When the state, acting as a private investor, seeks to recover past public investments, it must aim to maximise the recoverable amount. However, public funds that were granted as State aid must be ignored when the recoverable amount of past investments is calculated.


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On 15 September 2016, the General Court rendered its judgment in case T‑386/14, FIH Holding v Commission.[1] FIH appealed against Commission decision 2014/884.[2] In that decision the Commission had found that the asset transfer from FIH Group to the Danish Financial Stability Company constituted State aid. However, it declared the aid to be compatible with the internal market, on condition that certain commitments would be complied with by FIH when it would implement its restructuring plan.

FIH had benefited from certain measures adopted by Denmark in order to stabilise its banking sector. In June 2009, FIH received a capital injection of DKK 1.9 billion from the Danish government. In July 2009, Denmark also granted FIH a guarantee of DKK 50 billion. Because these measures were not enough to remedy FIH’s liquidity problems, on 6 March 2012, Denmark notified a new package of measures to the Commission. The new support involved the transfer of the most problematic assets to NewCo, a new subsidiary of FIH Holding. Financial Stability Company [FSC], a state-owned company, granted NewCo funding to refinance its assets and to enable FIH to repay its state-guaranteed loans.

In addition, the FSC was to buy the shares in NewCo, which would then be wound up in an orderly manner. It was this transfer of FIH property to FSC that was the subject of Commission decision 2014/884. According to the Commission’s calculations, the NPV of the share purchase amounted to DKK 726 million and, as a result, it would generate a loss rather than a profit for the FSC. This was incompatible with the market economy investor principle [MEIP].

FIH contested this finding of the Commission. The General Court found in its favour and annulled the Commission decision because the Commission included in the amount that FSC supposedly had invested in FIH, and therefore had to be remunerated, the funds that were previously classified as State aid.


Market economy investor principle

The main plea of FIH was that the Commission was wrong to find that the transfer was not compatible with the MEIP.

The Court first recalled the fundamental principles in the case law, which require that “56 […] it is necessary to assess whether, in similar circumstances, a private investor of a size comparable to that of bodies managing the public sector might have been prompted to take the measure in question. In particular, the relevant question is whether a private investor would have entered into the transaction in question on the same terms and, if not, on what terms he might have done so. The comparison between the conduct of public and private investors must be made by reference to the attitude which a private investor would have had at the time of the transaction in question, having regard to the available information and foreseeable developments at that time”.

Then the General Court made a distinction between a market investor and a market creditor. “57 As regards the recovery of public debts, there is no need to examine whether the public bodies in question acted like public investors […] Those bodies must in reality be compared to a private creditor seeking to obtain payment of sums owed to it by a debtor in financial difficulties”.

This is because “58 when a firm faced with a substantial deterioration of its financial situation proposes an agreement or series of agreements for debt arrangement to its creditors with a view to remedying the situation and avoiding liquidation, each creditor must make a decision having regard to the amount offered to it under the proposed agreement, on the one hand, and the amount it expects to be able to recover following possible liquidation of the firm, on the other. Its choice is influenced by a number of factors, including the creditor’s status as the holder of a secured, preferential or ordinary claim, the nature and extent of any security it may hold, its assessment of the chances of the firm being restored to viability, as well as the amount it would receive in the event of liquidation. If it turned out, for example, that, in the event the firm was liquidated, the realisation value of its assets was sufficient to cover only mortgage and preferential claims, ordinary claims would have no value. In such a situation, acceptance by an ordinary creditor of the cancellation of a major part of its claim would not be a real sacrifice”.

The Court also referred to established case law according to which “59 […] the mere fact that a public undertaking has already made capital injections into a subsidiary that are classed as aid does not automatically mean that a further capital injection cannot be classed as an investment satisfying the market economy investor test”. This is because every injection has to be assessed on its prospects of profitability in the future, not according to the money that was granted in the past.

The Court stressed that it was the Commission’s responsibility to examine whether the MEIP was satisfied. “60 […] The market economy investor test is not an exception that applies only if a Member State so requests. Where it is applicable, that test is among the factors the Commission is required to take into account for the purposes of establishing the existence of aid. Consequently, where it appears that the private investor test could be applicable, the Commission is under a duty to ask the Member State concerned to provide it with all relevant information enabling it to determine whether the conditions governing the applicability and the application of that test are met”.

Market economy creditor principle

The Court then turned its attention to the facts of the case and agreed with FIH that “64 […] an economic operator in a situation such as that in the present case, in which it has previously granted a capital injection and a guarantee to the company concerned, is akin to a private creditor seeking to minimise its losses rather than a private investor seeking to maximise the profitability of the funds that it might invest where it so wishes.”

