. It was fully owned by the State through EMPORDEF — Empresa Portuguesa de Defesa (SGPS), S.A. (‘EMPORDEF’), a 100 % State-owned holding company controlling a number of State-owned enterprises in the defence sector.

By resolution of the Council of Ministers 27/2013, of 17 April 2013, the Portuguese Government decided to reject the only valid offer of JSC River Sea Industrial Trading (the offer of Rio Nave Serviços Navais had in the meantime expired) arguing that its conditions were excessive and could not be assumed.

By Decree-Law 98/2013, of 24 July 2013, the Portuguese Government authorised ENVC to proceed to a sub-concession of the land on which it operated. The sub-concession procedure was initiated on 31 July 2013. Two bidders submitted offers, but only the one of Martifer-Energy Systems SGPS, S.A. jointly with Navalria-Docas, Construções e Reparações Navais, S.A. (through their join subsidiary WestSea) was considered eligible. Portugal confirmed that the offer of WestSea had been selected on 11 October 2013.

In view of the financial situation of ENVC, which by mid-2013 had accumulated losses in excess of EUR 264 million, the Portuguese Government decided to liquidate ENVC by resolution of the Council of Ministers 86/2013, of 5 December 2013. At the same time, the Government instructed ENVC's Board of Directors to start selling the company's assets and to maximize their value through transparent sales.

On 4 March 2014, ENVC held a general assembly in which EMPORDEF, as the sole shareholder of ENVC, confirmed the decision to proceed with the sale of the assets of ENVC as well as with the dismissal of the approximately 607 employees at that point in time, in order to liquidate and dissolve the company as soon as possible.

After doing the necessary arrangements to comply with the decision of the general assembly of ENVC, selling the assets and dismissing the employees, the Portuguese Government requested the Comissão de Recrutamento e Selecção para a Administração Pública — CRESAP (the Portuguese Agency for the Selection and Recruitment of Senior Administration Officers) to nominate the liquidation team in charge of the liquidation of ENVC. The Portuguese authorities confirmed that ENVC will be liquidated in the coming months.

As noted above in recital 42, Portugal claims that the gravity of ENVC's financial situation became evident only in 2009/2010 and that its irreversibility was only recognised in the annual accounts of the company of 2012.

The Commission reiterates the views it expressed in its opening decision. According to recital 9 of the 2004 R&R Guidelines, the Commission regards a firm as being in difficulty when it is unable, whether through its own resources or with the funds it is able to obtain from its owners/shareholders or creditors, to stem losses which without outside intervention by the public authorities, will almost certainly condemn it to going out of business in the short or medium term.

Recital 10 of the 2004 R&R Guidelines clarifies that a limited liability company is regarded as being in difficulty where more than half of its registered capital has disappeared and more than one quarter of that capital has been lost over the preceding 12 months, or where it fulfils the criteria under its domestic law for being the subject of collective insolvency proceedings.

Recital 11 of the 2004 R&R Guidelines adds that, even if the conditions in recital 10 are not satisfied, a firm may be considered to be in difficulty in particular where the usual signs of a firm being in difficulty are present, such as increasing losses, diminishing turnover, growing stock inventories, excess capacity, declining cash flow, mounting debt, rising interest charges and falling or nil net asset value.

According to Portugal (see recital 43 above), the 2006 capital increase was needed in order to comply with Article 35 of the Portuguese Companies Code, the alternatives being a reduction of ENVC's capital or the liquidation of the company. Moreover, the restructuring plan prepared by BPI dated August 2005 (see recital 47 above), highlights that since the end of 2003, ENVC was in a situation of technical bankruptcy (‘falência técnica’). Finally, the Commission observes that the 2009 report of the IGF indicates that as of 31 December 2005 and at the end of 2008, ENVC was again in a situation of technical bankruptcy. Therefore, it appears that at those points in time when ENVC was in technical bankruptcy it showed all the signs of bankruptcy except that it had not been formally declared bankrupt by the competent court. This suggests that the company fulfilled the criteria under domestic law for being the subject of collective insolvency proceedings, in line with recital 10 of the 2004 R&R Guidelines at least at the end of 2003, 2005 and 2008.

In view of the above, the Commission concludes that ENVC was a firm in difficulty within the meaning of the 2004 R&R Guidelines at the time when all the past measures were granted.

