Court of Justice of the European Communities (including Court of First Instance Decisions)

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 9 September 2021 (1)

Case C-347/20

SIA ‘Zinatnes parks’

v

Finanšu ministrija

(Request for a preliminary ruling from the Administrativa rajona tiesa (District Administrative Court, Latvia))

(Reference for a preliminary ruling – Regulation (EU) No 651/2014 – Concept of ‘undertaking in difficulty’ – Concept of ‘subscribed share capital’ – Autonomous interpretation – Directive 2013/34/EU – Irrelevance of the relevant national law on company registration – Requirements for proving that the applicant is now no longer an undertaking in difficulty – Transparent and non-discriminatory selection decision among several applicants – Possibility to reject application documents submitted late)

I.      Introduction

1.        An undertaking in the legal form of a company with share capital applies, in Latvia, for aid granted under an EU fund and submits an application to that effect. However, since more than half of its subscribed share capital has disappeared as a result of accumulated losses, it would be excluded from aid as an ‘undertaking in difficulty’. Therefore, the members resolve to increase the capital accordingly before the application is submitted. After having effected the increase in capital, the undertaking would no longer be assessed as being an undertaking in difficulty. Under national law, an increase in capital must be entered in the Commercial Register in order to be regarded as effective. However, that registration was carried out only after the expiry of the application deadline, but before the decision rejecting the application.

2.        The request for a preliminary ruling now raises the questions of whether national law on company registration is a decisive factor in the assessment of the ground for exclusion of an undertaking in difficulty within the meaning of Article 2(18) of Regulation (EU) No 651/2014 (2) and from what point in time that ground for exclusion ceases to apply in the situation in the present case. In that context, the question also arises as to the proof of an increase in capital in respect of which a resolution has been passed but which has not yet been registered in the course of the selection procedure. This is because Latvian national law prevents any clarification from being made through the submission of further documents after the application for aid has been made.

II.    Legal framework

A.      European Union law

1.      Regulation (EU) No 1301/2013

3.        Article 3(3)(d) of Regulation No 1301/2013 (‘the ERDF Regulation’) (3) excludes certain persons from aid:

‘3.      The ERDF shall not support:

(d)      undertakings in difficulty, as defined under Union State aid rules’.

2.      Regulation (EU) No 651/2014

4.        Recital 14 of Regulation No 651/2014 (‘the Block Exemption Regulation’) reads as follows:

‘(14)      Aid granted to undertakings in difficulty should be excluded from the scope of this Regulation, since such aid should be assessed under the Community guidelines on State aid for rescuing and restructuring firms in difficulty of 1 October 2004 … as prolonged by Commission communication concerning the prolongation of the application of the Community guidelines on State aid for rescuing and restructuring firms in difficulty of 1 October 2004 … or their successor Guidelines, in order to avoid their circumvention, with the exception of aid schemes to make good the damage caused by certain natural disasters. In order to provide legal certainty, it is appropriate to establish clear criteria that do not require an assessment of all the particularities of the situation of an undertaking to determine whether an undertaking is considered to be in difficulty for the purposes of this Regulation.’

5.        Article 2 of the regulation, entitled ‘Definitions’, establishes the following:

‘For the purposes of this Regulation the following definitions shall apply:

…

(18)      “undertaking in difficulty” means an undertaking in respect of which at least one of the following circumstances occurs:

(a)      In the case of a limited liability company …, where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital. For the purposes of this provision, “limited liability company” refers in particular to the types of company mentioned in Annex I to Directive 2013/34/EU … and “share capital” includes, where relevant, any share premium.

…

(c)      Where the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors.

…’

3.      Regulation (EU) No 1303/2013

6.        Regulation No 1303/2013 (4) regulates, in paragraphs 1 and 3 of Article 125, the tasks of the managing authority as follows:

‘1.      The managing authority shall be responsible for managing the operational programme in accordance with the principle of sound financial management.

…

3.      As regards the selection of operations, the managing authority shall:

(a)      draw up and, once approved, apply appropriate selection procedures and criteria that:

(i)      ensure the contribution of operations to the achievement of the specific objectives and results of the relevant priority;

(ii)      are non-discriminatory and transparent;

…’

4.      Directive (EU) 2017/1132

7.        Article 68 of Directive 2017/1132 (5) relating to certain aspects of company law, entitled ‘Decision by the general meeting on the increase of capital’, provides as follows:

‘1.      Any increase in capital shall be decided upon by the general meeting. Both that decision and the increase in the subscribed capital shall be published in the manner laid down by the laws of each Member State, in accordance with Article 16.

…’

8.        According to Article 14 of that directive, entitled ‘Documents and particulars to be disclosed by companies’:

‘Member States shall take the measures required to ensure compulsory disclosure by companies of at least the following documents and particulars:

…

(e)      at least once a year, the amount of the capital subscribed, where the instrument of constitution or the statutes mention an authorised capital, unless any increase in the capital subscribed necessitates an amendment of the statutes;

…’

9.        Article 16(6) and (7) of the directive, entitled ‘Disclosure in the register’, provides as follows:

‘6.      The documents and particulars may be relied on by the company as against third parties only after they have been disclosed in accordance with paragraph 5, unless the company proves that the third parties had knowledge thereof.

…

7.      … Third parties may, moreover, always rely on any documents and particulars in respect of which the disclosure formalities have not yet been completed, save where non-disclosure causes them not to have effect.’

