European Commission creates incentives by amending the state aid framework

European Commission amends State aid framework to encourage private participation in recapitalisation measures and extends support measures to small enterprises

 

Background

On 19 March 2020 (amended on 3 April 2020 and 8 May 2020), the European Commission (“the Commission”) adopted the Temporary Framework for State aid measures (see also our news of 6 April 2020 and 16 March 2020 and 12 May 2020) which defines the scope of the Member States’ far-reaching emergency measures for businesses.

The framework defines the conditions under which the following support measures are compatible with European State aid law:

• direct grants, repayable advances and tax advantages up to a nominal value of €800,000;
• state guarantees;
• interest rate subsidies on loans;
• short-term export credit insurance;
• support for coronavirus-related R&E, products and facilities;
• deferral of taxes and/or social security contributions,
• wage subsidies for employees,
• recapitalisation measures for non-financial enterprises and
• subordinated debt.

On 29 June 2020, the Commission adopted the third extension to the Temporary Framework to strengthen support for small and micro-enterprises and start-ups and to attract private investment.

Incentive for private investors to participate in recapitalisation measures

The amendment to the Framework will allow companies in which the State participates or wishes to participate to raise capital from their shareholders in the same way as private companies. If a State wishes to grant recapitalisation aid and the participation of private investors in the capital increase represents at least 30% of the new capital injected and on the same conditions as the State’s participation, the prohibition on the acquisition of other undertakings in the recipient’s business sector and the upper limit on the remuneration of the management will be limited to three years. Until now, the prohibition applied for the full duration of the State’s participation if it was 75% or more.

In addition, the ban on dividends will be lifted for the holders of the new shares and for the holders of the existing shares, provided that the combined shareholdings of the holders of the existing shares have been diluted to less than 10%, otherwise the ban will apply for a period of three years.

Supporting small businesses and start-ups

With the amendment of the Temporary Framework, Member States can now grant State support to small and micro-enterprises under the framework, even if they were in financial difficulty on 31 December 2019. Other companies already in difficulty before 31 December 2019 cannot generally be granted any aid under the Temporary Framework. Small and micro-enterprises are enterprises with fewer than 50 employees and an annual turnover and/or annual balance sheet total of less than €10 million.