The recovery of unlawful State aid from an undertaking different from the original beneficiary when economic continuity exists: the judgment of the Court of Justice of the EU in C-588/23

Introduction

In the judgment delivered on the 16^th of January 2025¹, the Court of Justice stated that EU law does not preclude national authorities from recovering unlawful State aid from an undertaking different from that subject to the Commission decision ordering recovery, where economic continuity exists between the undertaking identified in the Commission decision and the undertaking subject of the order to repay aid by the national authorities.

The case concerns a request for a preliminary ruling arising in proceedings between Scai Srl and the Region of Campania which had imposed an obligation on the former to repay unlawful and incompatible State aid from which Buonotourist Srl originally benefitted. The original beneficiary of aid, Buonotourist Srl, was a private company which provided local public transport services in compliance with regional and municipal concessions. Following a judgment by Consiglio di Stato (Council of State, Italy) and pursuant to Article 108(3) TFEU, in 2012 the Italian authorities informed the Commission of additional public service compensation for the provision of passenger transport services by bus to be granted to Buonotourist Srl on the basis of concessions granted by the Region of Campania for the years 1996 to 2002, quantified at EUR 1,111,572.00 with interest. In 2015 the Commission declared compensation unlawful and incompatible State aid and ordered recovery.² Buonotourist’s action for annulment of the Commission decision before the General Court was dismissed in 2018, as well as its appeal before the Court of Justice in 2020.³ In the meantime, Scai Srl had entered a leasing contract covering service, staff and buses for the operation of minimum local public transport services with Buonotourist Srl. The Region of Campania then entrusted the operation of the service to AIR Campania partially owned by Scai Srl from which, in turn, AIR Campania purchased the means necessary for the operation of the service. When Buonotourist Srl eventually got insolvent and upon failed attempts to recover State aid, the Region of Campania by Decree of 7 February 2023 ordered Scai Srl to repay the aid on grounds of the existence of economic continuity between Buonotourist Srl and Scai Srl.

By way of the preliminary ruling the referring court asks whether the extension of the status of beneficiary provided by the order to repay aid contained in the Decree of 7 February 2023 infringes upon Articles 108 and 288 TFEU , Articles 16 and 31 of Regulation (EU) 2015/1589 (Procedural Regulation)⁴ and Articles 41 and 47 of the Charter of Fundamental Rights of the EU. The judgment addresses important legal issues, i.e., whether the national authorities could extend the status of beneficiary to Scai Srl in their obligation to comply with the Commission decision, how could national authorities declare economic continuity between the two companies involved, and whether the company singled out as the actual beneficiary of aid has been guaranteed procedural safeguards as enshrined in the Charter of fundamental rights. These issues will be analysed separately below.

The extension of the beneficiary status within a recovery order 

It is clear from a textual reading of Article 288(4) TFUE that a decision ‘specifies those to whom it is addressed’, and that, where it ‘specifies those to whom it is addressed’, it is to be binding only on them (point 35 of the judgment).  Moreover, Article 16 of the Procedural Regulation provides that any decisions finding the notified aid to be incompatible with the internal market and thus ordering recovery of aid are addressed to the Member State concerned, as consistently held by the caselaw of the Court. In the case at hand, the Commission decision ordering recovery was addressed to Italy, and it contained a clear reference of the beneficiary from whom national authorities had to recover aid, i.e., Buonotourist Srl. While the original addressee and beneficiary of aid were crystal-clear, the issue addressed by the Court is whether the recovery of aid is still possible following Buonotourist’s bankruptcy. The Court generally rejects arguments of Member States alleging the absolute impossibility of carrying out a recovery decision.⁵ In this case, the Court holds that the identification of the beneficiary by the Commission is assessed by examining the circumstances present at the time State aid was granted on the basis of information available. However, the Court specifies that such identification ‘cannot be interpreted as preventing the Member State concerned from recovering the aid in question from another undertaking where […] that other undertaking carries on the economic activity of the beneficiary of the aid and retains the actual benefit of the competitive advantage associated with the grant of the aid’ (points 42-43 of the judgment). Therefore, the Decree of 7 February 2023 could allow national authorities to recover aid from Scai Srl, the actual beneficiary of aid.

It is worth recalling that Member States have an obligation to give effect to a recovery order addressed to them and under a duty of sincere cooperation pursuant to Article 4(3) TEU. Specifically, once the Commission finds that aid is incompatible and needs to be recovered, recovery is implemented by the national authorities under the procedures laid down by national law, according to the principle of procedural autonomy. National laws should also guarantee that recovery is immediate and effective.⁶ However, although repayment of aid is generally made by the undertaking identified in the Commission decision, national authorities might have to carry out recovery from a different undertaking, where the advantage linked to the aid in question has been transferred to a different undertaking.

