The world's largest producer of lollipops, Chupa Chups, is facing an investigation to determine whether a EUR35m (US$43m) loan granted by Catalonia in 2003 violated European laws on state aid, the European Commission said on Thursday (26 January).

The loan was granted by the regional government to help Chupa Chups overcome a financial crisis caused by the company's overly ambitious expansion. Chupa Chups had opened production facilities internationally, and was then forced to close plants in France, China and Brazil and sell off some of its secondary brands. 

The Commission will determine whether the load constitutes state aid that distorts competition between member states.

Competition Commissioner Neelie Kroes said: "There are rules allowing governments to help firms in difficulties. These rules ensure that the help does in fact benefit the company concerned, and that taxpayers money is put to good use. I am opening an inquiry to establish the facts because I have some doubts that the rules have been complied with in this case."

If the investigation finds that the loan was equivalent to a government subsidy, it could ask for the terms of the loan to be adjusted to bring it in-line with market practice or for the loan to be repaid.