State aid case C-224/12 ING: Private investor test by default?

By Paul Adriaanse

On 3 April 2014 the CJEU confirmed the General Court’s judgment of 2 March 2012 in the State aid dispute between the European Commission and the Kingdom of the Netherlands, ING Groep NV and the Dutch Central Bank (De Nederlandsche Bank NV). All six grounds of appeal brought by the Commission in this case were dismissed by the Court. Most notable are the Court’s considerations  on the applicability of the private investor test. The Court confirmed that the Commission cannot evade its obligation to assess the economic rationality of a given measure in the light of the private investor test solely on the basis that the measure is connected to a measure which itself already constitutes State aid. Centrally, the decision raises the question as to why the Court sticks to the private investor test in the particular circumstances of the given case. Is the private investor test to be applied by default? Or are there good reasons for the applicability of this test, no matter what?

The dispute

In the course of the global financial crisis the Kingdom of the Netherlands adopted various measures in favour of the ING bank, which has its headquarters in the Netherlands. One of these measures allowed ING to increase its ‘Core Tier 1’ base capital by EUR 10 billion. The Netherlands and ING agreed on certain repayment terms. The aid measure was notified to the Commission on 22 October 2008, which shortly after, on 12 November 2008, found the measure compatible with the internal market on the basis of Article 107(3)(b) TFEU. The Commission approved the measure for a period of six months and would allow an extension in case the Netherlands submitted a restructuring plan in the course of that period. On 12 May 2009 the Netherlands submitted the restructuring plan for ING to the Commission. A period of discussion followed, at the end of which the Netherlands sent a revised restructuring plan to the Commission on 22 October 2009. This plan included, inter alia, an amendment to the repayment terms of the capital injection granted to ING, which the Commission in its decision considered to be additional State aid of approximately EUR 2 billion. On the basis of Article 107(3)b TFEU the Commission found that this additional aid too must be declared compatible with the internal market. The Netherlands and ING brought actions before the General Court against this decision, pleading, inter alia, that the Commission should have applied the private investor test to the amendment of the repayment terms, which, according to  them concerned a decision based on sound economics, before the Commission could decide that this measure concerned additional aid in the sense of Article 107(1) TFEU. The General Court upheld this plea, among others, and consequently, it annulled the relevant provisions of the contested decision. Before the Court, the Commission contested the General Court’s ruling.

The Court’s judgment

The Court ruled that the General Court did not err in law in holding

that the Commission could not evade its obligation to assess the economic rationality of the amendment to the repayment terms in the light of the private investor test solely on the ground that the capital injection subject to repayment itself already constitutes State aid. [par. 37]

Only after such an assessment is the Commission in a position to conclude whether an additional advantage within the meaning of Article 107(1) TFEU has been granted.

According to the Court, not the way in which the advantage was conferred, but

the classification of the intervention as a decision adopted by a shareholder of the undertaking in question’ is decisive for the applicability of the private investor test to a public intervention. [par. 31]

The Court referred to its judgment in Case C-124/10 P Commission v. EDF (cf. an earlier post on this blog by Sébastien Thomas, ‘The EDF judgment of the CJEU in case C-124/10 P: towards a public  investor test in EU State aid law?’), in which it upheld the applicability of the private investor test to instruments, which the Member State concerned had taken in its capacity as shareholder of the undertaking in question, notwithstanding the fiscal (i.e. public law) nature of the means used (par. 30). The Court went on to state that the

application of that case-law cannot be compromised merely because, in this case, what is at issue is the applicability of the private investor test to an amendment to the conditions for the redemption of securities acquired in return of State aid. [par. 34]

According to the Court,

any holder of securities, in whatever amount and of whatever nature, may wish to agree to renegotiate the conditions of their redemption. It is consequently, meaningful to compare the behaviour of the State in that regard with that of a hypothetical private investor in a comparable position. [par. 35]

And to conclude:

What is decisive in the context of that comparison is whether the amendment to the repayment terms of the capital injection has satisfied an economic rationality test, so that a private investor might be in a position to accept such an amendment, in particular by increasing the prospects of obtaining the repayment of that injection. [par. 36]


First of all, the procedure before the Court on the applicability of the private investor test appeared to be a matter of principle in the ING Groep case. Pending the appeal proceedings before the Court, the Commission already adopted a new decision in which it re-examined the amendment to the repayment terms of the capital injection in the light of the private investor test. As  can be read in the Court’s judgment (paras 20 and 21), the Commission came to the conclusion that a market economy private investor would not have agreed to those new terms. Although both the Kingdom of the Netherlands and ING brought actions against that new decision, pleading that the Commission had erred in its application of the private investor test, the parties withdrew their actions. The new decision, consequently, became final. So, the private investor test was eventually applied in the present case, even though the Commission came to exactly the same conclusion as in its first decision which did not include the private investor test.Nevertheless, the Commission continued the proceedings before the Court, upholding its plea

that it is appropriate to apply the private investor test to the behaviour of public authorities only were they are in a position comparable to that in which private operators may find themselves. [par. 27]

According to the Commission, a private investor could never find him/herself in a situation in which s/he had provided State aid to a bank, like ING in the present case.

As indicated above, the Commission did not win its principled plea. The Court upheld that the private investor test should be applied also when a measure is connected to a given State aid measure. More implicitly, one may also read in the Court’s decision that this test should be applied regardless whether the measure is taken in the context of the financial crisis.

Although the Court’s reasoning is presented in a logical and rather convincing way, the assumption that a private investor would be able to operate in a comparable position as the Netherlands did in the ING Groep case during the financial crisis, seems rather implausible. One could even say that the Netherlands – and other Member States vis-à-vis other troublesome banks – simply had to intervene in such a way during the crisis, especially because market operators were not able to react properly. For this reason alone, the Member States are not comparable to private investors in a market economy. One may wonder then what the sense of such a hypothetical comparison is, if the test seems to result in a negative outcome anyhow

Nonetheless, according to the Court, a comparison between the behaviour of the State with the behaviour of a hypothetical private investor would still be meaningful (par. 35).  It could of course be argued that, in the absence of better alternatives, the test at least provides a more or less objective tool to reveal an illegal advantage. Such an objective tool is required, since it would be difficult to accept if every State measure, even in times of crisis, automatically resulted in an advantage for the undertaking concerned.

In ‘normal’ times, the private investor test, however, still appears to be a distinctive and therefore truly effective tool in assessing whether an illegal advantage is contained in a given measure. Instead of hypothetical comparisons, the Commission could carry out its examination on the basis of realistic reports, e.g. prepared by independent experts, in order to come to various conclusions, either resulting in qualifying a measure as State aid or not, as three recent Commission decisions of 9 July 2014 on measures for Latvian airline airBaltic, the Slovenian airline Adria Airways, and Scandinavian Airlines (SAS) make clear.