We See State Aid Cases on the Rise

Competition & Public Procurement

Cases related to unlawful state aid have previously been rare in Finland but lately have become more common. Such unlawful aid can cause serious distortion in the markets, making fair competition very difficult and resulting in considerable losses for the competitors of the aid recipient.

D&I’s Johan Åkermarck and Toni Kalliokoski have seen state aid related matters become much more commonplace over the past few years. They have also represented clients in Finnish courts and the Court of Justice of the European Union in state aid matters. “It is not entirely clear why we have experienced such an increase in unlawful aid”, Johan Åkermarck says. “Traditionally, Finland has been quite careful to follow EU rules, however as we recently concluded a case at the EU court where Finland was found to have granted 62 million euros of unlawful aid that it had a duty to recover, we found clear distortion on the Finnish market. In general, it could be that due to the Covid crisis, public entities have paid increasing amounts of state aid. Since state aid legislation can be quite complex, sometimes public entities get it wrong, granting unlawful state aid that will distort markets.”

Even once the recipient has to pay back the aid, the market structure could already have been distorted for a long time into the future.

Åkermarck and Kalliokoski note that unlawful state aid can take many forms, not only direct capital injections or cheap loans. “It could be privileged access to public resources, guarantees by public entities, underpriced rent for publicly owned assets, changing loan terms afterwards, almost anything that distorts the market. The key is that it is a benefit that is not given on market terms and which is given by public entities selectively to one or some actors on the market but is not available to everyone. Also, because it is EU law, it has to potentially affect trade between the EU member states, which it does quite easily. One of the most unfortunate aspects of state aid is that even once the recipient has to pay back the aid, the market structure could already have been distorted for a long time into the future. This makes it important to act quickly if you suspect your competitor is unfairly benefiting from public resources”, Åkermarck states.

State aid rules can also affect M&A deals.

If a company suspects that a competitor has received or is soon going to receive unlawful state aid, it is possible to either complain to the European Commission or seek to challenge the aid directly in national courts. Kalliokoski notes that both routes have their pros and cons, “Taking a matter to an administrative court can be relatively quick, especially to seek an injunction, but the applicant must be able to prove its case in court, and will face legal costs. On the other hand, the Commission has extensive state aid expertise and broad investigatory powers but it can take years to investigate a matter. The complainant still has to make the Commission’s job as easy as possible by providing it with extensive evidence. That makes it crucial to use attorneys with experience in state aid matters. It’s a case-by-case decision which route is the best.”

State aid rules can also affect M&A deals in unexpected ways, Åkermarck reminds. “If a company buys assets from a seller that has benefited from unlawful state aid, it is possible that the buyer and the seller will both become liable to pay back the full amount of the state aid with interest. Depending on the situation, this could easily be tens of millions of euros, as we saw in a recent case. It is also quite difficult for buyers to shield themselves from such liability because EU law takes precedence over national law and the buyer’s and the seller’s contractual arrangements. This is something to take into account in a due diligence, particularly if the seller is involved with public sector entities. State aid can be recovered within 10 years after it was granted, and an investigation prolongs the time limit, which means that information for a due diligence about all kinds of aid from public entities should be sought for a long time back.”

• For many years, competition in the Helsinki area public bus transportation market was distorted by millions of euros of unlawful state aid.

• D&I identified the unlawful aid and helped
its client Nobina to complain to the Commission in order to make the bus  market in question viable again.

• The EU’s General Court decided in
September 2022 that 62 million euros of state aid and interest must be paid back, and the decision has now become final.

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