OPINION OF ADVOCATE GENERAL

FENNELLY

delivered on 16 July 1998 (1)

Case C-200/97

Ecotrade Srl

v

Altiforni e Ferriere di Servola SpA (AFS)

Introduction

1.

    This case raises the question whether a form of extraordinary administrationand protection from execution by creditors which is accorded to certain insolventcompanies by Italian law constitutes, in the case of a steel company, a State aidprohibited by Article 4(c) of the ECSC Treaty. (2)

Legal and factual context

2.

    Law No 95/1979 of 3 April 1979, (3) commonly known as the Prodi Law afterthe then Minister for Industry, establishes a procedure of extraordinaryadministration for insolvent companies which have 300 or more employees andwhich have debts which exceed both LIT 88 444 billion (4) and five times the paid-upcapital of the company. The debts in question must be owed to creditestablishments or undertakings or social assistance and welfare institutions, (5) orcompanies in which the State owns a majority stake. (6) It appears thatextraordinary administration is available only to companies engaged in industrialactivity. Furthermore, where a company is eligible for extraordinary administrationunder Law No 95/1979, other insolvent companies in the same group may also beplaced under extraordinary administration even if they do not comply with thecriteria regarding the number of employees and their level of indebtedness.

3.

    For a qualifying company to be placed under special administration, it mustfirst be declared insolvent by the courts either pursuant to the Law on Insolvency (7)or due to failure to pay salaries for at least three months. Where the competentcourt finds that the company fulfils the criteria set out in Law No 95/1979, itrefrains from subjecting the company to the ordinary liquidation process. A decreeplacing the company under extraordinary administration is then issued by theMinister for Industry, in consultation with the Minister for Finance. The Minister

for Industry also decides, at this stage, in consultation with the Minister forFinance, whether or not to permit the company under extraordinary administrationto continue trading for up to two years (extendable by a maximum of a further twoyears). (8) This decision is discretionary in nature, unlike, apparently, that to placethe company in extraordinary administration in the first place; it has beensubmitted that the two decisions are invariably taken together. When taking thedecision on continuation of trading, the Minister for Industry must take full accountof the interests of the creditors.

4.

    The normal liquidation procedure under the Italian Law on Insolvency isconducted under judicial supervision, with decisions being taken in consultation withor subject to the approval of a committee of creditors. It includes the possibilityof permitting the company in liquidation to continue trading in order to maximisethe value of its assets in the creditors' interests. (9) The limits on such continuedtrading have not been described to the Court; presumably it would not bepermitted to trade at a loss, since that would further damage the interests of thecreditors.

5.

    Companies under extraordinary administration are subject to the generalrules set out in the Law on Insolvency, in the absence of express derogations inLaw No 95/1979. Thus, under extraordinary administration, as under normal Italianliquidation procedure, the owner of the insolvent company is denied the enjoymentof its assets, which are, in principle, to be used to satisfy the creditors' claims. Adecree of extraordinary administration, like the normal liquidation procedure,results in the suspension of the collection by individual creditors of debts owed bythe company, as well as the execution of any judicial remedies. (10) In the case ofextraordinary administration, however, the suspension extends to fiscal debts,penalties and interest, which are not subject to such a suspension in the ordinarycourse. (11) Interest on existing debts is suspended during the period ofextraordinary administration, as under the normal liquidation procedure. (12)

6.

    A company under extraordinary administration is excused from payment ofpenalties for failure to make obligatory social security contributions; (13) the valueof such penalties may, it seems, rise to up to 50% of the basic amount owed. Theproperty of a company under extraordinary administration may be sold, subject toa nominal registration tax of LIT 1 million (in lieu of the normal rate of 3% of the

value of the property concerned). (14) It is not clear to what extent these specialrules apply to an undertaking under extraordinary administration which is notpermitted to continue trading.

7.

    Where a company in extraordinary administration is permitted to continuetrading, the administrator appointed to run the company must then prepare anappropriate business plan. The compatibility of the business plan with the broadlines of national industrial policy is determined by the interministerial industrialpolicy committee (15) before its approval by the Minister for Industry. It appearsthat the administrator may not proceed to the liquidation of the company unlessit is impossible to save it; liquidation should, where possible, take place throughdisposal as a going concern of the operational assets of the company. TheCommission has suggested that the administrator has the facility to sell units of thecompany at negative prices, that is, that other undertakings would be paid to takeon such units and to maintain their operations. (16) The State may guarantee someor all of the debts contracted by the company to finance its continued operationsduring this period. (17) The expenses of extraordinary administration, including debtscontracted, have priority over those of the existing creditors; this is also the casewhere a company continues trading within the framework of the normal liquidationprocedure. (18)

8.

    The process of extraordinary administration remains subject to ministerialsupervision: decisions regarding matters such as restructuring, asset disposals,liquidation or the ultimate termination of the period of extraordinary administrationmust be approved by the Minister for Industry. The Court has received conflictingsubmissions regarding whether the Minister's decisions are subject to review limitedto their legality by the administrative courts, or are, on the contrary, amenable toa more far-reaching action before the civil courts regarding whether they areconsistent with the economic interests of the creditors. It appears that somecreditors may be represented on the supervisory committee, which has a purelyconsultative role in the extraordinary administration procedure.

9.

    The Minister for Industry also approves the termination of the period ofextraordinary administration. The creditors may seek satisfaction of their debts, inwhole or in part, only at the end of that period, either through the liquidation ofthe company's assets or from the company's renewed profits.