By virtue of Article 107(1) TFEU, any aid granted by a Member State or through State resources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods, shall, in so far as it affects trade between Member States, be incompatible with the internal market.

In order to conclude on whether State aid is present, it must therefore be assessed whether the cumulative criteria listed in Article 107(1) TFEU (i.e. transfer of State resources, selective advantage, potential distortion of competition and affectation of intra-EU trade) are met for the measures identified.

The Commission already notes in this respect that Portugal does not contest the State aid character of the shipbuilding subsidies since they were — according to the Portuguese authorities — provided according to Decree-Law 296/89 implementing Directive 87/167/EEC. The Commission will assess their compatibility with the internal market in section 6.4 below.

In relation to the professional training subsidies provided in 2005 and 2006 amounting to EUR 257 791, Portugal states that they were granted under the Operational Programme for Employment, Training and Social Development (POEFDS) sponsored by the European Social Fund. The Commission observes that these funds constitute per se State aid since they were provided by the Member State in the context of the Structural Funds 2000-2006. Therefore, the Commission will directly assess their compatibility with the internal market in section 6.4 below.

Article 108(3) TFEU states that a Member State shall not put an aid measure into effect before the Commission has adopted a decision authorising this measure.

The Commission observes that Portugal granted the past measures to ENVC without notifying them to the Commission for approval (with the exceptions indicated in recital 125 below). The Commission regrets that Portugal did not comply with the stand-still obligation and therefore violated its obligation according to Article 108(3) TFEU.

Insofar as the measures identified above constitute State aid within the meaning of Article 107(1) TFEU, their compatibility must be assessed in the light of the exceptions laid down in paragraphs 2 and 3 of that provision.

The Commission has nonetheless assessed whether any of the possible compatibility grounds laid down in the TFEU would be applicable to the past measures.

As regards the shipbuilding subsidies, Portugal argues that they were provided under Decree-Law 296/89 implementing Directive 87/167/EEC (see recital 68 above). However, as the Commission already noted in the opening Decision, this Directive has ceased to apply since 31 December 1990 (see Article 13 thereof).

In addition, Portugal has not provided any evidence that the shipbuilding subsidies would be compatible with any of the subsequent legal bases for declaring compatible aid for shipbuilding purposes.

The Commission nonetheless comes to the view that the rest of shipbuilding subsidies (amounting to EUR 21 779 383,21) — for which Portugal does not discuss their State aid character — are incompatible with the internal market.

In the first place, the Commission reiterates its findings of the opening decision that that the conditions for rescue aid laid down in section 3.1 of the 2004 R&R Guidelines are not met. According to point 25(a) of the 2004 R&R Guidelines, the rescue aid must consist of liquidity support in the form of loans or loan guarantees; in both cases, the loan must be granted at an interest rate at least comparable to those observed for loans to healthy firms. For instance the 2006 capital increase would already not meet this requirement.

In addition, point 25(a) adds that any loan must be reimbursed and any guarantee must come to an end within a period of not more than six months after the disbursement of the first instalment to the firm. As explained above, this does not seem to have occurred for any of the past measures under assessment.

Point 25(b) estates that the recue aid must be warranted on the grounds of serious social difficulties and have no unduly adverse spill-over effects on other Member States. Portugal has provided no evidence that this was the case for any of the past measures.

Also, in the case of non-notified recue aid, point 25(c) requires the Member State to communicate to the Commission, no later than six months after the first implementation of the rescue aid measure, a restructuring plan or a liquidation plan or proof that the loan has been reimbursed in full and /or that the guarantee has been terminated. Once again, Portugal did not fulfil this necessary compatibility requirement.

According to point 25(d), the recue aid must be restricted to the amount needed to keep the firm in business. In view of the significant amounts of aid stemming from all the past measures, the Commission concludes that this requirement was not met either.

Finally, point 25(e) of the 2004 R&R Guidelines requires that the ‘one time, last time’ principle is respected. According to this principle, where less than 10 years have elapsed since rescue aid was granted or a restructuring period came to an end, the Commission will not allow further rescue or restructuring aid. In view of the numerous interventions of the State during the time spam covered by the past measures, it is clear that the ‘one time, last time’ principle has not been respected and that ENVC benefited from unlawful State aid in numerous occasions.