5.      Directive 2013/34/EU

10.      Directive 2013/34 (6) concerns the harmonisation of rules on annual financial statements (‘the Accounting Directive’).

11.      Recital 9 of that directive sets out the objective of annual financial statements:

‘Annual financial statements should be prepared on a prudent basis and should give a true and fair view of an undertaking’s assets and liabilities, financial position and profit or loss. …’

12.      Article 4(1) of the Accounting Directive specifies the content of annual financial statements:

‘1.      The annual financial statements shall constitute a composite whole and shall for all undertakings comprise, as a minimum, the balance sheet, the profit and loss account and the notes to the financial statements.’

13.      Annex III to the Accounting Directive concerns the horizontally laid out balance sheet and refers to subscribed capital in the first sub-item of ‘Capital, reserves and liabilities’, under ‘A. Capital and reserves’, in which the following is stated:

‘I.      Subscribed capital

(Unless national law provides that called-up capital is to be shown under this item, in which case the amounts of subscribed capital and paid-up capital shall be shown separately.)’

B.      Latvian law

14.      The implementation of EU funds in Latvia is governed by the Eiropas Savienibas strukturfondu un Kohezijas fonda 2014.-2020. gada planošanas perioda vadibas likums (Law on the Management of the European Union Structural Funds and Cohesion Fund for the 2014-2020 Programming Period; ‘Law on the Management of the Funds’). (7)

15.      Article 21 of that law, entitled ‘Selection of project applications’, provides as follows in points 2 and 5:

‘(2)      The liaison authority shall select project applications in accordance with the methods for selecting project applications and the regulations on the selection of project applications. The regulations on the selection of project applications shall be drawn up by the liaison authority and approved by it in conjunction with the responsible authority and the managing authority.

…

(5)      Project applicants shall prepare and submit their project applications in accordance with the requirements of the regulations on the selection of project applications.’

16.      Article 25 of that law, entitled ‘Approval, conditional approval or rejection of project applications under open procedures for the selection of projects’, provides as follows in paragraphs 3 and 4:

‘(3)      A decision to reject a project application shall be made where at least one of the following situations arises:

…

2)      The project application does not satisfy the evaluation criteria, and correction of the defects in accordance with paragraph 4 of this article would affect the substance of the project application.

…

(4)      A decision to grant a project application conditional approval shall be made where the project applicant must take certain actions specified by the liaison authority in order for the project application to satisfy the evaluation criteria in full and for the project to be implemented properly. The decision shall set out the relevant conditions, and compliance with those conditions shall be verified having regard to the regulations on the selection of project applications. If any of the conditions set out in that decision is not satisfied, or if it is not satisfied within the deadline laid down in the decision, the project application shall be deemed to have been rejected.’

17.      Article 30 of that law, entitled ‘Clarification of project applications’, provides as follows:

‘During the period between the submission of a project application and the decision to approve it, to grant conditional approval or to reject it, no further clarification of the project application may be submitted.’

18.      The aid measure in question is governed by Ministru kabineta 2018. gada 25. septembra noteikumi Nr. 612 ‘Darbibas programmas “Izaugsme un nodarbinatiba” 3.1.1. specifiska atbalsta merka “Sekmet MVK izveidi un attistibu, ipaši apstrades rupnieciba un RIS3 prioritarajas nozares” 3.1.1.5. pasakuma “Atbalsts ieguldijumiem ražošanas telpu un infrastrukturas izveidei vai rekonstrukcijai” otras projektu iesniegumu atlases kartas istenošanas noteikumi’ (Decree No 612 of the Council of Ministers of 25 September 2018 laying down the regulations for implementing Phase Two of the project application selection procedure for the ‘Growth and Employment’ operational programme, specific support objective 3.1.1 ‘To promote the creation and development of SMEs, in particular in the manufacturing and [regional Research and Innovation Strategies for Smart Specialisation (RIS3)] priority sectors’, measure 3.1.1.5 ‘Support for investment in establishment or reconstruction of production premises and infrastructure’).

19.      Article 15 of that decree stipulates that:

‘A project shall not be eligible for funding where:

…

15.3.      The project applicant is classified as an undertaking in difficulty within the meaning of Article 2(18) of Commission Regulation No 651/2014;

…’

20.      The practical aspects of the procedure for the selection of project applications are governed by the regulations on the selection of project applications, drafted by [the Central Finance and Contracting Agency], and by the annexes thereto. (8)

21.      In Annex 5 to the regulations on the selection of project applications, entitled ‘Methodology for applying the project application evaluation criteria’, paragraph 6 of section II describes how it will be determined whether or not the project applicant is an undertaking (economic operator) in difficulty:

‘An “unconditional positive” evaluation will be awarded where the project applicant is not an economic operator in difficulty. The classification [of a project applicant] as an undertaking in difficulty at the time of the decision on the grant of the aid must be made on an objective basis, using verifiable and reliable information about the project applicant and related undertakings:

(a)      The information in the most recent publicly available final annual report will be checked.

(b)      Where an interim activity report approved by a sworn auditor is submitted, the information in that report will be used as the basis for determining whether the undertaking is in difficulty.

(c)      Where the project applicant refers to publicly available, verifiable, information concerning an increase in share capital undertaken after the most recent final annual report, that information will be taken into account where it is accompanied by an interim activity report approved by a sworn auditor.