10.

    Law No 95/1979 has been the subject of a number of Commission measures,pursuant in part to the complaints of the applicant in the main proceedings, thesteel company Ecotrade Srl (hereinafter 'Ecotrade‘). In response to a Commissionrequest under Article 93(1) of the EC Treaty (19) for further information on LawNo 95/1979 with a view to a State aid enquiry, (20) Italy refused to notify the Lawexcept in respect of the guarantee provisions of Article 2a. The Commission thendecided, by Notice C 7/97 (ex E 13/92), (21) to open the procedure provided for inArticle 93(2) of the EC Treaty. Furthermore, the Commission decided that thegrant of a State guarantee pursuant to Article 2a of Law No 95/1979 to a steelcompany in extraordinary administration, Altiforni e Ferriere di Servola SpA (thedefendant in the main proceedings, hereinafter 'AFS‘), was an aid incompatiblewith the common market in coal and steel. (22) The Commission also decided thatthe suspension of payment of certain public debts by another steel company underextraordinary administration, Ferdofin Siderurgica Srl, was an aid incompatible withthe common market in coal and steel and that the debts in question must berecovered. (23)

11.

    The present case relates to a debt of LIT 149 108 190 owed by AFS toEcotrade for deliveries of steel. The Pretore (Magistrate) di Trieste (Italy) grantedan order on 30 July 1992, upon the failure of AFS to pay its debt to Ecotrade,transferring to the latter, up to the amount due, a debt owed to the former by abank. On 28 August 1992, AFS informed Ecotrade that, pursuant to a finding ofinsolvency by the Tribunale (District Court) di Trieste of 2 July 1992, the companyhad been placed under extraordinary administration by a ministerial decree of23 July 1992, under Law No 95/1979, which permitted it to continue trading. AFSsought repayment of the money obtained, on the basis that the execution of thedebt after the issue of such a decree was contrary to Article 4 of Law No 544/1981. Ecotrade commenced an action on 4 October 1992 before the Tribunale di Trieste,seeking a declaration that the demand by AFS for reimbursement was ill-founded,

being based on a decree which was incompatible with Community law in the fieldof State aids. On 23 October 1993, the Tribunale rejected this request and grantedAFS's counter-claim for reimbursement. This judgment was confirmed on appealby the Corte d'Appello (Court of Appeal) di Trieste. Ecotrade then appealed incassation to the Corte Suprema di Cassazione (Supreme Court of Cassation,hereinafter 'the national court‘).

12.

    The national court referred the following question to the Court for apreliminary ruling pursuant to Article 177 of the EC Treaty:

'This court is not clear as to the interpretation of:

(a)    Article 92 of the Treaty, inasmuch as the provision of aid ”granted by aMember State” or, alternatively, ”through State resources” might lead to theconclusion that even a State measure which, whilst it does not provide fordisbursement of funds by the State, enables the same result to be achievedby special procedures as would have been obtained by the disbursement ofState funds, constitutes aid;

(b)    the abovementioned decision (E 13/1992), inasmuch as the conclusion atwhich it arrives ... is preceded by the statement that the legislation(Law No 95/1979) ”is caught in several respects by Article 92 et seq. of theEC Treaty”;

This court is therefore uncertain whether, according to the Treaty and theabovementioned Commission decision, a State measure which was adoptedpursuant to Law No 95/1979 and which provides:

(1)    solely for the exemption of large enterprises from the usual insolvencyproceedings; and

(2)    for such exemption and, simultaneously, for the enterprise to continuetrading;

may be regarded as aid, in view of the fact that Decree Law No 414 of 31 July1981 (converted into Law No 544/1981) provides in Article 4 that ”individualactions for enforcement may not be taken or pursued after the measure initiatingthe special administration procedure has been adopted”.‘

Observations

13.

    Written and oral observations were submitted by Ecotrade, AFS, the ItalianRepublic and the Commission of the European Communities.

14.

    Ecotrade and the Commission submit that the application of the regime ofextraordinary administration established by Law No 95/1979 to a steel companyconstitutes State aid within the meaning of Article 4(c) of the ECSC Treaty, whichshould have been notified pursuant to Article 6 of Commission DecisionNo 3855/91/ECSC of 27 November 1991 establishing Community rules for aid tothe steel industry. (24) They submit that Law No 95/1979 constitutes a derogationfrom the general law on insolvency, in that its application is confined to industrialcompanies of a certain size with debts of a specified amount to specified creditors,many of them in the public sector, and, furthermore, in that the decision to permitan insolvent company under extraordinary administration to continue trading is amatter of ministerial discretion, (25) excluding any significant role for creditors. Article 4(c) of the ECSC Treaty extends to negative aids, which mitigate thecharges which are normally included in the budget of an undertaking and, thus, aresimilar in character to and have the same effect as subsidies. (26) The excusing ofpayment of social security penalties, the prohibition of execution of fiscal debts andpenalties, (27) the possibility of a State guarantee of debts incurred duringextraordinary administration and the merely symbolic registration tax on assetsdisposed of by the company are, in their view, direct subventions from Stateresources which represent advantages compared with normal insolvency procedure. The suspension of execution of State debts and of the running of interest alsoconstitutes aid, within the framework of continued trading under the extraordinaryadministration regime, whose objective is to maintain in operation the economicactivities of the company in question, even though private creditors are alsoaffected and similar suspensions apply under the normal insolvency procedure. Ecotrade argues that legislatively ordained suspension of execution of private debtsis a form of aid, even though it does not entail any charge on State resources; (28) the Commission, on the other hand, submits that such a suspension results in acharge on public funds, as it normally results in the extinction of the debtsconcerned and thus, indirectly, in lower taxation receipts for the Italian Treasuryfrom those creditors.

