Cancellation of State guarantees made more difficult - The Residex ruling of the ECJ requires national courts to look for more proportionate measures to remedy unlawful State aid

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Cancellation of State guarantees made more difficult

On 8 December 2011, the European Court of Justice (“ECJ”) gave its hotly anticipated ruling in the Residex case on guarantees under the State aid rules. The issue is whether EU law requires State guarantees to be cancelled when non-notified, i.e. unlawful, State aid is involved. This has caused much uncertainty for businesses under both EU and national law, because regularly it is only the borrower, and not the lender, who benefits from the unlawful State aid. However, the cancellation of a guarantee punishes both parties. This shifts the risk to the lender, and may create a disincentive for lenders to offer loans when State guarantees are involved, because the guarantee might be cancelled later on. The ECJ’s ruling does not clearly resolve the issue. It states that EU law neither requires nor precludes the cancellation of unlawful State guarantees and passes the responsibility to national courts to determine whether to cancel guarantees. However, according to the ruling, national courts are required to examine whether there are other less onerous procedural measures to restore the competitive situation which existed before the aid was granted. Whether such alternative measures exist will depend on the national law at stake. It remains to be seen how national courts will apply the ruling and whether in some circumstances they may come to the conclusion that they are required to cancel a State guarantee. Although the ruling does not provide legal certainty for lenders, it nevertheless gives important guidance to national courts.

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