…

A “conditional positive” evaluation will be awarded where the information submitted is incomplete or not sufficiently precise. The project applicant will be invited to provide further clarification of the information submitted. Clarification is permitted only in respect of technical, arithmetical and drafting issues. …

A “negative” evaluation will be given where the project applicant displays any of the characteristics of an undertaking in difficulty, or fails to satisfy the conditions established in a conditional positive evaluation, or, while satisfying the conditions in question, does not respond to the requirements or fails to satisfy them by the deadline laid down in the conditional positive evaluation.’

22.      In Latvia, the activities of commercial companies are governed by the Komerclikums (Commercial Code). Article 12 of the Commercial Code, entitled ‘Disclosure in the register’, provides as follows:

‘(1)      Entries in the Commercial Register may be relied on as against third parties once they have been disclosed. …

(2)      Where information which is required to be entered in the Commercial Register is not entered, or is entered but not disclosed, the information in question may not be relied on as against third parties by the person for whose benefit the information should have been entered, unless the third parties in question had knowledge thereof.

…’

23.      Article 196 of the Commercial Code, entitled ‘Resolutions on alterations to share capital’, provides as follows:

‘(1)      Share capital may be increased or reduced only by means of a resolution, passed by a general meeting of the members, setting out the procedure for that increase or reduction.

…

(3)      In the event of a resolution that share capital is to be altered, the Articles of Association must also be altered accordingly at the same time.’

24.      Article 202 of the Commercial Code, entitled ‘Applications to the Commercial Registry concerning increases in share capital’, provides as follows in paragraph 3:

‘The increase in share capital shall be deemed to have occurred on the date on which the new share capital figure is entered in the Commercial Register.’

III. The main proceedings

25.      On 15 January 2019, the Centrala finanšu un ligumu agentura (Central Finance and Contracting Agency; ‘the Agency’) announced Phase Two of the open procedure for the selection of projects to receive aid under the ‘Growth and Employment’ programme co-financed by the European Regional Development Fund (ERDF). In view of the changes that were made, the deadline for submitting projects was set as 30 April 2019.

26.      SIA ‘Zinatnes parks’, a limited liability company (‘the applicant’), submitted a project to the Agency on 30 April 2019. However, since more than half of its subscribed share capital has disappeared as a result of accumulated losses, it would be excluded from aid as an ‘undertaking in difficulty’. Therefore, together with its application, the applicant submitted a resolution passed by a general meeting of its members on 29 April 2019 to alter its Articles of Association. The resolution provided for an increase in its share capital by means of a contribution of shares, plus share premium, from a specified member, to be paid within a specified period.

27.      During the project evaluation period, the applicant informed the Agency that the increase in share capital had been entered in the Commercial Register on 24 July 2019. In the course of the objection procedure, by way of supplementary material, it provided an interim activity report approved by a sworn auditor.

28.      By decision of 4 November 2019, which brought the administrative procedure to an end, the Latvian Ministry of Finance rejected the applicant’s project on the grounds that, on the date of its application, it had to be considered an ‘undertaking in difficulty’ within the meaning of Article 2(18)(a) of the Block Exemption Regulation.

29.      The decision states that, in spite of the resolution passed by the company’s members, under Article 202(3) of the Commercial Code, an increase in share capital will not be deemed to have occurred until the new shares have been entered in the Commercial Register, and that the shares were registered after the project had been submitted. The purpose of the open procedure for the selection of project applications is to ensure that project applicants are able to compete on equal terms and, therefore, once project applications have been submitted, no further clarification may be provided. Moreover, under paragraph 7.17 of the regulations on the selection of project applications, proof of an improved financial situation may not be provided in any form, but must be in the form of an interim activity report approved by a sworn auditor and submitted directly with the project, so that the Agency has an accurate picture of the applicant’s financial situation.

30.      The applicant brought an action against that decision before the referring court, arguing that, on the date on which it submitted its project application, it should not be considered an undertaking in difficulty, in view of the resolution passed by its members which it submitted to the authority with that application. According to the applicant, the information it failed to supply does not, in itself, have any impact on its financial situation and may therefore also be submitted during the project evaluation period.

31.      In the administrative-law proceedings, there is no dispute between the parties that, based on the financial information in the applicant’s most recent financial report (for 2018), the applicant would be classed as an undertaking in difficulty within the meaning of Article 2(18)(a) of the Block Exemption Regulation. It is also evident that the applicant remedied that deficiency by increasing its share capital and entering the corresponding alteration in the Commercial Register on 24 July 2019.

IV.    The request for a preliminary ruling and the procedure before the Court

32.      By order of 15 July 2020, the Administrativa rajona tiesa (District Administrative Court, Latvia) seised of the action referred the following questions to the Court for a preliminary ruling:

‘(1)      Must the concept of “subscribed share capital” in Article 2(18)(a) of [Regulation No 651/2014], in conjunction with other EU legal provisions relating to company law, be interpreted as meaning that, for the purposes of determining subscribed share capital, only particulars that have been published in the manner laid down by the national laws of each Member State may be taken into account, bearing in mind that the particulars in question are thus deemed to become effective only from that moment?

(2)      When assessing the concept of “undertaking in difficulty” in Article 2(18) of [Regulation No 651/2014], is it necessary to attach significance to the requirements, laid down as part of the procedure for selecting projects for European funds, concerning which documents are to be submitted as evidence of the financial situation of the undertaking in question?

(3)      If the reply to the second question referred is in the affirmative, is a provision of domestic law on the selection of projects, which establishes that no further clarification of projects may be made once they have been submitted, compatible with the principles of non-discrimination and transparency established in Article 125(3)(a)(ii) of [Regulation No 1303/2013]?’