The advantage, the elimination of which is the prime objective of recovery, can be transferred, for instance, to an undertaking part of the group of undertakings regarded as a single economic unit, or to an undertaking to which the benefit was transferred through assets or tax measures.⁷ The possibility to recover unlawful and incompatible State aid in such circumstances is linked with the whole logic behind recovery. Indeed, the duty to recover aid is connected with the need to restore the competitive position to what it was before the incompatible State aid was given, even though the assumption that market conditions can be restored in full may be utopian, especially when recovery occurs several years after State aid has been granted.

Economic continuity between undertakings

In the case at hand, the Court finds that economic continuity exists between the two companies based on the transfer of assets agreed and the economic logic of the operation (point 45 of the judgment). Economic continuity between Buonotourist Srl and Scai Srl justifies national authorities’ decision to finalise recovery of aid from Scai Srl, through Decree of 7 February 2023.

The concept of economic continuity is included in the 2019 Commission Notice on the recovery of incompatible State aid.⁸ Particularly, Point 89 of the Notice provides that Member States should extend recovery ‘to the undertaking that effectively enjoys the advantage following the transfer of activities and ensure that the recovery obligation is not circumvented’. The Notice further distinguishes between the sale of all or part of an undertaking’s assets (asset deal) and the sale of the undertaking’s shares (share deal). In the present case, Bounotourist Srl and Scai Srl negotiated the transfer in the forms of assets and liabilities, maintenance of the workforce, bundled assets. The Court examines the transfer price, the identity of the shareholders or owners of the acquiring undertaking and the original undertaking, the moment when the transfer takes place (after the commencement of the investigation, opening of the procedure or the final decision) and also the economic logic of the operation.

Nevertheless, while it is acknowledged that national courts are entrusted with the power to interpret and apply the concept of State aid referred to in Article 107(1) TFEU, the Court seems to exclude that national courts should rely on the Notice to adjudicate cases. Indeed, such documents are merely ‘notes and informal instructions’ provided by the Commission’s services to the national authorities for the purpose of carrying out the analysis of economic continuity. The Court states that such documents, although they have decision-making character, however, they ‘cannot be regarded as being binding on the national court’. Yet, the courts ‘must take them into account as a factor in the assessment of the dispute before it’.

The analysis on the Notice has to be framed within the debate on the nature and effects of soft law. The Notice is included in the wide array of State aid soft law instruments, usually published in the form of communications but also referred to as notices, frameworks and guidelines, to enhance transparency and legal certainty. Soft law are rules of conduct which, in principle, have no legally binding force but which can produce legal and practical effects.⁹ Their main practical effect is to guide national authorities in implementing and abiding by State aid rules. As the Commission is bound by its own rules, national authorities rely on them to shape and implement State aid.¹⁰ Notwithstanding the legal and practical effects of soft law instruments, their nature is non-binding, thus their justiciability is highly limited.

Rights of undertakings in the State aid context

The applicant believes that the order to repay aid amounts to an infringement of its rights under the Charter of fundamental rights, namely the right to good administration enshrined in Article 41 and the right to an effective remedy and to a fair trial in Article 47 therein. Therefore, the referring court asks whether the Decree of 7 February 2023 is compatible with the right to be heard and the right of defence (audi alteram partem) and the right to obtain an effective trial which might have been jeopardised both in the procedure before the Commission and in proceedings before the national court (point 49 of the judgment). As for the former situation, the referring judge asks whether Scai Srl should have participated in the procedure before the Commission and have the right to challenge the decision declaring aid unlawful and incompatible. As for the latter situation, it is wondered whether Scai Srl should have had the opportunity to ascertain the existence of economic continuity before a national judge. In other words, the referring court asks whether Scai Srl’s essential procedural safeguards were guaranteed. Such allegations appear to be relevant where the company itself is not the original undertaking subject to the order to recovery issued by the Commission.

The Court reiterates that the procedure for reviewing State aid only establishes a bilateral relationship between the Commission and the Member State concerned, while other interested parties, e.g., the beneficiaries and the competitors, ‘cannot themselves seek to engage in an adversarial debate with the Commission in the same way as is offered to that Member State’ (point 50 of the judgment). Nevertheless, the Court continues to observe that, although Scai Srl would not have been entitled to bring an action for annulment under Article 263 TFEU, yet, EU law provides a different array of procedural remedies, notably the procedure set out in Article 267 TFEU, to refer the question to the Court through the national judge  (points 50-53 of the judgment).

As far as litigation before the national courts is concerned, the Court recognises that Member States – not the Commission, not the Court – bear an obligation arising from EU law to ensure the rights of defence of addressees of decisions which significantly affect their position and interests. By dismissing Scai Srl’s claims, the Court once again relies on the possibility to activate the preliminary reference procedure enshrined in Article 267 TFEU to have the Commission decision reviewed. The line of reasoning proposed by the Court draws on consistent caselaw affirming that it would not be possible to derive from Article 47 of the Charter an unconditional right for individuals to bring an action for annulment against an EU act directly before the Court.¹¹ In the State aid context, moreover, Article 47 of the Charter may play a less prominent role with respect to EU rules that are not addressed to an individual.