In relation to restructuring aid as defined in section 3.2 of the 2004 R&R Guidelines, the Commission observes that Portugal did not notify to the Commission any of the measures identified above as restructuring aid and thus failed to demonstrate that any of the necessary elements for it to be considered as such are present (restructuring plan, own contribution, compensatory measures, etc.).

In particular, recital 34 of the 2004 R&R Guidelines states that the grant of restructuring aid is conditional on implementation of a restructuring plan, which must be endorsed by the Commission in all cases of individual aid. In addition, any restructuring aid must include measures seeking to avoid undue distortions of competition (‘compensatory measures’ — see points 38 to 42) and must also provide for ‘own contribution’ from the beneficiary which in the case of ENVC should have reached 50 % of the restructuring costs given that it was a large undertaking (see points 38 to 45). In addition, as for recue aid, the ‘one time, last time’ principle must be respected.

The Commission first reiterates that the ‘one time, last time’ principle has not been respected (see recital 133 above). Indeed, the Commission observes that numerous past measures were provided outside the planned restructuring period 2005-2009. This would be in breach of the ‘one time, last time’ principle, and therefore sufficient to consider that the past measures cannot be deemed compatible restructuring aid as per the 2004 R&R Guidelines.

In any event, the Commission highlights that Portugal submitted the restructuring plan prepared by BPI only in 2014, i.e. 5 years after the planned restructuring period (2005-2009) had expired. In addition, the Commission highlights that the plan prepared by BPI seems to be a draft for discussion. In any event, while the restructuring plan seems to include some of the elements required by the 2004 R&R Guidelines, it does not include any compensatory measures and does not foresee any own contribution by ENVC. Therefore, the restructuring plan of BPI cannot be deemed to respect the necessary requirements of the 2004 R&R Guidelines.

In the absence of any proposed compensatory measures and own contribution from ENVC, and bearing in mind that the ‘one time, last time’ principle has not been respected, the Commission concludes that the rest of the past measures cannot be deemed compatible restructuring aid under the R&R Guidelines.

In view of the above, the Commission considers that the shipbuilding subsidies for contracts C224 and C225, amounting to EUR 2 675 275 each (see recital 125 above), constitute aid to shipbuilding compatible with the internal market.

The Commission also considers that the rest of the past measures (i.e. the 2006 capital increase, the 2012 and 2013 loans, the DGTF loans, the comfort letters of 2009, 2010 and 2011, the professional training subsidies, the loan for the Atlântida vessel and the rest of the shipbuilding subsidies) do not meet the conditions of the 2004 R&R Guidelines. The Commission has not identified any other compatibility basis. Therefore, the Commission considers the rest of the past measures to entail State aid that is incompatible with the internal market.

The Commission observes in this respect that some of the shipbuilding subsidies were awarded before 11 October 2002, in particular in relation to contracts C206, C211, C217, C218, C219, C220, C221 and C222 (see Annex II). Therefore, the incompatible aid for these contracts, amounting to EUR 11 297 009,19 is subject to the limitation period of ten years and cannot be recovered.

In order to avoid economic continuity, the Commission has to establish that the assets and other elements of the business transferred represent only a part of the previous company or its activities. The larger the part of the original business that is transferred to a new entity, the higher the likelihood that the economic activity related to these assets continues benefitting from the advantage stemming from the incompatible aid granted to the previous entity.

ENVC's main assets included (i) the concession granted by the Viana do Castelo Port Administration for the land where the shipyard is located and (ii) various equipment and raw materials. All these assets were sold following transparent, non-discriminatory, and unconditional tenders opened to Portuguese and non-Portuguese bidders, the best price being the sole criterion to select the bidders.

As regards the sub-concession for the land where the shipyard is located, following a tender process, it was awarded until March 2031 to WestSea, a joint subsidiary of the Portuguese holding Martifer and the Portuguese shipyard Navalria. WestSea will pay an annual rent fee of EUR 419 233,95 and a guarantee of EUR 435 500.