33.      In the proceedings before the Court, the Republic of Latvia, Ireland and the European Commission submitted written observations and all parties, including the applicant, attended the hearing on 14 July 2021.

V.      Legal assessment

A.      Consideration of the questions referred for a preliminary ruling

34.      The present request for a preliminary ruling concerns the applicant’s application for aid under the ‘Growth and Employment’ programme co-financed by the ERDF, which was rejected.

35.      By its three questions, the referring court seeks to ascertain how the concept of an ‘undertaking in difficulty’ in Article 2(18)(a) of the Block Exemption Regulation is to be understood in so far as reference is made to ‘subscribed share capital’ (see section B). The background to that question is the fact that the ERDF Regulation, in Article 3(3)(d) thereof, excludes such undertakings from aid. In the second question, the referring court asks how an applicant can prove that it is not an undertaking in difficulty. In particular, it seeks to ascertain whether the requirement for certain reports under national law is compatible with EU law (see section C). The third question concerns the subsequent selection procedure followed by the managing authority. In that respect, the referring court asks whether the authority can reject subsequent clarifications (entry in the Commercial Register and subsequent interim report drawn up by a sworn auditor) after the expiry of the application deadline, but before the final decision, on the ground that they are irrelevant (see section D).

36.      Although all three questions are related, they concern different aspects (interpretation of the concept of ‘undertaking in difficulty’, evidence in respect of that concept, exclusion of evidence submitted subsequently to establish that the undertaking in question is not in difficulty) of the selection procedure concerning a beneficiary and must therefore be answered separately.

B.      Interpretation of Article 2(18)(a) of the Block Exemption Regulation

37.      The main reason for the refusal of the application for aid was that the Agency deemed the applicant to be an ‘undertaking in difficulty’ within the meaning of Article 2(18)(a) of the Block Exemption Regulation at the time when it submitted its project application. By its first question, the referring court seeks to ascertain how that concept is to be interpreted, in particular since reference is made to ‘subscribed share capital’. Is subscribed share capital only the share capital registered in accordance with the relevant national company law and company registration law? Or is it a concept of EU law which is to be interpreted autonomously and independently of the respective national particularities of the Member State concerned?

38.      That question becomes particularly important in light of the fact that the Member States have established different concepts in their respective company laws. For instance, Latvian law contains a deeming provision under which an increase in share capital is deemed to have occurred on the date on which the new share capital figure is entered in the Commercial Register. It is apparent from Ireland’s observations that its law does not require such an act of registration in order to change the share capital. In Germany, on the other hand, a notarised members’ resolution is required to amend the articles of association of a limited liability company. Such an amendment has no legal effect until it has been entered in the commercial register of the place of establishment of the company.

39.      The present case concerns a Latvian company that did not meet the requirements of Latvian law on company registration at the time of application for the subsidy. An Irish company could have complied with the requirements under Irish law without proof of entry in the register. A German company could at least have submitted a (German) entry in the commercial register, but would otherwise had to have met stricter requirements than its Latvian competitor (notarised members’ resolution).

40.      Those examples alone show that the question of the interpretation of the concepts of an EU regulation is, as is so often the case, closely linked to the question of whether they are to be interpreted autonomously, such that they can be complied with by all companies in all Member States according to the same standards, or whether an interpretation taking into account the national law in question (either that of the State in which the aid is granted or that of the State in which the company submitting the application is established) is decisive.

1.      Autonomous interpretation of the Block Exemption Regulation

41.      The answer to that question is linked to the spirit and purpose of the concept of ‘undertaking in difficulty’.

42.      The starting point is the settled case-law of the Court, according to which it follows from the requirements both of the uniform application of EU law and of the principle of equality that the wording of a provision of EU law that does not contain any express reference to the law of the Member States in order to determine its meaning and scope must, throughout the European Union, be interpreted independently and uniformly, irrespective of characterisation in the Member States, taking into account the wording of the provision at issue and also its context and the purpose of the rules of which it forms part. (9)

43.      The outcome may be different if EU law refers to the national law concerned. However, there is no such reference in the wording of Article 2(18)(a) of the Block Exemption Regulation, which makes no reference whatsoever to national company law or company registration law. On the contrary, that provision expressly refers to EU law, namely the Accounting Directive.

44.      Thus, according to the wording, the decisive factor is not the share capital which is deemed to be legally effective at a specific point in time by the national company law or company registration law (in the State in which the subsidy is granted or in the State in which the company submitting the application is established). In fact, Advocate General Campos Sánchez-Bordona states that the legislative concept of an ‘undertaking in difficulty’ is ‘of necessity an autonomous and exclusive concept of EU law’. (10)

45.      An autonomous interpretation is also supported by a comparison with the wording of Article 2(18)(c) of the Block Exemption Regulation, which expressly proceeds on the basis of whether an undertaking fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors. (11) It must be assumed that, in so far as the EU legislature expressly refers to national law in point (c) but does not do so in the context of the assessment of subscribed share capital in point (a), the omission of such a reference was a conscious decision, contrary to the view taken by Ireland.

46.      An additional argument militating in favour of an autonomous interpretation is the fact that recital 14 of the Block Exemption Regulation states that the latter is intended to establish clear criteria that do not require an assessment of all the particularities of the situation of an undertaking. It would be almost impossible for a managing authority to assess the effectiveness of an increase in capital in accordance with the relevant national law of the legal system pertaining to the company’s articles of association (that is to say, not necessarily only Latvian law) without carrying out a detailed investigation. As argued by both Ireland and the Republic of Latvia at the hearing, it is not the law of the provider of the aid (in casu, the Republic of Latvia) but the law governing the company’s articles of association that is decisive in that regard.

