COVID-19: Temporary State Aid Framework extended again

New extension of the Temporary COVID-19 State Aid Framework

The European Commission adopted on 19 March 2020 a temporary framework enabling Member States to initiate state aid measures in the context of the COVID-19 outbreak. Read our previous news article about the temporary framework. These framework provisions were extended on 3 April 2020. Read our previous newsletter about the first extension of the framework provisions.

On 8 May, the European Commission extended these framework provisions, adding two new tools to enable Member States to support businesses in the Member States. The tools include (i) recapitalisation aid and (ii) aid in the form of subordinated debt. 

Recapitalisation aid

The recapitalisation measure allows Members States to acquire shares in companies that have been hit financially by the COVID-19 crisis. This can be particularly relevant for companies that, in the absence of aid, would be at risk of "hostile" takeovers by foreign entities (including non-EU entities).

However, the aid is granted subject to the following conditions:

1. The aid must be necessary, appropriate and limited to enabling the viability of the beneficiary company. It means that aid in the form of recapitalisation will only be granted if no other appropriate solution is available. It must also be in the Member States' common interest to intervene, for example to avoid social hardship and market failure due to significant loss of employment, the exit of an innovative or a systemically important company, or the risk of disruption to an important service. Furthermore, the aid should not go beyond restoring the beneficiary company’s capital structure before the COVID-19 outbreak. 
2. The Member State must be remunerated for the aid, and the remuneration mechanisms must incentivise the beneficiaries or their owners to buy back the shares acquired by the State (to ensure the temporary nature of the intervention).
3. The beneficiary and the Member State are required to adopt an "exit" strategy. If the stake acquired has not been reduced to less than 15 % of the listed company’s equity six years after the granting of the aid (seven years in the case of non-listed companies), a restructuring plan must be notified to the Commission.
4. Beneficiary companies are not allowed to pay dividends or buy back shares, until the Member State has exited in full. Also, the remuneration of the management will be subject to strict limitations and bonus payments will be banned, until 75 % of the recapitalisation is redeemed.
5. Beneficiary companies may not use the aid to support subsidiaries that were in economic difficulties before 31 December 2019. Moreover, beneficiaries, other than SMEs, are prevented from acquiring a stake of more than 10 % in competitors or other operators in the same line of business, until 75 % of the recapitalisation has been redeemed.

Member States must publish details on the amount granted and the identity of the beneficiary company within three months of the recapitalisation. Beneficiary companies, other than SMEs, must also publish details on the use of the aid received.

Aid in the form of subordinated debt

The new extended Temporary COVID-19 State Aid Framework also introduces the possibility for Member States to offer support by providing subordinated debt. Thus, a Member State may grant a loan to a company facing financial difficulties on the condition that the loan is subordinated to ordinary creditors in case of bankruptcy. This type of aid also makes it easier for the company to raise (other) loans, since other lenders will not have to take the debt into account in case of bankruptcy.

This measure supplements the existing possibilities for obtaining aid in the form of loans as described in paragraph 3.3 of the State Aid Framework.

Read the European Commission’s press release.

Read the amendment.