15.

    AFS and Italy argue that special administration is a perfectly normalresponse to insolvency, consistent with the work of UNCITRAL (United NationsCommission on International Trade Law), which seeks to avoid unnecessaryliquidation of companies but which none the less serves the same purpose: theultimate satisfaction of creditors' debts. Although prepared to admit that the Stateguarantee of debts should be notified as an aid, they argue that continued tradingby a company during insolvency, without assistance from State resources, is not, assuch, incompatible with the rules of free competition. Extraordinary administrationis a general and automatic procedure, contingent on satisfaction of certainconditions; only the grant of a State guarantee is discretionary. There isparallelism between extraordinary administration and normal insolvency procedure: both are initiated by a finding of insolvency; both entail the suspension ofexecution of debts and of the running of interest; both permit, in the light ofprevailing circumstances, continued trading by the insolvent company. Continuedtrading under Article 90 of the Law on Insolvency is only approved by acourt-appointed committee of representative creditors, whose decision cannot bereviewed, and, in contrast with the position under extraordinary administration, cancontinue indefinitely. Extraordinary administration does not involve any additionalcost for the State, which is a stranger to the debtor-creditor relationship; chargessustained by private parties do not constitute aid. (29) The suspension of payment ofdebts does not result in a different level of receipts for the Treasury in the longrun, and may lead to higher receipts if the company is able to trade its way into aposition to pay off its debts in their entirety. AFS disputes the pertinence of thereference by the national court, as execution of Ecotrade's debt would besuspended even under the normal insolvency procedure. The provision regardingexoneration from social security debts only applied to social security debts incurredup to 1986. The non-execution of fiscal debts under the extraordinaryadministration regime does not constitute a charge on public funds, because thepossibility of executing such debts under the normal insolvency rules confers onlya procedural advantage; pursuant to the principle of equality among creditors, theState must still account to the other creditors for any sums executed in excess ofits proper share of the proceeds of the eventual liquidation. The special lowregistration tax benefits purchasing undertakings rather than the company whichsells its assets.

Analysis

16.

    It appears that AFS is an undertaking engaged in production in the steelindustry and is thus an undertaking within the meaning of Article 80 of the ECSCTreaty. As the provisions of the EC Treaty do not affect the provisions of the

ECSC Treaty as regards the rules laid down by that Treaty for the functioning ofthe common market in coal and steel, (30) the question posed by the national courtshould be recast as a reference to the Court for a preliminary ruling pursuant toArticle 41 of the ECSC Treaty regarding the interpretation of Articles 4(c) and 67of that Treaty. (31) Article 4 of the ECSC Treaty provides, in relevant part:

'The following are recognised as incompatible with the common market for coaland steel and shall accordingly be abolished and prohibited within the Community,as provided in this Treaty:

...

(c)    subsidies or aids granted by States, or special charges imposed by States, inany form whatsoever;

... .‘

Article 67 is the sole provision of Chapter VII of Title Three of the ECSC Treaty,entitled 'Interference with conditions of competition‘. Article 67(1) states that'[a]ny action by a Member State which is liable to have appreciable repercussionson conditions of competition in the coal or the steel industry shall be brought tothe knowledge of the High Authority by the Government concerned‘. Article 67(2)enables the High Authority (the Commission) to take certain steps if an action isliable to provoke a serious disequilibrium. Article 67(3) empowers the HighAuthority to make recommendations to Member States whose actions allow specialbenefits to or impose special charges on the coal or steel undertakings within itsjurisdiction in comparison with other industries in the same country.

17.

    The Court stated in Banks that 'Article 4 applies by itself only in theabsence of more specific rules; if they have been adopted or are governed by otherprovisions of the [ECSC] Treaty, texts relating to the same provision must beconsidered as a whole and applied together‘. (32) It is clear from the analysis in thatcase and in Hopkins and Others v National Power and Powergen (33) that Article 4(c)

of the ECSC Treaty, read with sections (2) and (3) of Article 67, is not capable ofdirect effect, due to the level of discretion granted to the Commission in theapplication of the latter provisions. However, the present case does not, in myview, fall within the scope of application of Article 67(2), because there is nosuggestion that a serious disequilibrium has been provoked by the alleged aid, orwithin that of Article 67(3), as Law No 95/1979 does not grant special advantagesto coal or steel undertakings in comparison with other industries. The selection ofundertakings to enjoy the alleged advantages of the extraordinary administrationis made in accordance with quite different criteria. As regards Article 67(1), thenotification obligation which it sets out is by no means inconsistent with the clearand unconditional application of the unqualified prohibition of State aid inArticle 4(c). I conclude, therefore, that, in the circumstances of the present case,Article 4(c) of the ECSC Treaty is directly effective.

18.

    There are a number of important differences between the State aids regimeestablished by Articles 92 and 93 of the EC Treaty and the more laconic, but alsomore sweeping and unconditional, terms of Article 4(c) of the ECSC Treaty. Itseems clear, however, for reasons outlined further below, that the definition ofState aid, which is central to the present case, is the same under both Treaties,even though Article 4(c) does not refer expressly to State resources.

