Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.2.3:3.3.2.3 Private vendor principle

Public funding of failing banks in the European Union (LBF vol. 19) 2020/3.3.2.3

3.3.2.3 Private vendor principle

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Finally, the EU Courts have developed the ‘private vendor principle’ to assess whether a sale carried out by a public body involves State aid, considering whether a private vendor under normal market conditions, could have obtained the same or a better price.1 The scope of the private vendor principle has been further elaborated in the judgment of the ECJ that was rendered on 24 October 2013 in Land Burgenland v Commission.2

This case concerned the decision from the Commission that Austria had granted incompatible aid in the process of the privatisation of Bank Burgenland to its buyer GRAWE. GRAWE was one of the two bidders in the public tender. It made a lower bid than the other bidder, but Bank Burgenland was nonetheless sold to GRAWE. The Commission examined whether the seller of Bank Burgenland, which was Land Burgenland, had behaved like a seller operating in a market economy. The Commission considered that a private vendor might accept a lower bid, in case the sale to the highest bidder is not realisable or consideration of factors other than the price is justified. In this case however, the Commission found no justification for excluding the bidder with the higher bid as a buyer. The ECJ recalled in its judgment in relation to this case that 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 – are to be taken into account. In this case, the choice of Austria to sell Bank Burgenland to GRAWE was based on the expectation that a sale to GRAWE would less likely result in reliance on a legal guarantee provided by Austria in the case of insolvency. This was however an obligation of Austria that was linked to its situation as a public authority, which therefore should not be taken into account in applying the private vendor principle. In addition, if a Member State relies on a test, such as the private vendor test, it must, where there is doubt, establish unequivocally and on the basis of objective and verifiable evidence that the measure implemented is to be ascribed to the State acting as shareholder.3 Land Burgenland failed in providing this evidence. 4

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