“Covid-19 outbreak – The European Commission adopts various measures to effectively support businesses and facilitate the granting of state aid by Member States”

Since the worsening of the sanitary crisis induced by the Covid-19 outbreak, Member States have announced numerous measures to support businesses across the European Union (the “EU”).

In order to enable Member States to quickly and effectively support European companies, the European Commission (the “Commission“) has announced, and urgently adopted, various measures to facilitate those support schemes in accordance with European rules provided in Articles 107 and 108 of the Treaty on the Functioning of the European Union (“TFEU“) which govern the control of state aids by the Commission.

The measures announced by the Commission are based, on the one hand, on the various flexible instruments already available to Member States under the current regulation (I) and, on the other hand, on a temporary framework adopted by the Commission on 19 March under Article 107(3)(b) of the TFEU, which provides that “aid to make good the damage caused by natural disasters or exceptional occurrences ” are considered compatible with the internal market (II).

I – Using the flexibility provided by current European rules

In its latest announcements, the Commission has, first of all, encouraged Member States to make full use of support measures and schemes which do not need to be notified or authorised by the Commission. This includes:

• Aid that does not qualify as state aid within the meaning of EU law

The Commission recalled that all support measures do not constitute state aids subject to its control. This is, for example, the case of support measures such as wage subsidies, direct financial support to consumers, suspension of payments of corporate and value added taxes or social contributions, provided that these support measures are not targeted at a either a specific company or specific economic sector.

• Aid falling under existing state aid schemes

The Commission has also urged Member States to make full use of existing state aid schemes, which are exempt from any notification requirement. These aid schemes include:

• Aid in the form of loans or loan guarantees in accordance with the Commission’s Rescue and Restructuring Guidelines. The Commission has also specified that such guarantees may exceptionally be granted to companies which are not (yet) in difficulty as well as to companies which have already received such support in the past ten years (derogation from the “one time, last time” principle); and
• Dedicated aid schemes for SMEs to cover their acute liquidity needs. Nine aid schemes already exist, including in France. Member States may also increase the budget of those existing support schemes by up to 20% without having to notify the Commission. However, any increase beyond 20% will have to be notified to the Commission, which will review it under the simplified review procedure.

Moreover, in a decision dated 12 March, the Commission considered that the Covid-19 crisis qualifies as a case of “exceptional occurrences” within the meaning of Article 107(2)(b) of the TFEU, which declares compatible with the internal market “aid to make good the damage caused by natural disasters or exceptional occurrences”.

Beyond its legal basis, this decision (available here) is interesting because of the timeframe in which it was issued. The Commission, indeed, authorised, in less than 24 hours, the aid measures notified by Denmark which aimed at compensating organisers of events cancelled or postponed because of the Covid-19 epidemic.

The Commission has undertaken to examine all notified aid measures within a similar timeframe.

However, the Commission made it clear that, while this mechanism would ensure the validity of the support measures taken in the context of the current health crisis, it would not exempt them from the notification obligation. This will allow the Commission to apply a strict proportionality check to ensure that each support measures is solely intended to compensate for damages or losses directly linked to the health crisis. If this is established, the aid scheme will automatically be declared compatible.

The Commission has already published online a state aid notification model (available here) under Article 107(2)(b) of the TFEU. The information that has to be provided is much more succinct than what is normally required in so-called “standard” procedures. This includes:

• A description of the exceptional occurrence and the official reaction of the Member State ;
• A general description of the aid scheme;
• A description of the damage covered;
• A description of the aid measures; and

Commitments to ensure that the aid measures will not go beyond what is necessary to compensate for the direct effects of the COVID-19 epidemic.

II – Adoption of a specific temporary framework to support the European economy in the context of the health crisis

In addition to the existing legal tools referred to above, the Commission adopted on 19 March a new temporary framework applicable throughout the EU on the basis of Article 107 (3) (b) TFEU, which provides that “aid to remedy a serious disturbance in the economy of a Member State” can be compatible with the internal market. Aid granted on that legal basis is not exempted from a notification and must be authorized by the Commission.

This new temporary framework (available here), which sets out the compatibility conditions the Commission will apply to the aid granted by Member States under Article 107(3)(b) TFEU, enables Member States:

• To set up schemes aimed at granting, until 31 December 2020, individual aids not exceeding €800,000, in order to address companies’ urgent liquidity needs. The aid may be granted in the form of direct grants, repayable advances or a tax advantages. Specific conditions apply to the agricultural and fishery sectors (for example, in terms of aid amount);
• grant, until 31 December 2020, aid in the form of public guarantees on loans to ensure access to liquidity to undertakings facing a sudden shortage. Those bank loans can be complemented by premiums for new guarantees in favor of both SMEs and non-SMEs. Limits are foreseen on the maximum loan amount, depending on the maturity and duration of the loan (which cannot exceed 6 years) as well as the companies’ operating needs and situation (i.e., wage bills, liquidity needs or turnover achieved in 2019). Those guarantees may relate to both investment loans and working capital loans;
• grant, until 31 December 2020, aid in the form of subsidised interest rates for loans (it will, however, not be possible for the same underlying loan principal to cumulate this aid with those mentioned above). These loans, which duration cannot exceed 6 years, may be granted at reduced interest rates, which are at least equal to the base rate applicable on 1 January 2020 plus the credit risk margin corresponding to the risk profile of the beneficiary, with different rates for SMEs and non-SMEs. The base rate shall be fixed in order to provide more certainty on financing conditions in this volatile context. As with subsidised guarantees, there are some limits on the maximum loan amount, which are based on the maturity of the loan and on the companies’ operating needs and situation (i.e., wage bills, liquidity needs or turnover achieved in 2019). Loans may also relate to both investment and working capital needs; and
• grant aid in the form of guarantees and loans channeled through credit institutions or other financial. The Temporary Framework makes clear that such aid is considered as direct aid to the banks’ customers, not to the banks themselves. The framework also provides guidance on how to minimize any indirect aid in favor of banks and to ensure that all of those measures advantages are, to the largest extent possible, passed on to final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates. The temporary framework also introduces additional flexibility regarding the rules on marketable risks and short-term export credit insurance.

This new framework will apply to all support measures notified as from 19 March 2020 (as well as to potentially non-notified aid already granted after 1^st February 2020) and at the latest until 31 December 2020.

Member States should inform the Commission of their intention to notify plans to introduce any such support measures described above as early and comprehensively as possible to ensure that they are dealt with as effectively as possible. It can be expected that, in order to avoid too many individual notifications, many States will choose to rather notify an aid scheme meeting the criteria mentioned above. This would allow Member States, once the scheme approved by the Commission, to grant individual aid without the need for further notifications.

We are at your disposal to answer all your questions regarding the various measures adopted in France and at the European level, to mitigate the effects of the health crisis on your company.