19.

    It also appears that the Commission document E 13/1992 referred to by thenational court in the question is not a decision but merely a request addressed toItaly, pursuant to Article 93(3) of the EC Treaty, to notify as aid all cases in whichthe provisions of Law No 95/1979 are applied. The Commission subsequentlydecided to initiate proceedings pursuant to Article 93(2) of the EC Treaty, (34) butno decision of a general character had been reached under that provision by thedate on which the question was referred in the present case. The only Commissiondecision regarding the provisions of Law No 95/1979, other than those onrepayment of unlawful State aid and the granting of a State guarantee for furtherdebts incurred by companies trading while under extraordinary administration,which are not material to the instant case, is Decision No 97/754/ECSC, whichrelates to a single company, Ferdofin Srl. While that individual Commissiondecision is based on reasoning which is of obvious relevance to the present case,it is not in itself binding on either of the parties to the main proceedings, nor onthe national court in deciding the outcome of those proceedings. Furthermore, thefact that Italy did not pursue its annulment action in respect of DecisionNo 97/754/ECSC cannot have as a result that the reasoning and operative part ofthat Decision must be applied, without possibility of challenge, in nationalproceedings to which neither Italy nor Ferdofin is a party. (35) Thus, although

certain of the arguments which appear in the various Commission measures justcited are alluded to in the pleadings and in the analysis which follows, it is best torecast the question referred by the national court by reference solely to Article 4(c)of the ECSC Treaty.

20.

    It is possible to read subsections (1) and (2) of the question referred by thenational court disjunctively. However, the present case relates to factualcircumstances in which the insolvent company in question, AFS, has not only beenplaced under extraordinary administration but has also been permitted to continuetrading within the framework of such administration. Furthermore, it is not clearwhat are the consequences of extraordinary administration for the ultimateliquidation of an insolvent company in the event that continuation of trading is notpermitted. I shall, therefore, concentrate on the effect on competition of theextraordinary administration regime as it applies to companies which continuetrading. It is for the national court to determine the applicability of the answerfurnished by the Court to its question in the case of a company in extraordinaryadministration which ceases to trade, in the light of a comparison of the provisionsof Italian law which apply in that case and those under the general law oninsolvency.

21.

    Thus, I interpret the question referred by the national court as askingwhether the placing of an undertaking, within the meaning of Article 80 of theECSC Treaty, which is insolvent, under extraordinary administration under LawNo 95/1979, whereby individual execution of debts against the company issuspended, certain provisions of the ordinary law on insolvency are inapplicable orapply subject to special conditions, and the company in question is authorised tocontinue trading, constitutes State aid prohibited by Article 4(c) of the ECSCTreaty, in light of the fact that State measures which do not provide fordisbursement of funds by the State but which enable the same result to be achievedby special procedures as would have been obtained by such disbursement may besaid to constitute such aid.

22.

    The leading authority regarding negative forms of aid, by which the Stateforgoes monies which are owed to it by companies, is an ECSC case,Steenkolenmijnen, in which the Court stated the following: (36)

'The concept of aid is nevertheless wider than that of a subsidy because itembraces not only positive benefits, such as subsidies themselves, but alsointerventions which, in various forms, mitigate the charges which are normallyincluded in the budget of an undertaking and which, without, therefore, beingsubsidies in the strict meaning of the word, are similar in character and have thesame effect.‘

23.

    This definition has also been adopted in the EC context, for example inBanco Exterior de España, (37) which concerned a selective tax exemption placing thecompany in question in a more favourable financial position than othertaxpayers. (38) The Court has interpreted the term 'aid‘ in Article 92(1) of the ECTreaty as necessarily involving advantages granted directly or indirectly throughState resources (39) or some additional burden for the State. (40) The wording of thisprovision and the procedural rules laid down in Article 93 of the EC Treaty 'showthat advantages granted from resources other than those of the State do not fallwithin the scope of the provisions in question. The distinction between aid grantedby the State and aid granted through State resources serves to bring within thedefinition of aid not only aid granted directly by the State, but also aid granted bypublic or private bodies designated or established by the State‘. (41) The furthestlimits of this definition appear to have been reached in Commission v France, (42)where the Court treated as aid a grant made to certain farmers which was decidedand financed by a public body, the Caisse National de Crédit Agricole, theimplementation of which was subject to the approval of the public authorities, (43)and the detailed rules for the grant of which corresponded to those for State aid,despite the fact that the operating surplus from which the grant funds were drawnwas initially generated from private contributions. (44) In so far as Article 4(c) of the

ECSC Treaty refers to 'aids granted by States‘, the same definition of aid byreference to State resources should also apply, in my view, in an ECSC context. This also serves to distinguish the terms used in Article 4(c) from those used inArticle 67(3), which entrusts to the Commission supervision of the potentially wider'special benefits‘, which could extend to regulatory advantages which have noimmediate consequences for the public purse.

24.

    In this context, I do not accept the Commission's argument that lossessustained by private creditors under the extraordinary administration regime canbe qualified as aid, because of the resultant loss in tax receipts to the State. Thisis simply too remote a connection with the State's disposal of its resources toamount to aid. In so far as Law No 95/1979 distorts the ordinary relationship ofdebtors and private creditors, any resulting loss of tax revenue should be consideredto be inherent in the system and should not be treated as a means of granting aparticular State-financed advantage to the debtor undertakings concerned. (45)

25.