“65 It can be rational for an economic operator, having invested capital in a company to which he has also granted a guarantee, to adopt measures involving loss where they substantially reduce, if not eliminate, the risk of losing his capital and the enforcement of the guarantee.”

“66 More specifically, it may be economically rational for the Kingdom of Denmark to accept measures such as a transfer of impaired assets, in so far as they have a limited cost and involve reduced risk and that, without such measures, it would be highly likely that it would have to bear losses in an amount greater than that cost.”


The Court went on to point out that “67 with regard to the objective of the rules on the control of State aid, it would be illogical if, in order to respect them, a Member State were required to make a transfer of considerable funds, which had become highly likely, to an undertaking, if it is shown that it could avoid that expense by adopting measures having a lower cost, which latter conduct would be economically rational.”

The Court censured the Commission because “69 […] the contested decision applied an incorrect legal test, namely, the market economy investor principle, instead of examining the measures in the light of the market economy creditor principle, irrespective of the result to which that analysis would have led. The Kingdom of Denmark’s conduct, when it adopted the measures at issue in 2012, cannot be compared to that of an investor seeking to maximise its profit, but that of a creditor seeking to minimise the losses to which it is exposed in the event of inaction. In those circumstances, it must be held that the contested decision used an incorrect reference framework for its analysis.”

“70 […] It is for the Commission, by applying the correct legal test, to draw the appropriate conclusions from the fact that the 2009 measures constituted State aid declared compatible with the internal market, possibly establishing, for the purposes of that analysis, whether the aid-equivalent was equal to the total amount of those measures or to only part thereof. It follows from the case-law that, where a State grants a guarantee for a bank loan to a company in difficulty without adequate consideration, the guarantees must be regarded as aid equal to the amount of the loan guaranteed. In those circumstances, that aid cannot be included in the calculation of the normal cost for the State of winding up the company in question. In that context, it is to be noted that it is clear from the decision of 2009 that the aid scheme was open to fundamentally sound and solvent banking establishments and that the guarantee could only be granted in exchange for payment of a market oriented premium.”

Paragraph 70 of the judgment contains an important point of law. When a public authority acts as a private investor or private creditor, it must ignore any amounts which it gave previously as State aid. Hence, in this case the Commission had to determine the amount of aid that was involved in the guarantee and then exclude it from its calculations.

Naturally, the Commission put up a valiant defence, but the Court rejected all its arguments. First, it repeated that “73 […] the Commission could not refuse to apply the market economy operator principle […] solely on the ground that the initial capital injection constituted State aid”. “74 […] In order to assess the existence of aid in a subsequent measure, the fact that a previous measure contains an element of aid is not sufficient for refusing to take into account the effect of that measure. If the Commission’s argument was correct, the market economy operator principle would never apply to the subsequent amendment of a measure that initially contained an aid element. Furthermore, […], what is decisive in the assessment of the subsequent measure is whether the conduct of the State satisfies an economic rationality test”.

Second, the Court responded to the argument of the Commission that “76 […] only the benefits and obligations linked to the situation of the State as shareholder, to the exclusion of those linked to its situation as a public authority, were to be taken into account in the application of the market economy investor principle. […], [T]he Commission contends that, the grant of State aid manifestly being linked to the situation of the Kingdom of Denmark as a public authority, there is no need to take account of the capital injection and guarantee in the assessment of the existence of aid in the measures at issue.”

The General Court disagreed on the grounds that “78 […] the use of instruments of State power does not alter the fact that the State can be regarded as acting as a rational economic operator. Therefore, contrary to the Commission’s argument, that judgment cannot be invoked in support of its position in the present case.”

Third, the General Court referred to the case of Bank Burgenland where the Court of Justice “79 […] held that the Commission was fully entitled to refuse to take account of the legal guarantee at issue since, by that grant, the State pursued objectives other than that of making a profit and exercised its prerogatives as a public authority”. “80 That judgment was concerned with the specific application of what was the correct test, namely, the private seller principle, and the elements to be taken into account as part of that application. Therefore, that case differs from the present case, in which the Commission applied an incorrect legal test.”

On the basis of the above reasoning, the General Court annulled Commission decision 2014/884.


The main points of the judgment are the following two. First, when the purpose of a measure is to salvage as much as possible of an existing investment, future profitability is not an appropriate test. The appropriate test is how much of the investment can be recovered in comparison to how much will remain for the creditor in question after the debtor is liquidated.

Second, any amounts that have been (legally) granted as State aid must be excluded from the calculations because the recipient has no obligation to pay it back to the state and because when the aid was granted the state was not acting as a private investor.


[1] The full text of the judgment can be accessed at:

[2] The full text of the Commission decision can be accessed at:

[Photo credit: 401(K) 2012 from]



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Phedon Nicolaides

Professor at the College of Europe, Bruges, and at the University of Maastricht, and Academic Director at lexxion training

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