The European Commission prolongs the State aid Temporary Framework until 30 June 2022

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The European Commission has decided to prolong the State aid Temporary Framework until 30 June 2022. The amendment, aside from the temporal extension, aims to increase the thresholds of certain categories of aid and provides for phasing out aid in the form of investment and solvency support measures that can be implemented until 31 December 2022 and 31 December 2023 respectively.

Introduction

In June 2021, the Commission organised a public consultation on the future of the Temporary Framework on State aid measures to support the economy in the current COVID-19 outbreak (“Temporary Framework”) beyond the ponderous impact the pandemic has had on the EU economy. Despite the lack of response, the Commission submitted in September 2021 to the Member States a draft amendment aiming at extending the duration of the Temporary Framework and providing for the phasing out of public support measures.

On 18 November 2021, the European Commission officially extended the State aid Temporary Framework. Certain modifications were made to the draft following the Member States' comments, notably an increase of the ceiling for the aid of limited amount.

The Temporary Framework first adopted in March 2020 is based on Article 107(3)(b) TFEU to remedy a serious disturbance across the EU economy. We would therefore like to recall that only companies that encountered difficulties after 31 December 2019 (except for micro and small companies) are eligible for aid under the Temporary Framework to ensure that it is not used for public support unrelated to the COVID-19 outbreak.

What does the sixth amendment to the Temporary Framework provide for?

General

The sixth amendment of the Temporary Framework will now prolong application to at least 30 June 2022 for all the categories of aid it covers and includes new measures enabling economic investment and post-pandemic solvency support. The ambition of said measures is to gradually dispose of the more sizeable State aid already injected into the economy that will hopefully by now be on the path to steady recovery.

Adaptations to aid ceilings for certain categories of aid

The thresholds of two categories of aid have been increased:

  • For the scheme of limited amounts of aid, the cap goes from EUR 1.8 million per company per country up to EUR 2.3 million between March 2020 and 30 June 2022;

  • Aid in the form of support for uncovered fixed costs must not exceed EUR 12 million (whereas previously, EUR 10 million).

Unfortunately, despite the protracted duration of the pandemic, the Commission did not review the caps provided for other categories of aid such as the public guarantees and subsidised loans.

New phasing-out aid

Alongside the extension of the duration of those exceptional State aid rules, the Commission had proposed, as described in our previous article of 4 October 2021, and has now effectively introduced the possibility of investment and solvency support measures even beyond the set expiration date. Concretely, investment support measures able to kickstart a sustainable recovery will be available until 31 December 2022 if the investments concerned predate 1 February 2020, while solvency support measures can be implemented up to 31 December 2023.

1. Investment support measures

Member States are given the possibility to stimulate private investment in undertakings provided that the investment aid is based on a scheme, potentially in various forms, and provided that the maximum individual aid amounts to a nominal value of only EUR 10 million. That ceiling is increased to EUR 15 million when the support scheme provides aid exclusively in the form of guarantees or loans. Furthermore, individual aid should not exceed 1% of the total scheme budget, aside from exceptional situations that are duly justified by the relevant Member State.

Covered eligible costs of these investment support measures should only include costs of investments in (in)tangible assets with the exclusion of financial investments. The aid intensity may further not exceed 15% of the eligible costs, although increases may be justified when SMEs are concerned. In case of aid in the form of guarantees or loans, the aid intensity may not exceed 30% of the eligible costs. Lastly, Member States may limit the aid to investments benefitting specific economic areas that are of particular importance for the economic recovery, assuming that these limits are broadly outlined and do not constitute an artificial limitation of eligible investments.

2. Solvency support measures

Solvency support on the other hand should be conferred to alleviate the debt level concerns of an undertaking and be provided as an incentive for private investments into equity, subordinated debt or quasi-equity, with the goal of achieving risk-sharing between Member States and private investors. The sharing of risk is attained by limiting the value of such a guarantee to no more than 30% of the underlying portfolio in case of first-losses coverage, with a limit of EUR 10 million on the total amount of financing provided per undertaking.

Like investment aid, solvency support is granted based on a scheme, but in the form of public guarantees or similar measures. Such support must be granted on market-oriented conditions and should only be targeting SMEs and small mid-caps as final beneficiaries, while the Temporary Framework explicitly excludes financial institutions.

Other significant modifications

In addition to the above, the Commission has simultaneously included:

  • a prolongation from 30 June 2022 until 30 June 2023 of the possibility for Member States to convert repayable instruments into other forms of aid such as direct grants;

  • the inapplicability of the ban on non-mandatory coupon payments if the recapitalisation measures have not been fully redeemed when hybrid capital instruments are concerned;

  • a clarification on the use of the exceptional flexibility provisions of the Commission's Rescue and Restructuring Guidelines, namely that (i) undertakings’ “own contributions” can remain below 50% of the restructuring costs as long as they remain significant and include additional fresh funding at market conditions, (ii) that Member States can also compensate undertakings with damage compensation measures under article 107(2)(b) TFEU irrespective of the ‘one time last time’ principle enshrined in the Rescue and Restructuring Guidelines which is based on article 107(3)(c) TFEU and (iii) that a more general “reset” of that ‘one time last time’ principle can be envisaged given the exceptional circumstances developed amid the COVID-19 pandemic; and

  • a prolongation of the adjusted list of non-marketable risk countries (in the short-term export credit insurance context) until 31 March 2022 instead of 30 June 2022 as was initially foreseen by the draft amendment.

Conclusion

It should be stressed from the outset that all aid schemes provided for by the Temporary Framework must be notified by Member States to the Commission prior to implementation and the Commission must confirm its approval.

The Commission has published a notification template in this respect to facilitate the prolongation of national schemes already approved based on the Temporary Framework. Such process is usually efficient and rather swift.

Considering that the pandemic keeps on evolving and entangling economies worldwide and that the Commission has already modified the Temporary Framework five times accordingly (in this respect, please see our articles of 7 April 202013 May 202010 July 202016 October 2020 and 3 February 2021), it can be expected that this amendment will be the last.

CMS is therefore committed to keep you informed on these developments and of the public measures adopted by Member States to support your business enterprises. In this regard, do refer to the Guide published by CMS on public support measures that were put in place in 21 European countries in the context of the COVID-19 crisis.

Please contact your regular CMS partner or refer to our brochure for the CMS contact in your jurisdiction.