    Unlike Article 92(1) of the EC Treaty, Article 4(c) does not refer to aids asmeasures which distort or threaten to distort competition 'by favouring certainundertakings or the production of certain goods‘. None the less, a distinctionbetween aids, which are selective in nature, and State measures of generalapplication in the fields of taxation, social security, regulation of the economy andso on, appears to me to be implicit in any Community State aids regime. Theessential distinction between general measures and selective aids is made inArticle 67(3) of the ECSC Treaty, and should also, in my view, be applied in thecase of Article 4(c). The alternative would imply a generalised review of all Stateregulation in such fields, by reference to the yardstick, not of the normallyapplicable rules in that State (for these themselves would be the subject-matter ofexamination), but, presumably, of the regulations in the other Member States. Thiswould be counter-productive, by penalising those States whose general economicorganisation and regulation was the most competitive. Thus, even measures whichbenefit the entire coal-producing industry of the Member State in question canconstitute aid within the meaning of Article 4(c) of the ECSC Treaty if they are notof general application to other industrial sectors which fall outside the field ofapplication of that Treaty, as was the case in Steenkolenmijnen. The condition ofselectivity, of a positive or negative alleviation in defined cases of generallyapplicable rules or burdens,is implicit in the Court's reference in that case to'interventions which, in various forms, mitigate the charges which are normallyincluded in the budget of an undertaking‘. (46)

26.

    In the circumstances of the present case, the questions whether theprovisions of Law No 95/1979 are selective in nature and whether they constitute

an aid funded by State resources are, to a great extent, linked. The decisionregarding the possible grant of a State guarantee under Article 2a of LawNo 95/1979 is clearly discretionary and, thus, selective, but is not material to thepresent case: it is the subject of a separate Commission decision in the case ofAFS, and is not referred to by the national court. Quite apart from that provision,however, the Law is applied selectively at two stages. First, the companies which,upon insolvency, may be admitted into extraordinary administration are restrictedby reference to the number of their employees, their involvement in industrialactivity, the degree of their indebtedness relative to their paid-up capital, and theidentity of their creditors. The existence of distinct insolvency regimes forcompanies of different sizes and types may be justified by considerations in respectof which those differences are material, provided the net effect of the variousregimes on competitive conditions is the same. Thus, for example, a Member Statemight seek to subject the liquidation of small companies to a lighter administrativeburden, in order that their comparatively small resources might be better preservedto satisfy their creditors. However, the selection criteria employed in LawNo 95/1979 appear to have a different objective and effect. In combination, theyseem to single out large industrial companies which are predominantly indebted tothe State or to public bodies. It is true that the Law does not formally require thatthe State be the insolvent company's major creditor, but the fact that the categoriesof creditor taken into account are largely public in nature, combined with therelatively large amounts required to be owed to the nominated categories ofcreditors, makes it highly probable that the State will almost always be animportant creditor.

27.

    Where selectively applied rules on creditor-debtor relations are, relative tothe normal rules, favourable to the debtor, and the State is likely to be the majorcreditor, the effect of those rules will be to allocate public resources to the debtorcompany in a way in which the normal rules would not, thus qualifying the measurein question as an aid. Although the general regulation of creditor-debtor relations,like that of relations between employers and employees (47) and between producersand consumers, (48) ordinarily falls outside the scope of Community law regardingState aids, special rules in any of these fields which shift the normal burden infavour of certain categories of undertakings or of production, wholly orpredominantly at the expense of the State, constitute, in my view, a form of aid. In such circumstances, the State cannot claim to be a disinterested third party tothe debtor-creditor relationship. I should add, for the avoidance of doubt, that Ibelieve that special rules favouring certain insolvent debtor companies couldconstitute aid even if the State were only a minor creditor, to the extent that therecovery of public resources was effectively renounced. The fact that the private

creditors are obliged to sustain losses on the same conditions as the State under aselective system of rules does not detract from the characterisation of those Statelosses as aid. (49) However, the stronger the causal link is between the State's roleas creditor and the application of special rules to the advantage of the debtorundertaking, the greater is the aid-like effect of the rules in question.

28.

    The second stage of selectivity in the application of Law No 95/1979 arisesupon the exercise of the ministerial discretion to permit an insolvent companyunder extraordinary administration to continue trading. Even if this discretion werenot exercised, as it is in fact exercised, in respect of an already limited class ofcompanies, it would leave a degree of latitude to the ministers concerned whichwould be liable to place certain undertakings in a more favourable situation thanothers. (50) Although account must be taken in reaching this decision of theperceived best interests of the creditors, the fact that the continued trading of thecompany is required to be compatible with national industrial policy, and that thedecision, by definition, relates to an important company with large numbers ofemployees, and is specifically designed to preserve the economic activity of thecompany, must increase the likelihood that the decision will be influenced byfactors other than the State's objective commercial interest qua creditor. Thisconclusion is not affected by the fact that the continuation of trading is alsopossible under normal Italian insolvency procedure, with the sole purpose ofmaximising the value of the insolvent undertaking's assets.

29.

