The EU Commission approves Polish recapitalisation scheme to enable up to €1.65 billion of capital support to SMEs and large enterprises affected by the COVID-19 outbreak

State aid: Commission approves Polish recapitalisation scheme to enable up to €1.65 billion of capital support to SMEs and large enterprises affected by the coronavirus outbreak*

The European Commission has approved a Polish recapitalisation scheme of up to €1.65 billion (PLN 7.5 billion) to support large enterprises and certain larger small and medium-sized enterprises (SMEs) in the context of the coronavirus outbreak. The scheme was approved under the State aid Temporary Framework adopted by the Commission on 19 March 2020, as amended on 3 April and 8 May 2020. The scheme is part of a wider Polish support programme, the so-called “Financial Shield for Large Enterprises”.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This recapitalisation scheme, with a budget of up to €1.65 billion, will enable Poland to further support companies affected by the coronavirus outbreak. It ensures that the State is sufficiently remunerated for the risk taxpayers assume, that there are incentives for the State to exit as soon as possible, and that the support comes with strings attached, including a ban on dividends, bonus payments as well as further measures to limit distortions of competition. We continue to work in close contact and cooperation with Poland, as with all Member States, to find workable solutions to mitigate the economic impact of the coronavirus outbreak, in line with EU rules.”

The Polish support measures

Polandnotified to the Commission under the Temporary Framework a recapitalisation scheme of up to €1.65 billion (PLN 7.5 billion) to provide capital support and large enterprises and certain larger small and medium-sized enterprises (SMEs) in Poland affected by the coronavirus outbreak.

The scheme, which will be managed by the Polish Development Fund, is part of the “Financial Shield for Large Enterprises”, a support programme set up by the Polish authorities which has an overall budget of approximately EUR 5.5 billion (PLN 25 billion).

Under the scheme, the support will take the form of recapitalisation instruments, in particular equity instruments (acquisition of ordinary and preferred shares in public and private companies) and hybrid capital instruments (convertible bonds and loans).

The Commission found that the scheme notified by Poland is in line with the conditions set out in the Temporary Framework. In particular, (i) support is available to companies if it is needed to maintain operations, no other appropriate solution is available, and it is in the common interest to intervene; (ii) support is limited to the amount necessary to ensure the viability of beneficiaries and does not go beyond restoring their capital structure before the coronavirus outbreak; (iii) the scheme provides an adequate remuneration for the State; (iv) the conditions of the measures incentivise beneficiaries and/or their owners to repay the support as early as possible (inter alia through progressive increases in remuneration, a dividend ban as well as a cap on the remuneration of and a ban of bonus payments to management); (v) safeguards are in place to make sure that beneficiaries do not unduly benefit from the recapitalisation aid by the State to the detriment of fair competition in the Single Market, such as an acquisition ban to avoid aggressive commercial expansion; and (vi) aid to a company above the threshold of €250 million has to be notified separately for individual assessment.

Finally, only companies that were not considered to be in difficulty already on 31 December 2019 are eligible for aid under this scheme.

The Commission concluded that the measure isnecessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.

On this basis, the Commission approved the measure under EU State aid rules.

Background

The Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April and 8 May 2020, provides for the following types of aid, which can be granted by Member States:

  1. Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member States can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.
  2. State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.
  3. Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.
  4. Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.
  5. Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.
  6. Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between Member States.
  7. Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.
  8. Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.
  9. Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.
  10. Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.
  11. Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the State’s entry in the capital of companies and remuneration; conditions regarding the exit of the State from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidisation and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.

The Temporary Framework enables Member States to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, Member States have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.

Furthermore, the Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalisation measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.

The non-confidential version of the decision will be made available under the case number SA.57055 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.

*This is the original title of the press release. The title above has been amended in order to match the e-Competitions format. Individual authors are welcome to provide original independent commentaries on the case law. Articles are subject to approval by the Board of e-Competitions Bulletin before publication based on the Editorial Policy (click here).

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European Commission, The EU Commission approves Polish recapitalisation scheme to enable up to €1.65 billion of capital support to SMEs and large enterprises affected by the COVID-19 outbreak, 11 June 2020, e-Competitions July 2020, Art. N° 95326

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