On 5 July 2021, the European Commission cleared new amendments to two existing Flemish aid schemes that were approved in 2020 under sections 3.1 and 3.3 of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (“Temporary Framework”) in the form of subordinated loans. The European Commission declared the amended aid schemes compatible with the internal market as they are necessary, appropriate and proportionate to remedy a serious disturbance in the economy according to Article 107(3)(b) TFEU.
In essence, under the revised aid schemes the maximum amount of aid that can be granted for eligible beneficiaries will be increased and the loan period extended from three to ten years for aid granted under section 3.1 of the Temporary Framework (“limited amounts of aid”). With the Temporary Framework now extended up to 31 December 2021, the European Commission has increased the threshold of such aid from EUR 800,000 to EUR 1,800,000.
For aid granted under section 3.3 of the Temporary Framework (“aid in the form of subsidised interest rates for loans”), a maximum duration of eight years has been provided. Allowing aid under the Temporary Framework for start-ups in particular is unusual given the losses they typically make when starting their business, which on the face of it does not appear to meet the condition that, in order to qualify for support, the business must be an “undertaking in difficulty” since the global health crisis began. In this regard, the Temporary Framework fortunately provides that this obligation does not apply to micro- and small enterprises.
Extending both aid schemes is however not surprising, as start-ups, scale-ups and SMEs are, in their own respective ways, particularly vulnerable subjects active in the (Flemish) economy as they continue to suffer from the economic disruptions resulting from government measures to combat the COVID-19 pandemic. Obviously, undertakings operating on a smaller scale and without deep pockets will face troubled waters until the pandemic’s effects recede and, presumably, still after it has done so.
Looking ahead, it is likely that the business models of potential beneficiaries of said aid schemes have already been partially overhauled because of the way the pandemic has accelerated digitalisation and affected the economy in general. Hence, although many start-ups, scale-ups and SMEs are already to some extent digitalised, they will experience difficulties if their services or products require an element of physical presence. It is therefore crucial that (new) businesses ensure that they can operate in an increasingly digitalised economy.
Moreover, start-ups that are at an embryonic stage are sometimes artificially kept in business by aid schemes such as those described here since venture capital investors, in times of crisis and uncertainty, get cold feet. However, we should not forget that start-ups, scale-ups and SMEs are important catalysts of innovation and job growth, which deserve State aid in tough times.
Indeed, it should be remembered that, since the start of the crisis, many undertakings have benefited from various support measures from their respective States on the basis of the Temporary Framework: (i) recapitalisation for Deutsche Lufthansa, Brussels Airlines, airBaltic and Finnair; (ii) compensation for damage caused by COVID-19 for Swedish airlines, French airlines and Condor; and (iii) rescue aid for the TAP and SATA airlines. Aid granted to undertakings must, in all cases, be notified in advance to the European Commission in order to obtain formal authorisation.
In this respect, we refer to our CMS Expert Guide to State Aid During Coronavirus for more information on the eligibility of such State aid.