Nevertheless, the argument that Article 267 TFEU always protects the rights of interested parties in the State aid proceedings does not reflect how the procedure set out in Article 267 TFEU works in practice, as it implies the existence of an allegedly incorrect Commission decision to initiate the procedure. At the same time, the procedure generally produces some major delays when awaiting the Court’s answer, de facto undermining the economic position of the claimant. Furthermore, it is worth noting that the activation of Article 267 TFEU is not unconditional itself. Indeed, when the beneficiary of unlawful and incompatible State aid could have challenged the Commission decision before the General Court but failed to do so, they would be deprived of the possibility to indirectly challenge that decision before the nation courts .¹²

The claims addressed in the judgment point to key issues connected with the rights of interested parties¹³ in the State aid context. As recalled by the Court, the State aid procedures establish an exclusive relationship between the Commission and the Member States which have a duty to cooperate sincerely with the Commission. Other than these actors, any involvement of interested parties has an instrumental rationale, as their role is aimed at enhancing the efficiency of State aid enforcement.¹⁴ For instance, there is neither a right to be heard nor to access information related to the investigation of aids, as the Court has stated that ‘disclosure of documents […] in principle undermines protection of the objectives of investigation activities’. Therefore, the rights contained in the Charter of fundamental rights, especially Articles 41  and 47, and the actual procedural position of third parties in the State aid procedures and litigation may encroach upon.

The limitation of third parties’ rights is obviously more stressed when the undertaking under an obligation by national law to repay aid is not the original beneficiary of aid subject to the Commission decision to recovery aid .  Such discrimination confirms that in the area of EU State aid, whether in procedures before the Commission or, to a different extent, in national litigation, the rights guaranteed under the Charter of fundamental rights might be limited for individuals.

In conclusion, while it is undisputed that Member States should give effect to the order to recover aid smoothly and swiftly, to restore the competitive situation before aid was granted, third parties’ rights in the State aid context should be enhanced to better comply with the set of fundamental rights guaranteed at the EU level.

¹ Court of Justice, 16 January 2025, case C-588/23, Scai, ECLI:EU:C:2025:23.

² Commission Decision (EU) 2015/1075 on State aid SA.35843 (2014/C) (ex 2012/NN).

³ General Court, 11 July 2018, Buonotourist v Commission, case T‑185/15, ECLI:EU:T:2018:430; Court of Justice, 4 March 2020, Buonotourist v Commission, case C‑586/18 P, EU:C:2020:152.

⁴Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union, in OJ L 248, 24.9.2015, p. 9–29.

⁵See for instance, Court of Justice, 12 May 2021, Greece v Commission, case C-11/20, ECLI:EU:C:2021:380.

⁶ Among others, Court of Justice, 12 May 2005, case C-415/03, Commission v Greece, ECLI:EU:C:2005:287.

⁷ Among others, General Court, 11 May 2005, joined cases T-111/01 and T-133/01, Saxonia Edelmetall v Commission, ECLI:EU:T:2005:166; Court of Justice, 16 december 2010, case C-480/09 P, AceaElectrabel Produzione SpA v Commission ECLI:EU:C:2010:787.

⁸ Commission Notice on the recovery of unlawful and incompatible State aid, in OJ C 247, 23.7.2019, p. 1–23.

⁹ F. Snyder, The Effectiveness of European Community Law: Institutions, Processes, Tools and Techniques, (1993) THE MODERN LAW REVIEW, p.19; O Ştefan, Soft Law in Court: Competition Law, State Aid and the Court of Justice of the European Union, 2013; F. Snyder, Bamboo, or Goverance through Soft Law: Hybridity, Legitimacy, and Sustainability, in M. Eliantonio, E. Korkea-aho, O Ştefan (eds.), Eu Soft Law in the Member States: Theoretical Findings and Empirical Evidence, 2021.

¹⁰ Court of Justice, 18 February 2016, case C‑526/14, Kotnik and others, ECLI:EU:C:2016:102.

¹¹ Court of Justice, 3 October 2013, case C-583/11 P, Inuit Tapiriit Kanatami v Parliament and Council, ECLI:EU:C:2013:625, point 57; 9 November 2017, case C-205/16 P, SolarWorld AG Commission européenne; Conseil de l’Union européenne; Brandoni solare SpA; Solaria Energia y Medio Ambiente, SA; China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME), ECLI:EU:C:2017:840, point 68.

¹² See Court of Justice, 9 March 1994, case C-188/92, TWD v Bundesrepublik Deutschland, ECLI:EU:C:1994:90.

¹³ The notion of interested party is contained in Article 1(h) of Regulation (EU) 2015/1589 (Procedural Regulation).

¹⁴ F Pastor-merchante, The Role of Competitors in the Enforcement of State Aid Law, 2017, p.35.