    It is now necessary to determine whether Law No 95/1979, and in particularthe continuation of trading, operates to the advantage of the limited class ofinsolvent undertakings to which it applies. It is, perhaps, somewhat misleading torefer to an advantage for the debtor company, as, except for the apparently rarecases in which it trades its way out of its financial difficulties, the company will bewound up; until that time, it is merely a cipher for the creditors. Furthermore, theowners of the company are dispossessed at the outset of both the normal and theextraordinary insolvency procedures, in order to place its assets at the disposal ofthe creditors, so that they also receive no additional benefit from extraordinaryadministration. We are, rather, concerned with an advantage secured for theeconomic activity of the company. The apparent objective of continued trading isto maintain the company's economic activity, even if this is under differentownership, and even if this 'does not represent the most rational distribution ofproduction at the highest level of productivity‘. (51) For this reason, the special rateof registration tax on asset disposals clearly constitutes an aid. Even though it can

be argued that this benefits the purchaser of the assets in question rather than theinsolvent company, it functions as an aid to the continued operation of the relatedeconomic activity to the extent that the purchaser might have been deterred by thenormal rate of registration tax.

30.

    It is the orientation of the extraordinary administration regime towards thecontinuation of economic activity, in circumstances in which this might not takeplace under normal Italian insolvency law, which also defeats, in my view, theargument based on the degree of parallelism between the normal and extraordinaryinsolvency procedures, as well as that regarding the alleged lack of pertinence ofthe State aids issue to the outcome of the national proceedings, an issue which wasargued forcibly by AFS at the hearing. Community law on State aids is concernedwith the effects rather than with the objectives of State measures. (52) None the less,it appears more likely that the continuation of trading under extraordinaryadministration will have the effect of propping up economic activities which wouldotherwise be unsustainable in market conditions, because the objective served byLaw No 95/1979, in accordance with which decisions are made, is the preservationof economic activity. It is the case that both the normal and the extraordinaryinsolvency procedures entail the suspension of individual execution of debts bycreditors and of the running of interest on those debts, and that both procedurespermit the continuation of trading. However, the greater likelihood of continuedtrading under extraordinary administration, and the fact that the decision in thisregard rests with the executive rather than with either the creditors or a competentcourt, and that it is based, at least in part, on general economic policyconsiderations rather than solely on the maximisation of the value of the company'sassets, means that the application of these rules may have very different effectsunder the two procedures. In particular, the continuation of trading at a loss islikely to affect the priority of the existing creditors' debts, possibly leading to aneffective renunciation of its debts by the State. It will be recalled, in this regard,that the business plan need be drawn up only after the ministerial decision topermit continued trading. Despite the imposition of a maximum period ofcontinued trading under extraordinary administration, for which there is noequivalent in Article 90 of the Law on Insolvency, the period of continued trading,and, thus, of suspended execution and interest, appears likely, none the less, to belonger than the period for liquidation of assets under the normal insolvencyprocedure, with resulting loss to the creditors, including, of course, the State. Therefore, in any given case, the extraordinary administration regime is likely tocost the State more in resources forgone than the application of the ordinary lawon insolvency.

31.

    It is in the nature of insolvency proceedings and of commercial life that onecannot predict with absolute certainty that one procedure rather than another willinvariably lead to greater or lesser losses for the creditors, including the State. In

my view, it would defeat the purpose of the prohibition of State aids in Article 4(c)of the ECSC Treaty if the considerable likelihood that the application of a specialprocedure will result in greater losses to the State qua creditor were not sufficientto characterise the measure in question as an aid measure. Otherwise, nationalrules which are designed to aid particular undertakings or economic activities, butwhose aid-like effects are subject to a contingency of some kind, would escape thereach of the prohibition of aid. I conclude, therefore, that the central provisionsof Law No 95/1979 regarding the undertakings which benefit from its terms, theexercise of ministerial discretion and the criteria in accordance with whichcontinued trading is permitted, combined with otherwise normal rules regarding thesuspension of execution of debts and of the running of interest, constitute State aidwithin the meaning of Article 4(c) of the ECSC Treaty. None the less, thisconclusion, based as it is on the perceived likely effects of the extraordinaryadministration regime, should be open to refutation in any given case, where theundertaking in question is in a position to demonstrate to the satisfaction of thecompetent court that continued trading under extraordinary administration will notresult in greater loss to the State, in its capacity as creditor, than the applicationof the normal provisions of the Law on Insolvency. However, compliance with thiscondition will probably necessitate some alteration of the procedural rulesregarding commencement of extraordinary administration or, at the very least,those governing the grant of permission for continued trading under that regime.

32.

    The position under Law No 95/1979 may be contrasted with that under thenormal insolvency rules, not just of Italy but of many if not all of the MemberStates, pursuant to which the fate of insolvent undertakings, including the possibilityof continued trading, is determined either directly in accordance with the wishes ofthe creditors, or a majority thereof, or of certain classes thereof, determinedfollowing a prescribed procedure, or at the discretion of a competent court uponconsultation of the creditors. Where, as seems everywhere to be the case, suchprocedures serve the aim of maximising the return to the creditors from the saleof the assets of the insolvent company, no problem need arise. However, even ajudicially administered insolvency regime may give rise to problems if judicialdiscretion is required to be exercised in accordance with wider criteria, whicheffectively compel the competent court artificially to sustain the insolventcompany's activities against the interests of the creditors, including the State. Thesame analysis regarding State aid would then apply as I propose in the presentcase. Furthermore, even in an insolvency regime which is entirely subject to thecreditors' wishes, it may be necessary to apply the 'commercial actor‘ criterion toassess the voting behaviour of the State, especially where it is a majority creditorand is in a position to dictate certain outcomes which may not be in its interestsqua creditor.

