On 2 March 2012, the General Court rendered a judgment that is very critical about the assessment by the European Commission's state aid unit of the repayment terms of the capital injected into ING Groep N.V. by the Netherlands in November 20085.
In an initial decision of 12 November 2008, the Commission considered that where a capital injection of 10 000 000 000 EUR was given through special securities issued by ING Groep N.V. and purchased by the Netherlands State, that purchase contained an element of aid within the meaning of Article 107(1) TFEU. The state's intervention showed that it was based on "considerations […] which no private investor would consider": i.e., maintaining the stability of the financial market in the Netherlands. The Commission however observed that the capital injection was compatible with the common market within the meaning of article 107(3)(b) TFEU, in so far as it sought to remedy a serious disturbance in the economy of a Member State as a result of the financial crisis. Consequently, the Commission raised no objections to the measure and approved it as an emergency measure for a period of six months. At the end of this six-month term the Commission would review the capital injection, in particular as regards the manner in which ING's long-term viability was to be ensured. If the Netherlands would submit within that six-month period a viable plan in that regard ("a restructuring plan"), the validity of the November 2008 decision would automatically be extended until the Commission adopted a decision on the plan.
After lengthy negotiations that took much more than six months, the Commission eventually, on 18 November 2009, approved the restructuring plan proposed by the Netherlands State. This November 2009 decision (the "contested decision") however considered that as a consequence of an amendment to the agreement for repayment of the special securities, ING Groep had received additional aid for an amount of approximately 2 billion EUR. The Commission opined that if the initial terms for repayment of the injected capital were compared to the amended terms the conclusion could be drawn that the amount of aid had increased. A proper understanding of this case requires quoting paragraphs 33 and 34 of the contested decision:
"(33) The issue price for an injection of EUR 10 billion of Core-Tier 1 capital was EUR 10 per security. On the initiative of ING, the securities can either be repurchased at EUR 15 per security (a 50 % redemption premium to the issue price), or, after three years, be converted into ordinary shares on a one for one basis. If ING triggers the conversion option, the Netherlands has the choice to opt for the alternative redemption of the securities at a rate of EUR 10 per security plus accrued interest. A coupon will only be paid for the Netherlands if a dividend is paid on the ordinary shares.
(34) In the framework of the restructuring plan the Netherlands has submitted an amendment to the agreement for the repayment of the Tier 1 securities by ING. According to the amended terms ING is liable to repurchase up to 50 % of the Core-Tier 1 securities at the issue price (EUR 10), plus […] accrued interest […] (around EUR 253 million), plus an early repayment penalty when the ING share price trades above EUR 10. […] The early redemption penalty could amount to a maximum of EUR 705 million assuming that the EUR 5 billion are repaid 400 days after the date of issue. Furthermore the penalty/premium has a floor of EUR 340 million, ensuring a minimum internal rate of return for the Netherlands of 15%. In other words, considering that ING would normally have to pay a EUR 2.5 billion redemption premium this amendment would result in an additional advantage for ING between EUR 1.79 and 2.2 billion depending on the market price for ING shares."
Judgment of the Court:
This review will focus on the General Court's appraisal of the Commission correctly applying the principle that no state aid per the meaning of Article 107(1) TFEU exists if the State granting the sums to a private undertaking meets the private investor test. In the case of a capital injection this test requires to assess whether, in similar circumstances, a private investor of a dimension comparable to that of a public authority could have been prevailed upon to make capital contributions of the same size, having regard in particular to the information available and foreseeable developments at the date of those contributions. In the case at hand the Commission opined that the amendment to the repayment could not or should not be assessed pursuant to the private investor test because it regarded that amendment as "an additional measure in favor of the recipient of State aid which is being restructured". The General Court held that, in so doing, the Commission tried to evade its obligation to assess the economic rationality of the amendment to the repayment terms in the light of the private investor principle solely on the ground that the capital injection subject to repayment already itself constitutes State aid. Indeed, it is only after an assessment of the economic rationale that the Commission can be in a position to conclude whether an additional advantage within the meaning of Article 107(1) has been granted. In unequivocal terms the General Court makes clear that the Commission should have made that assessment both at the date of the making of the capital contribution (in autumn 2008) and at the date of the amendment to the repayment terms (in autumn 2009) .
Second, having decided that the amendment to the repayment terms must be assessed separately, the Court examined whether or not classification of the amendment as additional aid was subject to a comprehensive review by the Court. In that regard the Court recalled that if the identification of the aid called for a complex economic assessment by the Commission, in particular regarding the question whether, by accepting the amendment to the repayment terms, the State acted as a prudent investor of a comparable would be likely to have acted, the Court's review would be limited. The Court however, does not clearly answer the question whether its review in the case before it should be limited or comprehensive. Rather, the Court verifies in over forty paragraphs whether the contested decision was not affected by procedural flows, thereby, in reality, undertaking a substantive review. I.e., the Court assessed whether the Commission had met the requirement to examine carefully and impartially, everything relevant to the particular case and whether the rights of the company concerned to be heard and to have a sufficient statement of reasons for that decision were respected.
In sum, the Court found that the Commission did not carry out an examination in the contested decision to determine how a return of between 15 % and 22 % in favor of the Netherlands State following the amendment to the repayment terms did not correspond to that which could reasonably be expected by a private investor confronted by a similar situation, that is to say a holder of securities of the type issued at the time of the capital injection which can be repaid by the issuer. Consequently, the Commission misinterpreted the concept of aid by not assessing whether, by accepting the amendment to the repayment terms, the Netherlands State acted as a private investor would have done in a similar situation, inter alia because the Netherlands State could have been repaid early and because when the amendment occurred it obtained a greater certainty of being repaid in a satisfactory manner taking the existing market conditions into account.
The General Court then proceeds by determining the consequences for the operative part of the errors made by the Commission. It concludes that, in the absence of proof by the Commission in the contested decision that the amendment of the repayment terms constituted an advantage for ING which a private investor in the same situation as the Netherlands State would not have granted and because the Commission erred as to the amount of that advantage, the contested decision should be invalidated to the extent that it is based on the finding that the amendment to the capital injection repayment terms constitutes additional aid of approximately EUR 2 billion.