Bulgaria’s Forest-Land Swaps: A Case Study in Failed State Aid Recovery

Introduction

One of the most important aspects of free and undistorted markets in the European Union (“EU”) is the recovery of unlawful and incompatible State aid. Recovery ensures that any distortion of competition is corrected retroactively by re-establishing, as far as possible, the situation that existed before the unlawful aid was granted.¹ This principle is anchored in Article 108(3) of the Treaty on the Functioning of the European Union (“TFEU”), which obliges Member States to notify the European Commission (the “Commission”) of any planned State aid measures and to await the outcome of the Commission’s investigation before implementing them. Where the Commission concludes that a measure constitutes incompatible State aid, it is empowered to require the Member State concerned to recover the aid from the beneficiary.²

In practice, some Member States have attempted to argue that recovery is absolutely impossible. However, the Court of Justice of the European Union (the “CJEU” or the “Court”) consistently maintains that “absolute impossibility” is a very narrow exception.³ A recent example is the case European Commission v. Republic of Bulgaria (Case C-632/23), which was decided on 13 November 2025, where the Commission brought infringement proceedings seeking a declaration that Bulgaria had failed to take all necessary measures to comply with Commission Decision 2015/456 (the “Commission Decision”), which required Bulgaria to recover unlawful State aid granted through forest-land swap transactions.

Facts of the Case

In 1947, under a communist government, Bulgaria nationalised large areas of forest land, ending a period of mixed ownership. After the end of communist rule in 1989, Bulgaria began a gradual
process of restoring expropriated property to former private owners. One mechanism established to facilitate this was an amendment to the Law on Forests in 2002, which allowed owners of formerly private forest land to swap their land for state-owned forest land. The valuation of the exchanged plots followed criteria set by Bulgarian legislation rather than actual market value. Forest-land swaps were eventually banned in 2009.

In 2008, the Commission received a complaint alleging that these forest-land swaps constituted unlawful State aid. An investigation was opened in 2011 focusing on transactions conducted between 2007 and 2009. The Commission ultimately found that the swaps provided beneficiaries with an undue economic advantage because the valuations used did not reflect genuine market prices. As a result, the Commission concluded that unlawful and incompatible State aid had been granted and ordered Bulgaria to recover the advantage from all beneficiaries.

In order to comply with the Decision, Bulgaria appointed Agrolesproekt, an expert evaluator, to determine the market value of the relevant plots. The Commission initially accepted this choice but later discovered that Agrolesproekt was a public undertaking controlled by the Ministry of Agriculture, Food and Forestry, the same authority responsible for the aid scheme. This meant that the expert lacked the required independence. Consequently, the Commission requested Bulgaria to re-evaluate all valuation reports and to select a genuinely independent expert.

In addition to the issues surrounding the valuation process, several domestic legal actions were brought before Bulgarian courts. These proceedings halted or delayed the practical implementation of recovery. As time passed and recovery remained incomplete, the Commission concluded that Bulgaria had failed to fulfil its obligations under the Commission Decision and under the TFEU, prompting it to bring an action before the CJEU.

Complaints brought by the European Commission

The Commission advanced three complaints, summarised as follows:

1. Bulgaria failed to comply with the Commission Decision within the prescribed period;
2. Only a very small portion of the unlawful aid had been recovered; and
3. No circumstances existed that could justify absolute impossibility of recovery.

The CJEU later held that the second complaint was not necessary for determining the infringement, as the first and third complaints sufficiently captured the alleged failures.

Bulgaria’s Defences

With respect to the first complaint, Bulgaria argued that it had taken substantial steps to comply with the Commission Decision. It claimed it was not passive and had genuinely attempted to
implement the recovery process. The government pointed to the scale and administrative complexity of the forest-land swaps, the novelty of the recovery exercise, and the challenges in identifying competent experts in forest valuations. It also argued that partial recovery had taken place and that several factors, such as domestic litigation, were outside its control and contributed to the delays.

Regarding the third complaint, Bulgaria argued that recovery was practically impossible due to the nature of the forest-land swap transactions. It claimed that it was extremely difficult to obtain comparable market data from the period in question, making accurate valuations nearly impossible. Bulgaria also referred to national court decisions applying strict domestic valuation rules, which, it argued, limited its ability to calculate the aid amounts in a way that aligned with the Commission’s expectations.

Findings by the CJEU

1. First Complaint: Failure to Recover Aid Within the Deadline

The CJEU noted that Bulgaria and the Commission had already agreed on a specific list of swap transactions deemed sufficiently small to fall under the de minimis threshold, and therefore
excluded from recovery. For all other transactions, however, Bulgaria had failed to ensure effective recovery. The Court rejected Bulgaria’s argument that the Commission Decision itself was unlawful, noting that Bulgaria should have brought an annulment action under Article 263 TFEU if it wished to contest the Decision’s validity, something it had never done.

The Court also clarified that recovery is an obligation of result, not merely an obligation of means. Administrative steps such as initiating tenders or commissioning experts do not amount to compliance unless they lead to recovery within the required period. While recognising that the process was complex, the Court concluded that Bulgaria had not met its obligations.

Therefore, the CJEU held that Bulgaria failed to recover the unlawful aid within the prescribed timeframe and therefore upheld the Commission’s first complaint.

2. Third Complaint: No Absolute Impossibility

The Court emphasised that difficulties in collecting market data or identifying comparable transactions constitute practical difficulties, not legal impossibilities. The threshold for establishing
absolute impossibility is very high and was not met. The Court also stressed the supremacy of EU law. If applying national rules, such as mandatory valuation criteria as established by the national court of Bulgaria, would result in undervaluation and thereby obstruct recovery, national courts must disapply those rules. Domestic judicial obstacles cannot justify failure to implement EU law obligations.

Thus, the CJEU also upheld the third complaint. It found that the Commission had provided sufficient guidance to allow Bulgaria to determine the aid amounts and that the Commission was not required to set specific market values itself.

Outcome of the Judgment

The CJEU upheld the Commission’s action in its entirety. It found that Bulgaria failed to comply with the Commission Decision and with its obligations under the TFEU. As a result, Bulgaria was ordered to pay all costs.

¹ Bucura C Mihaescu-Evans, ‘Recovery of Unlawful Aid and the Role of National Courts’ in Herwig C.H. Hofmann and Claire Micheau (eds) State Aid Law of the European Union (1st edn Oxford University Press 2016).

² European Commission, ‘Recovery of unlawful aid’ <https://competition-policy.ec.europa.eu/state-aid/procedures/recovery-unlawful-aid_en> accessed 1 December 2025.

³ See for example Case I: C-704/19 European Commission v Spain [2021] OJ C 263, which concerned unlawful State aid granted by the autonomous region of Castilla- La Mancha to support the development of digital television in rural areas.

Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published in ‘The Malta Independent’ on 03/12/2025.