47.      The absence of a reference to the relevant national law is also persuasive in terms of content. This is because, in the countries that implement the principle of publicity via an official register, the registration has a function different from that of answering the question of whether the applicant is an ‘undertaking in difficulty’ within the meaning of State aid law. Usually, the aims of the requirement of an entry in a State register are register control and publicity. The effect of the latter is that third parties must accept the amended entries as being binding on them. The former is intended to ensure that only members’ resolutions passed in the prescribed manner are entered in the register.

48.      By contrast, the interpretation of the EU-law concept of ‘undertaking in difficulty’ favoured by Ireland, the Republic of Latvia and also the Commission at the hearing, whereby a condition (the concept of subscribed capital) must in fact be determined by having recourse to the various national legal systems, is not convincing. In so far as EU law deliberately excludes certain persons (in casu, undertakings in difficulty) from aid granted by means of EU resources, the Member States cannot be free to define through their national law, by means of the concept of subscribed share capital, which persons are to be regarded as undertakings in difficulty. Otherwise, that would allow the objective of EU law (of not providing support to undertakings in difficulty) to be rendered ineffective.

49.      I do not share the concerns expressed in particular by Ireland at the hearing, according to which an autonomous interpretation of the concept of an ‘undertaking in difficulty’ might lead to a harmonisation of company law through the back door. The present case does not concern the issue of whether the procedure for an effective increase in capital must be uniform in all Member States. EU law does not in fact lay down any rules in that regard – as was unanimously submitted by all parties. The question at issue in the present case is ‘only’ whether the allocation of EU resources (granting of aid to eligible undertakings under the ERDF) is unequivocally governed by EU law or by national law.

2.      The spirit and purpose of the concept of an ‘undertaking in difficulty’

50.      As follows from recital 14 of the Block Exemption Regulation, aid granted to undertakings in difficulty should be assessed under guidelines other than those applicable to undertakings that are not in difficulty. The background to this is the fact that the aid is intended to encourage undertakings to do a certain thing – to carry out the project for which aid is granted. (12) However, in the case of unsound undertakings (that is to say, undertakings in difficulty), there is a risk that the aid will be used more to rescue the undertaking itself than to implement the project for which aid is granted. (13) In any event, in the case of unsound undertakings, there is a higher risk that the purpose of the aid will not be achieved. For that reason, unsound undertakings should at best be rescued or restructured by means of aid, but this must be assessed according to other criteria and therefore other guidelines.

51.      Article 3(3)(d) of the ERDF Regulation therefore refers to Article 2(18)(a) of the Block Exemption Regulation. That provision, in turn, is based primarily on the actual financial situation of the undertaking concerned. It defines an undertaking in difficulty as an undertaking in respect of which more than half of the subscribed share capital has disappeared as a result of accumulated losses. Consequently, it is to be categorised as being not particularly solvent. The concept of subscribed share capital must therefore be construed by reference to the actual financial situation of an undertaking.

52.      On the one hand, registration in a State register can take a certain amount of time. On the other hand, all it does is publicly state that the share capital has now been increased. This has nothing to do with the undertaking’s actual financial situation. In fact, the undertaking may have already used up the increased capital in the meantime as a result of new losses. Entry in the register, or the fiction of legal effectiveness upon registration, is therefore unproductive for the purposes of the delimitation.

53.      Recourse to Directive 2017/1132 is not helpful either. Article 68 of that directive, entitled ‘Decision by the general meeting on the increase of capital’, provides that any increase in capital is to be decided upon by the general meeting. Both that decision and the increase in the subscribed capital are to be published in the manner laid down by the laws of each Member State and can be relied on as against third parties only after such publication. This is intended to protect the third party, as also stated by the Commission. However, those publication requirements do not make any statement regarding the actual financial situation.

54.      In addition, the applicant cannot have any influence on the time of registration in the register. It is to some extent random as far as that person is concerned. However, Article 125 of Regulation No 1303/2013 requires non-discriminatory and transparent selection criteria. Thus, the random circumstance of whether the registry court concerned will process the registration quickly or slowly is difficult to reconcile within just one Member State and even more so in a comparison between several Member States. Taking random events as the basis amounts to arbitrariness rather than justice in that respect.

3.      Recourse to the Accounting Directive

55.      The reference to the Accounting Directive in Article 2(18)(a) of the Block Exemption Regulation also confirms that the concept of subscribed share capital is to be construed by reference to the actual financial situation of an undertaking.

56.      In accounting law, the equity capital available to the undertaking is usually divided into different categories, which are usually shown on the liabilities side of a balance sheet. Since, in that respect also, the way in which an undertaking’s assets were disclosed on the balance sheet varied from Member State to Member State, the Accounting Directive now exists, which lays down requirements for the preparation of annual financial statements. According to recital 9 of that directive, ‘annual financial statements should be prepared on a prudent basis and should give a true and fair view of an undertaking’s assets and liabilities, financial position and profit or loss’. In accordance with Article 4(1) of the Accounting Directive, an undertaking’s balance sheet is an important component of the annual financial statements.

