The European Commission expands the temporary framework and changes state aid rules

The European Commission has adopted yet another amendment to extend the State aid Temporary Framework that was introduced in the context of the COVID-19 outbreak. The Commission has also prolonged the duration of certain State aid rules that would have expired at the end of 2020 and made certain targeted adjustments to the existing rules to mitigate the impact of the COVID-19 outbreak.

The State aid Temporary 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. The Framework was intended to enable Member States to support companies facing financial difficulties as a result of the coronavirus outbreak.

The Framework was expanded on 3 April 2020 with the introduction of further measures.

On 8 May 2020, the Commission decided to expand the Framework again, adding two new tools.

On 2 July 2020, the Commission adopted a third expansion of the State aid Temporary Framework with a view to strengthening the possibility for Member States to support micro, small and start-up companies. These types of companies have been particularly affected by the liquidity shortage caused by COVID-19 and have therefore had greater difficulties getting access to funding than mid-sized and large companies. The Commission has also adapted the conditions for recapitalisation measures in those cases where private investors contribute to the capital increase of companies together with the State.

Support to micro, small, and start-up companies

Micro and small companies are companies with less than 50 employees and less than EUR 10 million of annual turnover and/or annual balance sheet total. Under the existing Framework, micro and small companies qualify for aid only if they were not already in financial difficulty. However, the new amendment enables Member States to provide public support to micro and small companies even if they were already in financial difficulty before 31 December 2019. This will apply, unless the companies are already in insolvency proceedings, have received rescue aid that has not been repaid, or are subject to a restructuring plan under the State aid rules.

Incentive for private investors to participate in COVID-19-related recapitalisation measures

The Commission has also adapted the conditions for recapitalisation measures under the Temporary Framework. The new rules may be applied in those cases where private investors contribute to the capital increase of companies together with the State. If the State grants recapitalisation aid, and private investors contribute significantly to the capital increase - in principle at least 30 % of the capital injected - on the same terms as the State, then the acquisition ban and the cap on management remuneration will be limited to three years. Furthermore, the dividend ban is lifted for the holders of the new shares as well as for existing shareholders, provided that the existing shareholders are altogether diluted to below 10% in the company.

Prolongation and adjustment of certain other State aid rules

The Commission has prolonged the duration of certain State aid rules which would otherwise have expired at the end of 2020, including the General Block Exemption Regulation ("GBER"), the de minimis Regulation and the guidelines on State aid to companies in financial difficulty. These will be prolonged by three years until 2023.

Furthermore, the Commission has prolonged the duration of certain State aid guidelines that would otherwise have expired at the end of 2020 by one year. The prolongations are intended to provide predictability and legal certainty, whilst preparing for a possible future update of the State aid rules in the context of the Commission’s ongoing "fitness check" and evaluation of the rules. The guidelines that are prolonged include i.a. the guidelines on regional State aid for 2014-2020, the guidelines on State aid for environmental protection and energy, and the guidelines on State aid to promote risk finance investments.

In addition to the prolongation, the Commission has also made some targeted adjustments to certain rules and guidelines to mitigate the economic and financial impact of the pandemic. The General Block Exemption Regulation, the guidelines on regional State aid for 2014-2020, the guidelines on State aid for environmental protection and energy, and some other guidelines will therefore be changed to enable Member States to support companies which are in financial difficulties as a result of the COVID-19 outbreak and which did not qualify for support under the existing rules. In the past, companies receiving aid under the General Block Exemption often had to undertake not to cut jobs subsequently. The Commission acknowledges that, due to the current situation, it may not be possible for companies to avoid job losses. The Commission has therefore introduced certain changes to the existing rules to ensure that companies which have to incur job losses due to the difficult financial situation will not be considered to have breached the commitments previously undertaken as a condition for receiving the aid.

Read the Commission's press release.