As regards the various equipment and raw materials, including vehicles and a major lifter/crane, they were sold in the course of 120 small tenders in 884 batches of goods. As a consequence, out of the total EUR 3 358 905,13 of goods sold, the buyers acquired on average EUR 55 981,75 of merchandise, ranging from EUR 10 up to EUR 1,035 million. The Ministério dos Transportes e Comunicações de Timor was the most important buyer with a share of 31 %. WestSea acquired less than 20 % of the assets sold.

Finally, with respect to employees, no employment contract has been transferred to any of the buyers: 596 labour contracts have already been terminated and the remaining 13 employees are in the process of being dismissed. The tenders did not include any specific condition to transfer employment contracts or employees from ENVC to any buyer.

As a consequence of the above elements, the Commission concludes that the scope of the assets acquired or to be acquired by WestSea will be significantly reduced in comparison to that of ENVC and its previous activity.

The sub-concession for the land where the shipyards are located and the various equipment and raw materials have been divested through open, transparent, non-discriminatory and unconditional tenders, the best price being the sole criterion to select the bidders.

As a consequence of the above elements, the Commission concludes that the grant of the sub-concession for the land where the shipyards are located and the sale of ENVC's various equipment and raw materials to WestSea were carried out via open, transparent, non-discriminatory and unconditional tender processes to the highest bidder and thus led to a market price.

In order to avoid economic continuity, the Commission has to establish that the buyers of the assets and other elements of the business transferred do not have economic or corporate link with ENVC.

As concerns the concession for the land where the shipyard is located, the Portuguese authorities confirm that WestSea does not have any economic or corporate links with ENVC or the Portuguese State.

As concerns the various equipment and raw materials already divested, the Portuguese authorities confirm that none of the main buyers have economic or corporate links with ENVC or its shareholder.

As a consequence of the above elements, the Commission concludes that WestSea is an entity independent from ENVC and from its shareholder.

In order to avoid economic continuity, the Commission has to establish that the moment of the sale of the assets and other elements of the business transferred does not lead to a circumvention of a decision by the Commission to recover incompatible State aid.

The Commission notes that the tender processes for the sub-concession of the land where the shipyards are located as well as for the acquisition of the assets and equipment have been launched and concluded before the adoption by the Commission of the present final decision.

Moreover, as mentioned in recital 1 above, it was Portugal that first approached the Commission in order to properly organise ENVC's privatisation in accordance with EU State aid rules. Thus, the series of events indicate that the privatisation was not construed as a mechanism to circumvent existing negative decisions or pending investigations by the Commission.

As a consequence of the above elements, the Commission concludes that the fact that the granting of the sub-concession of the land where the shipyards are located as well as the acquisition of ENVC's various equipment and raw materials occurred before the adoption by the Commission of the present final decision does not indicate that there is circumvention of a potential recovery decision by the Commission.

In order to avoid economic continuity, the Commission has to establish that the buyers of the assets and others elements of the business transferred will not employ these assets in the same way as the previous owner but will use them to set up a different activity or strategy.

Some of ENVC's assets acquired by WestSea may be used for the same general activity (shipbuilding), in particular the land where the shipyard is located. However, the mere fact that the buyer would be active in the same economic sector as the previous entity does not necessarily imply that there is economic continuity. WestSea has no obligation to take over any of ENVC employees or employment contracts. In addition, WestSea will integrate the shipyard in its business strategy in order to guarantee synergies with other shipyard sites. WestSea will have the possibility to manage its activities under different operating conditions than ENVC and will have the freedom to apply its own business model.

As a consequence of the above elements, the Commission concludes that WestSea will integrate these elements into its company strategy and will use them in order to pursue its own economic logic.

First, the scope of the assets acquired by WestSea is significantly reduced in comparison to that of ENVC and its previous activity. Second, the granting of the sub-concession for the land where the shipyard is located and the acquisition of the various equipment and raw materials were carried out via open, transparent, non-discriminatory and unconditional tenders. Third, WestSea is an entity independent from ENVC and its shareholder. Fourth, the moment of the grant of the sub-concession of the land where the shipyards are located as well as the acquisition of various equipment and raw materials does not indicate that there is circumvention of a potential recovery decision by the Commission. Fifth, WestSea will integrate ENVC's assets into its company strategy and will use them in order to pursue its own economic logic.

Consequently, the Commission concludes that there is no economic continuity between ENVC and WestSea.