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EC orders recovery of incompatible state aid from NCHZ and Fortischem

THE EUROPEAN Commission has concluded that the Slovak chemical company Novácke Chemické Závody (NCHZ) benefitted from incompatible state aid during its bankruptcy procedure and that this aid has to be paid back. Moreover, the investigation showed that Fortischem, which acquired practically the entire NCHZ business, is the economic successor of NCHZ and thus also benefitted from the aid. Therefore, both NCHZ and Fortischem are liable for paying back the aid, the EC informed in a press release on October 15.

THE EUROPEAN Commission has concluded that the Slovak chemical company Novácke Chemické Závody (NCHZ) benefitted from incompatible state aid during its bankruptcy procedure and that this aid has to be paid back. Moreover, the investigation showed that Fortischem, which acquired practically the entire NCHZ business, is the economic successor of NCHZ and thus also benefitted from the aid. Therefore, both NCHZ and Fortischem are liable for paying back the aid, the EC informed in a press release on October 15.

“Fair competition and the application of EU competition rules cannot be circumvented by special laws,” said Joaquín Almunia, the EC vice-president for competition policy, as quoted in the press release. “The state aid granted to NCHZ must now be recovered.”

NCHZ was a chemical company in Slovakia with around 2000 employees. In October 2009, the company filed for bankruptcy. In November 2009, Slovakia adopted a law requiring administrators to ensure the continued operation of strategic companies during bankruptcy proceedings. In December 2009, NCHZ was proclaimed by the government to be a strategic company. The law expired in December 2010 and NCHZ is the only company to which it ever applied, the EC press release reads.

The EC opened an in-depth investigation into the measures in favour of NCHZ in July 2013. The investigation related to two periods: December 2009 to December 2010 when NCHZ continued its operations by virtue of the application of the special law; and January 2011 to July 2012 when NCHZ continued its operations based on the decision of the creditors.

In both periods, the continued operation of the loss-making company led to an accumulation of public liabilities (e.g. social security and health insurance contributions) at the expense of Slovak taxpayers, according to the press release.

In relation to the first period, the EC has concluded that the special law deprived the administrator and the creditors of their discretion to decide whether the continued operation was economically beneficial. The administrator only ordered a comprehensive economic analysis and called a meeting of the company’s creditors to decide whether to operate NCHZ further or not when the special law was about to expire. Under the special law, NCHZ was only required to pay social security and health insurance contributions in part and therefore received an undue advantage over competitors who had to meet their obligations in full. This advantage, in the form of the accumulated public liabilities, amounts to around €4.8 million and now needs to be returned to Slovak taxpayers.

Regarding the second period, the EC found that none of the public creditors had a veto right in the creditors’ committee. Therefore they could not block the other creditors or take decisive influence in the decision whether to continue operations. This decision is therefore not imputable to the state. Moreover, the creditors’ decision was based on a detailed economic analysis prepared by the administrator, which concluded that it was in the interest of the creditors to continue operations and sell the business as a going concern. The proposal was accepted by all creditors (public and private). The different state entities represented in the creditors’ bodies thus behaved as any private creditor would have done in the same circumstances in accordance with the so-called market economy investor principle. For these reasons the continued operation of NCHZ in the second period did not involve state aid, the press release reads.

Finally, the EC’s investigation established that NCHZ was sold in a bundle to an investor who took over the large majority of the employees and continued the same business strategy as NCHZ. The buyer, Fortischem, is therefore the economic successor of NCHZ who still retains the undue advantage procured by the incompatible aid.

Source: EC press release

Compiled by Radka Minarechová from press reports

The Slovak Spectator cannot vouch for the accuracy of the information presented in its Flash News postings.

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