33.

    The possible difference in outcomes as between extraordinary administrationand the ordinary insolvency rules also establishes, to my satisfaction, the pertinenceof the question referred by the national court to the proceedings before it. TheCourt has observed that '[i]t is solely for the national court before which the

dispute is brought, and which must assume responsibility for the subsequent judicialdecision, to determine, in the light of the circumstances of the case, both the needfor a preliminary ruling in order to enable it to give judgment and the relevance ofthe question which it submits to the Court‘. (53) If AFS had been subject to theordinary insolvency procedure from the outset, Ecotrade would also have beenprevented from executing its debt, but possibly for a shorter period, and with apotentially less invidious effect on the priority of its debt. It is not for this Court,but, rather, for the national court, to determine the effect on the nationalproceedings for recovery of the debt executed by Ecotrade of a finding that theapplication of Law No 95/1979 in this case constituted State aid prohibited byArticle 4(c) of the ECSC Treaty. It cannot be argued that the disputedapplicability of the extraordinary administration procedure is manifestly irrelevantto those proceedings. (54)

34.

    I wish, finally, to direct my attention to two remaining provisions of LawNo 95/1979 and its accompanying legislation: the suspension of execution of fiscaldebts and the renunciation of all fines and penalties for delayed social securitypayments. It has been argued that the former feature of extraordinaryadministration does not result in any greater loss to the State qua fiscal creditorthan the ordinary regime, under which the State enjoys certain procedural privilegesin this regard; and that the latter rule regarding social security penalties is nolonger applicable. It is for the national court to verify both of these argumentsregarding Italian law, and to decide on the existence of State aid by reference toany advantage conferred by the provisions in question, if applicable, as comparedwith the situation under normal insolvency procedure.

Conclusion

35.

    In the light of the foregoing, I propose that the Court answer the questionreferred by the Corte Suprema di Cassazione as follows:

The application to an insolvent undertaking within the meaning of Article 80 of theECSC Treaty of special national rules on insolvency which are applicable only tospecific classes of undertakings, which is likely to result in greater losses to theState in its capacity as creditor than the application of the normal insolvency rules,constitutes State aid within the meaning of Article 4(c) of the ECSC Treaty.

1: Original language: English.

2: —    Treaty establishing the European Coal and Steel Community.

3: —    GURI No 94, 4 April 1979, p. 3055.

4: —    Law No 95/1979 initially provided for a level of indebtedness of LIT 20 billion. Thisamount is revised annually. The figure quoted in the text was established by a ministerialdecree of 30 April 1996. The amount applicable in 1992 has not been given in the orderfor reference or the pleadings; that established by a ministerial decree of 30 April 1993was LIT 71 832 billion.

5: —    Article 1, first indent, Law No 95/1979.

6: —    Law No 452/1987 of 3 November 1987. Extraordinary administration is also possible wherean insolvent company must repay a sum of LIT 50 billion or more, being 51% or more ofthe paid-up capital, where the grant of this sum has been condemned as unlawful State aidincompatible with the common market: Article 1a, Law No 95/1979.

7: —    Royal Decree 267/1942.

8: —    Article 2, first indent, Law No 95/1979.

9: —    Article 90, Law on Insolvency.

10: —    Article 51, Law on Insolvency; Article 4, Law No 544/1981.

11: —    Article 4, Law No 544/1981.

12: —    Article 55, Law on Insolvency.

13: —    Article 3(2), Law No 19/1987 of 6 February 1987.

14: —    Article 5a, Law No 95/1979.

15: —    Article 2, second indent, Law No 95/1979.

16: —    Law No 212/1984, amending Article 6a, Law No 95/1979.

17: —    Article 2a, Law No 95/1979.

18: —    Articles 111 and 212, Law on Insolvency.

19: —    Treaty establishing the European Community.

20: —    Letter E 13/1992 of 30 July 1992, OJ 1994 C 395, p. 4.

21: —    OJ 1997 C 192, p. 4.

22: —    Commission Decision No 96/515/ECSC of 27 March 1996 concerning aid granted by Italyto Altiforni e Ferriere di Servola, an ECSC company in special administration, located inTrieste, Italy, OJ 1996 L 216, p. 11.

23: —    Commission Decision No 97/754/ECSC of 30 April 1997 concerning the application to thesteel firm Ferdofin Srl of Italian Law No 95/1979 on receivership arrangements for largefirms in crisis, OJ 1997 L 306, p. 25. The Commission also decided that the extension ofextraordinary administration to companies obliged to reimburse unlawful State aidsconstituted an aid incompatible with the common market: CommissionDecision 96/434/EC of 20 March 1996 on aid which Italy plans to grant to enterprises ina state of insolvency resulting from the obligation to repay State aid pursuant toCommunity decisions adopted under Articles 92 and 93 of the Treaty, OJ 1996 L 180,p. 31.

24: —    OJ 1991 L 362, p. 57. This Decision has now been replaced by Commission DecisionNo 2496/96/ECSC of 18 December 1996 establishing Community rules for State aid to thesteel industry, OJ 1996 L 338, p. 42.

25: —    See Case C-241/94 France v Commission [1996] ECR I-4551.

26: —    Case 30/59 Steenkolenmijnen v High Authority [1961] ECR 1, hereinafter'Steenkolenmijnen‘, p. 19; see also Case 173/73 Italy v Commission [1974] ECR 709,paragraph 15.

