The Commission has opened a formal investigation under EC Treaty state aid rules into a series of aids amounting to €40.7 million that Italy intends to grant to Legler S.p.A, a denim textile producer. The Commission doubts at this stage that the restructuring plan of Legler S.p.A. would restore the beneficiary's commercial viability and is concerned that the aid would create undue distortions of competition in this highly competitive market. The opening of the formal investigation gives interested parties an opportunity to comment on the proposed measures. It does not prejudge the outcome of the procedure.

Legler S.p.A. operates in Lombardy and Sardinia (Italy). It is an important producer of high quality denim as well as corduroy and flat cotton products. The group has been in financial difficulties for several years and is currently undertaking restructuring. In order to assist this restructuring, Italy intends to grant Legler state aid in the form of a €13 million long term guarantee, a €13.2 million direct grant and a €14.5 million conversion into capital of debt owed to a public undertaking Società Finanziara Industriale Rinascita Sardegna (SFIRS).

The aid for Legler must comply with the 2004 Community guidelines on rescue and restructuring aid. These guidelines allow, under certain strict conditions, aid to restore the long term viability of companies in difficulty. In particular, the guidelines are based on the core principle that in any restructuring operation the aid beneficiary should be obliged to finance a large part of its own restructuring costs.

The Commission doubts at this stage that the aid to Legler meets the requirements of the guidelines. In particular, the Commission questions how the restructuring plan will be implemented and financed and whether it will restore the beneficiary's long-term viability. The Commission also questions Italy's position that the €14.5 million conversion of debt into capital in favour of SFIRS, a public undertaking controlled by the region of Sardinia, would be in conformity with the behaviour of a private investor (the "market investor principle") and not constitute state aid. Moreover, no information on compensatory measures to offset distortions of competition caused by the aid, beyond those necessary for the beneficiary to restore viability, have been notified to the Commission. Finally, the Commission needs to verify whether the Legler group could have financed the restructuring alone and what would be its own contribution to this process. [26 September 07]