57.      Although the Accounting Directive does not use the term ‘subscribed share capital’ in Annex III thereto, which sets out the layout of a balance sheet, it does use the term ‘subscribed capital’ as the first sub-item of ‘Capital and reserves’ within ‘Capital, reserves and liabilities’. Annex III distinguishes, under point A (of both ‘Assets’ and ‘Capital, reserves and liabilities’), between the part of the subscribed capital called but not yet paid up and the subscribed capital already paid up.

58.      Those rules – which, as mentioned, are intended to ensure that the actual financial situation of an undertaking is represented – are separated not on the basis of the publication of the subscribed capital, but on the basis of whether or not the latter has already been paid up. This is understandable. The members’ resolution that decides upon an increase in the share capital is only a promise to inject further capital in order to improve the undertaking’s financial situation. The increased share capital is not actually available until it has been paid up.

59.      In summary, it must therefore be stated that accounting law determined by EU law distinguishes between the subscribed capital that has yet to be paid up and the capital that has already been paid up. It thus gives a true and fair view of the undertaking’s assets, liabilities, financial position and profit or loss. Publication in a register is irrelevant in that regard.

4.      Consequences

60.      Consequently, the concept of subscribed share capital is to be understood in isolation from the respective national company registration laws or national company laws. The concept could refer either to the promised increase in share capital (that is to say, the members’ resolution is the decisive factor) or to the payment of the promised increase in share capital (that is to say, the injection of the increase in capital is the decisive factor).

61.      The latter is preferable in view of the abovementioned purpose of differentiating between undertakings in difficulty and those not in difficulty in State aid law. The risk of the purpose of the aid not being achieved due to the financial difficulties of a company continues to exist after a mere promise of an increase in capital and is ruled out only when the promise has been fulfilled, that is to say, the increased capital is actually available to the company. As rightly emphasised by the Republic of Latvia, the members’ resolution to increase the capital leads ‘only’ to a civil-law obligation and is merely the first step in increasing the subscribed capital. This also explains the separate presentation in the balance sheet (see, in that regard, point 57 et seq. above).

62.      Therefore, in my view, the concept of subscribed share capital in Article 2(18)(a) of the Block Exemption Regulation refers to paid-up subscribed capital within the meaning of Annex III to the Accounting Directive.

63.      At the same time, such an interpretation ensures a balance between the interests of undertakings and providers of the aid. On the one hand, undertakings are not excluded from aid for certain projects by the length of a registration procedure in a State register, a circumstance over which they cannot have any influence. On the other hand, undertakings in difficulty cannot become eligible for aid solely by making a mere promise of a future increase in capital, but, rather, they can become eligible only when the increased capital is actually available to the company. Therefore, the decisive factor in the present case is whether the resolution passed at the general meeting of the members of 29 April was actually implemented before the expiry of the application deadline on 30 April. That assessment is a matter for the referring court alone.

C.      Proof of eligibility for aid (undertaking not in difficulty)

64.      How an undertaking must prove its eligibility for aid in such a way that national managing authorities can verify it is a separate question.

65.      In that respect, Latvian law provides that, in principle, the most recent publicly available final annual report will be checked (1), unless an interim activity report approved by a sworn auditor is submitted (2). Where the project applicant refers to publicly available, verifiable, information concerning an increase in share capital undertaken after the most recent final annual report, that information will be taken into account where it is accompanied by an interim activity report approved by a sworn auditor (3).

66.      The referring court ultimately now asks whether those documents are significant and can be required by the national managing authorities, because there was in any event no such interim report at the time of the application. It was submitted only subsequently in the course of the procedure.

67.      As follows from recital 14 of the Block Exemption Regulation, and as rightly stated by the Commission in its observations, the determination of eligibility under that regulation is intended to be easily administrable. The recital states the following: ‘In order to provide legal certainty, it is appropriate to establish clear criteria that do not require an assessment of all the particularities of the situation of an undertaking to determine whether an undertaking is considered to be in difficulty for the purposes of this Regulation’.

68.      That objective must also be taken into account in the application of Article 125 of Regulation No 1303/2013. According to that provision, the managing authority is to be responsible for managing the operational programme in accordance with the principle of sound financial management. That responsibility entails checking whether the conditions laid down in the Block Exemption Regulation are satisfied. (14) For that purpose, the managing authority may request evidence that makes it possible to determine, without having to conduct an assessment of all the particularities of the situation of an undertaking, whether more than half of its subscribed share capital has disappeared as a result of accumulated losses.

69.      As already stated above, an undertaking’s annual financial statements together with the balance sheets are certainly useful in that regard. There can therefore be no objection to the first criterion laid down in Latvian law.

70.      Since those documents are only ever prepared at the end of a financial year, but the financial situation can also improve during the year, interim reports prepared by an independent expert are also useful. There is therefore no reason to criticise the second criterion laid down in Latvian law either.

71.      Nor can there be any objection to the third criterion in respect of an administrable assessment of an undertaking’s financial situation. Where the candidate refers to publicly available information in order to prove an increase in share capital undertaken in the course of the year, that information is to be taken into account together with an interim report pertaining thereto.

72.      Read in the light of the responsibility of the national managing authorities which is provided for in Article 125 of Regulation No 1303/2013, all of the criteria referred to above implement the objective of the Block Exemption Regulation (exclusion of undertakings in difficulty, which are ineligible under that regulation). This is in conformity with EU law.

D.      Exclusion of the submission of documents after the expiry of the deadline

73.      By its third question, the referring court seeks to ascertain, in essence, whether the exclusion of documents and information submitted only after the application for aid has been made is compatible with Article 125(3)(a) of Regulation No 1303/2013. That provision requires that the managing authority draw up and, once approved, apply appropriate selection procedures and criteria that ensure the contribution of operations to the achievement of the specific objectives and results of the relevant priority and that are non-discriminatory and transparent.