27: —    See, for example, Case C-387/92 Banco Exterior de España [1994] ECR I-877.

28: —    Case 78/76 Steinike und Weinlig v Germany [1977] ECR 595, hereinafter 'Steinike undWeinlig‘, paragraph 21; see also the Opinion of Advocate General Darmon in JoinedCases C-72/91 and C-73/91 Sloman Neptun v Bodo Ziesemer [1993] ECR I-887, hereinafter'Sloman Neptun‘, paragraph 40.

29: —    Case 82/77 Openbaar Ministerie of the Netherlands v Van Tiggele [1978] ECR 25, hereinafter'Van Tiggele‘; Joined Cases 213/81 to 215/81 Norddeutsches Vieh- und Fleischkontor vBALM [1982] ECR 3583, hereinafter 'Fleischkontor‘.

30: —    Article 232, EC Treaty.

31: —    Although the text of Article 41 of the ECSC Treaty is apparently more restrictive than thatof Article 177 of the EC Treaty, it has been construed by the Court so as to permitreferences regarding the interpretation of rules deriving from the ECSC Treaty as well asthe validity of acts of the institutions under that Treaty; see Case C-221/88 Busseni [1990]ECR I-495, paragraph 16. It should be noted that the question whether Law No 95/1979constitutes State aid within the meaning of Article 92(1) of the EC Treaty is raised in CaseC-295/97 Industrie Aeronautiche e Meccaniche Rinaldo Piaggio v International Factors Italiaand Others, in which the written and oral procedure is not complete on the date of deliveryof this Opinion.

32: —    Case C-128/92 [1994] ECR I-1209, paragraph 11. The case concerned the interpretationof Articles 4(d), 65 and 66(7) of the ECSC Treaty.

33: —    Case C-18/94 [1996] ECR I-2281. The case concerned the interpretation of Articles 4(b)and 63(1) of the ECSC Treaty.

34: —    Commission Notice C 7/97 (ex E 13/92), loc. cit.

35: —    On the relationship of actions for annulment under Article 173 of the EC Treaty andpreliminary references under Article 177 of that Treaty, see Case C-188/92 TWDTextilwerke Deggendorf [1994] ECR I-833.

36: —    Loc. cit., p. 19.

37: —    Loc. cit., paragraph 13.

38: —    Ibid., paragraph 14.

39: —    Van Tiggele, loc. cit., paragraphs 23 to 25; Fleischkontor, loc. cit., paragraph 22; SlomanNeptun, loc. cit., paragraph 19; Case C-189/91 Kirsammer-Hack v Nurhan Sidal [1993]ECR I-6185 (hereinafter 'Kirsammer-Hack‘), paragraph 16; Joined Cases C-52/97 toC-54/97 Viscido and Others v Ente Poste Italiane [1998] ECR I-0000, hereinafter 'Viscido‘,paragraph 14.

40: —    Sloman Neptun, loc. cit., paragraph 21.

41: —    Ibid., paragraph 19.

42: —    Case 290/83 [1985] ECR 439.

43: —    Ibid., paragraph 15.

44: —    Ibid., paragraph 5; see also Steinike und Weinlig, loc. cit., paragraphs 21 and 22. In thelight of the later judgments in Sloman Neptun, loc. cit., and Kirsammer-Hack, loc. cit., thestatement at paragraph 14 in Commission v France, loc. cit., that 'aid need not necessarilybe financed from State resources to be classified as State aid‘, should be read, in my view,as referring only to hybrid situations where the State or publicly controlled bodiesadminister funds which were originally private in origin, or the State establishes a schemewhereby a designated private body assists specific undertakings. The definition used by theCourt in Sloman Neptun is wide enough to embrace the special circumstances ofCommission v France. It may be borne in mind in this context that all State funds whichare financed by taxes are ultimately private in origin. It is worth noting that the Courtimplicitly, but clearly consciously, rejected the argument by Advocate General Darmon atparagraph 42 of his Opinion in Sloman Neptun for the definition of aid to be extended tosituations where the State does not act as intermediary between those who finance a

measure and those who benefit from it.

45: —    Sloman Neptun, loc. cit., paragraph 21.

46: —    Loc. cit., p. 19, emphasis added.

47: —    See Steenkolenmijnen, loc. cit.; Sloman Neptun, loc. cit.; Kirsammer-Hack, loc. cit.; andViscido, loc. cit.

48: —    See Van Tiggele, loc. cit.

49: —    See, for example, Joined Cases 67/85, 68/85 and 70/85 Van der Kooy and Others vCommission [1988] ECR 219, paragraphs 36 and 37, where the prices applied by theState-controlled company Gasunie were deemed capable of constituting State aid eventhough the company was 50% privately owned.

50: —    See France v Commission, loc. cit., paragraphs 22 to 24.

51: —    Steenkolenmijnen, loc. cit., p. 19.

52: —    Italy v Commission, loc. cit., paragraph 13.

53: —    Case C-415/93 Union Royale Belge des Sociétés de Football Association and Others v Bosmanand Others [1995] ECR I-4921, paragraph 59.

54: —    Ibid., paragraph 61; see also Case 126/80 Salonia v Poidomani and Giglio [1981]ECR 1563, paragraph 6; Case C-343/90 Lourenço Dias v Director da Alfândega do Porto[1992] ECR I-4673, paragraph 18.