State aid | How can governments support businesses in the midst of the coronavirus crisis? Part II – European Commission Temporary Framework

Written on 20 Mar 2020

As the coronavirus causes the risk of significant economic losses for companies and for citizens across the Union, the European Commission has announced a Temporary Framework for State aid measures, to help affected businesses

What is the Temporary Framework for State aid measures?

As anticipated in our earlier note on State aid for businesses impacted by the coronavirus outbreak, the Commission has now published its Temporary Framework for State aid measures ("Temporary Framework").

This extraordinary framework enables Member States to provide direct assistance to companies during the coronavirus outbreak. The Temporary Framework is based on Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU), which enables the Commission to approve national support measures "to remedy a serious disturbance to the economy of a Member State". National aid measures that comply with the Temporary Framework will, in principle, be approved by the Commission. Before being adopted, the draft Temporary Framework was circulated to the Member States and their feedback has led to a number of changes from the initial proposal.

What are Member States enabled to do?

The Temporary Framework enables Member States (which for these purposes includes the UK) to make direct grants and selective tax advantages and to issue State guarantees to support bank loans taken out by companies. It permits subsidised interest rates on public and private loans to companies, whether relating to investment or working capital needs.

Member States will also be able to channel aid through the banking sector, with such aid being regarded as direct aid to the banks' customers, rather than to the banks themselves. The Temporary Framework gives guidance on how to minimise any undue residual aid to banks and ensure the funding is passed on, to the largest extent possible, to the final beneficiaries. This may be in the form of higher volumes of financing, lower collateral requirements, lower guarantee premiums, lower interest rates, or in relation to riskier portfolios. Aid to banks themselves would need to be approved in the normal course.

What are the requirements for your company to qualify for aid under the Temporary Framework?

Direct grants, repayable advances and tax advantages

Member States will be able to provide targeted solutions to companies facing sudden shortages due to the coronavirus outbreak in the form of direct grants, repayable advances and tax advantages, if all of the following conditions are met:

  • the aid does not exceed EUR 800 000 per undertaking in the form of direct grants repayable advances, tax or payments advantages (all figures must be gross); and
  • the aid is granted on the basis of a scheme with an estimated budget; and
  • the undertaking was not in difficulty on 31 December 2019 but entered into difficulty thereafter as a result of the coronavirus outbreak; and
  • the aid is granted no later than 31 December 2020; and
  • certain additional specific conditions apply for the agriculture, fisheries and aquaculture sectors, which are specified in the document.

Public guarantees and subsidised interest rates for loans

Another way Member States will be able to help undertakings have access to liquidity is by providing public guarantees on loans for a limited period and amount, as well as by granting subsidised interest rates for loans for a limited period and amount. All of the conditions below must be met:

  • the Commission specifies minimum premiums and credit risk margins in the framework; and
  • for loans which will mature after 31 December 2020, the amount of the loan does not exceed:
    • double the annual wage bill of the beneficiary (including social security and similar charges) for 2019, or for the last year available; or
    • 25% of total turnover of the beneficiary in 2019; or
    • in specific cases based on self-certification the amount may be increased to cover liquidity needs; and
  • for loans with a maturity before 31 December 2020, the amount of the loan may be higher with appropriate justification.
  • in addition:
    • for public guarantees, the duration of the guarantee is limited to maximum six years and the guarantee must not exceed 90% of the loan principal or 35% in the case of a "first-loss" guarantee; or
    • for subsidised interest rates for loans, the loan contracts are signed by 31 December 2020 at the latest and are limited to maximum six years; and
  • the public guarantee or loan can be granted to an undertaking that was not in difficulty on 31 December 2019 but entered in difficulty thereafter because of the coronavirus outbreak.

Export credit insurance

Finally, the Temporary Framework foresees that, due to the current outbreak in certain countries, marketable risks cover under export-credit insurance could be temporarily unavailable. Member States may demonstrate the need for support in this area by providing sufficient evidence of the unavailability of the cover, for example:

  • a large well-known international private export credit insurer and a national credit insurer produce evidence of the unavailability of such cover; or
  • at least four well-established exporters in the Member State produce evidence of refusal of cover from insurers for specific operations.

Are these all the possible measures that can be taken to help your company cope with the challenges posed by the coronavirus outbreak?

In addition to the Temporary Framework, Member States can also put measures in place outside the scope of EU State aid concerning wage subsidies, suspension of VAT payments, and suspension of social welfare contributions, amongst other things. Member States can also design support measures in line with the General Block Exemption Regulation without the involvement of the Commission.

Furthermore, Member States can notify aid schemes to the Commission to meet acute liquidity needs and support undertakings facing financial difficulties, also due to or aggravated by the coronavirus outbreak.

Finally, Member States can also compensate undertakings in sectors that have been particularly severely hit (such as health, tourism, culture, retail and transport) or organisers of cancelled events for loss suffered due to the outbreak. Member States can notify such compensation measures on an individual basis and the Commission will assess them separately.

Our lawyers across our jurisdictions are keeping up to date on the latest guidance and advice on coronavirus issues and the impact this has on the market. Please contact your usual Osborne Clarke contact for further advice on managing the impact of coronavirus on a global basis, or one of our specialist lawyers listed below.