74.      However, as rightly pointed out by the Commission in its observations, national law does not appear to exclude the subsequent submission of documents at all. On the one hand, Article 25 of the Law on the Management of the Funds also permits the conditional approval of a project. On the other hand, the regulations on the selection of project applications drawn up by the Agency proceed on the assumption that the decision as to whether a project applicant is an undertaking in difficulty is taken at the time of the decision as to whether to grant the aid. Therefore, the referring court must rule on the question as to whether Article 30 of the Law on the Management of the Funds, which states that further clarification of project applications is not permissible during the period between the submission of an application and the decision to grant or to refuse approval, is also applicable to the assessment of the applicant’s financial situation.

75.      If it is assumed that Article 30 of the Law on the Management of the Funds excludes the subsequent submission of such documents, the question arises as to whether EU law precludes this. The reason for this is because, in the present case, the non-consideration of the interim report subsequently submitted leads to the exclusion of the applicant from the group of persons eligible for aid, since it was to be regarded as an undertaking in difficulty until the capital increase was effected and it was thus not eligible for aid under the Block Exemption Regulation.

76.      However, the fact that certain aid is in principle permissible under EU law by virtue of the Block Exemption Regulation does not mean that the Member States are also required to disburse that aid. (15) The same applies to aid under the ERDF. As is apparent from recitals 3 and 4 of that regulation, aid can be granted for certain projects, but does not have to be. Therefore – and as rightly stated by the Commission – the Member States can make disbursement subject to certain further conditions, such as compliance with certain deadlines and formalities. This also includes the possibility not to take into account documents submitted subsequently.

77.      As resources from EU funds are not infinite, managing authorities must ultimately make a selection decision among several applicants seeking the same funds. As also rightly stated by the Republic of Latvia, the principle of equal treatment plays a very important role in that selection decision. Article 125(3)(a)(ii) of Regulation No 1303/2013 provides that the managing authority is to draw up appropriate selection procedures and criteria that are non-discriminatory and transparent.

78.      In view of the fact that applicants seeking aid under an EU fund are in competition with one another to a greater or lesser extent, the situation is entirely comparable to that of public procurement law. In that area too, the managing authority must make a selection and inevitably reject some of the applicants. It is possible that the competitive situation in that area is more intense and requires particularly strict equal treatment in the procedure. However, this does nothing to change the fact that the State allocates a limited resource (a contract or funding) to some applicants only, to the exclusion of others. Therefore, the selection procedure must be transparent and non-discriminatory in that area also, as provided for in Article 18(1) of Directive 2014/24. (16)

79.      As rightly argued by the Commission at the hearing, a cut-off date principle whereby only applications submitted before a certain date that applies equally to all are taken into consideration is transparent and non-discriminatory. The same applies to a procedural rule that prohibits applications already submitted from being subsequently supplemented after the expiry of the application deadline. This is because such a rule serves merely to safeguard the cut-off date principle and to reduce the administration burden associated with the selection decision to be taken. The decision need only take into account information submitted prior to the expiry of the deadline and does not have to set out further considerations after that point in time.

80.      This is in line with the principle of equal treatment. It prevents a situation where applications that are initially erroneous or incomplete are submitted within the deadline but are subsequently supplemented and corrected, with the result that the application deadline is de facto extended. This would disadvantage applicants who submitted error-free and complete applications in the first place. Provided that it was clearly apparent to the respective applicants which documents had to be submitted by the expiry of the application deadline and it was in principle also possible for the applicant to provide those documents by that deadline, there is no cause for concern with regard to not taking into account subsequently submitted documents, either in terms of the requirement of transparency or the requirement of equal treatment.

81.      In that respect, the Court has already ruled, in the context of the exclusion of a candidate in a public tendering procedure, that Directive 2004/18 does not preclude the exclusion of a tenderer on the ground that he or she has omitted to provide certain information in his or her tender. In particular, in so far as the contracting authority takes the view that that omission is not a purely formal irregularity, it cannot allow the tenderer subsequently to remedy the omission in any way after the expiry of the deadline for submitting bids. (17) Furthermore, Article 51 of Directive 2004/18, which provides that the contracting authority may invite operators to supplement or clarify the certificates and documents submitted pursuant to Articles 45 to 50 of the directive, cannot be interpreted as permitting that authority to accept any rectification of omissions which, as expressly provided for in the contract documentation, must result in the exclusion of the bid. (18)

82.      That thinking also applies – in a somewhat reduced form, in my opinion – to the selection decision among several applications for aid, at least in so far as – as in the present case – a procedure for the selection of projects was publicly announced. If it was clear from the procedural rules available to the applicant that an interim activity report approved by a sworn auditor was mandatory for an applicant deemed to be an undertaking in difficulty according to the old annual financial statements, the submission of such an interim report only after the expiry of the application deadline can (19) be considered irrelevant and the application can be rejected. The Court does not need to rule here on the question as to whether – as can be the case under public procurement law under certain circumstances (20) – it actually must be rejected. (21)

83.      Ultimately, however, the referring court must assess whether that condition was sufficiently transparent for the applicant. In that respect, it is true that the formulations in Annex 5 to the regulations on the selection of project applications do indicate that an interim report of the type referred to above was necessary in the applicant’s situation. However, since it is also stated in that same set of rules that the assessment based on that interim report is made when the decision on the granting of the aid is taken, this could also be understood to mean that it is not until then that those documents have to be presented.

VI.    Conclusion

84.      I therefore propose that the Court answer the questions referred for a preliminary ruling by the Administrativa rajona tiesa (District Administrative Court, Latvia) as follows:

(1)      The concept of subscribed capital in Article 2(18)(a) of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty must be given an autonomous interpretation in EU law. It encompasses paid-up subscribed capital within the meaning of Annex III to Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC. That is the case irrespective of whether an entry has already been made in the register in accordance with the national law in question and whether such an entry is necessary in order for an increase in capital to be effective.

(2)      In order to prove that that condition is met and to assess whether an undertaking is in difficulty within the meaning of Article 2(18)(a) of Regulation No 651/2014, the Member State may require the submission of the most recent publicly available current annual report or an interim activity report approved by a sworn auditor.

(3)      The exclusion of documents and information submitted only after the application for aid has been made is compatible with Article 125(3)(a) of Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 in so far as it is clearly apparent to all applicants that those documents must be submitted together with the application and cannot be submitted subsequently.

1      Original language: German.

2      Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (OJ 2014 L 187, p. 1).

3      Regulation (EU) No 1301/2013 of the European Parliament and of the Council of 17 December 2013 on the European Regional Development Fund and on specific provisions concerning the Investment for growth and jobs goal and repealing Regulation (EC) No 1080/2006 (OJ 2013 L 347, p. 289).

4      Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ 2013 L 347, p. 320).

5      Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (OJ 2017 L 169, p. 46).

6      Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ 2013 L 182, p. 19).

7      All Latvian laws are available in both their current and previous versions on the website https://likumi.lv/.

8      The regulations on the selection of project applications and annexes thereto are available at https://www.cfla.gov.lv/lv/es-fondi-2014-2020/izsludinatas-atlases/3-1-1-5-k-2 (consulted on 9 July 2020).

9      Judgments of 24 September 2020, NMI Technologietransfer (C-516/19, EU:C:2020:754, paragraph 44); of 5 February 2020, Staatssecretaris van Justitie en Veiligheid (Signing-on of seamen in the Port of Rotterdam) (C-341/18, EU:C:2020:76, paragraph 40 and the case-law cited); and of 15 October 2015, Axa Belgium (C-494/14, EU:C:2015:692, paragraph 21 and the case-law cited); see also Opinion of Advocate General Campos Sánchez-Bordona in Nerea (C-245/16, EU:C:2017:271, point 49 et seq.) concerning the concept relevant in the present case.

10      Opinion of Advocate General Campos Sánchez-Bordona in Nerea (C-245/16, EU:C:2017:271, point 48).

11      See, in greater detail in that regard, judgment of 6 July 2017, Nerea (C-245/16, EU:C:2017:521), and Opinion of Advocate General Campos Sánchez-Bordona in Nerea (C-245/16, EU:C:2017:271).

12      Regarding the ‘incentive effect’, see, in greater detail, judgment of 5 March 2019, Eesti Pagar (C-349/17, EU:C:2019:172, paragraph 55 et seq.).

13      See also, in that sense, Opinion of Advocate General Campos Sánchez-Bordona in Nerea (C-245/16, EU:C:2017:271, point 67).

14      See also judgment of 5 March 2019, Eesti Pagar (C-349/17, EU:C:2019:172, paragraph 70).

15      See orders of 6 May 2020, Blumar and Others (C-415/19 to C-417/19, EU:C:2020:360, paragraph 23), and of 30 May 2018, Yanchev (C-481/17, not published, EU:C:2018:352, paragraph 22); and also Opinion of Advocate General Campos Sánchez-Bordona in Nerea (C-245/16, EU:C:2017:271, point 74).

16      Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC (OJ 2014 L 94, p. 65).

17      Judgments of 2 June 2016, Pizzo (C-27/15, EU:C:2016:404, paragraph 49); of 6 November 2014, Cartiera dell’Adda and Cartiera di Cologno (C-42/13, EU:C:2014:2345, paragraph 45); and of 2 May 2019, Lavorgna (C-309/18, EU:C:2019:350, paragraph 28).

18      Judgment of 6 November 2014, Cartiera dell’Adda and Cartiera di Cologno (C-42/13, EU:C:2014:2345, paragraph 46), and, similarly, judgment of 2 June 2016, Pizzo (C-27/15, EU:C:2016:404, paragraph 50).

19      Similarly, judgment of 28 October 2020, INAIL (C-608/19, EU:C:2020:865, paragraph 46), according to which Member States are not obliged to allow an application for aid to be amended so that the applicant does not exceed certain ceilings.

20      Judgment of 6 November 2014, Cartiera dell’Adda and Cartiera di Cologno (C-42/13, EU:C:2014:2345, paragraphs 45 and 46), and, similarly, judgment of 2 June 2016, Pizzo (C-27/15, EU:C:2016:404, paragraphs 49 and 50); see also, however, judgment of 2 May 2019, Lavorgna (C-309/18, EU:C:2019:350, paragraph 31).

21      In any event, the judgment of 28 October 2020, INAIL (C-608/19, EU:C:2020:865, paragraph 42), militates in favour of Member States having the possibility to grant applicant undertakings the right to reduce the amount applied for in their applications for aid.

© European Union
The source of this judgment is the Europa web site. The information on this site is subject to a information found here: Important legal notice. This electronic version is not authentic and is subject to amendment.