The European Commission (the “Commission”), which has exclusive jurisdiction to review State aid cases, has demonstrated its intention, and ability, to react rapidly to requests from Member States in the rescue of distressed companies as a result of the Covid-19 crisis affecting the European Union (“EU”).  The Commission has indicated from the outset that, given the limited size of the EU budget, the main aid responses will come from Member States. As a matter of fact, as of today, the Commission has approved around 2,000 billion euros in public funding granted by Member States to support their distressed economy in the context of the Covid-19 crisis.
As further detailed below, public support measures in the context of Covid-19 can take various forms, some of which do not need to be notified, while others need prior approval from the Commission.
1. Aid that does not need to be notified
1.1. Suspension of taxes or social contributions
The Commission indicated early on that public support measures that are available to all companies, such as wage subsidies and suspension of payments of corporate and value added taxes or social contributions, will not require the Commission’s approval.  Likewise, financial support directly to consumers for cancelled services or tickets not reimbursed by the concerned operators do not need to be notified.
However, selective (tax) debt renegotiation may entail some State aid element that would need to be notified to the Commission.
1.2. De minimis aid
Under the De Minimis Regulation,  aid of up to EUR 200,000 (EUR 100,000 in the road freight transport sector) per beneficiary over a three-year period is exempted, as well as subsidised loans of up to EUR 1 million and subsidised guarantees for loans of up to EUR 1.5 million over a five-year period. The benefit of the De Minimis Regulation is however subject to strict conditions, notably in terms of transparency of the aid.
1.3. General Block Exemption Regulation
Member States can design individual support measures or schemes in line with the General Block Exemption Regulation  (the “GBER”) without the involvement of the Commission.
However, aid under the GBER cannot be granted to companies that are “in difficulty” in the sense of the GBER,  which reduces the scope of potential beneficiaries in the context of the Covid-19 crisis. The categories of aid contemplated under the GBER are also strictly defined, and their respective amounts capped at relatively low levels (although the Commission has launched a public consultation towards a possible relaxation of such exemption rules in light of the crisis ).
2. Aid that must be notified
Unless granted under market conditions (the so-called market economy operator principle, or “MEOP”), or under pari passu conditions along with private investors, the demonstration of which may constitute an uphill battle in the current context, other aid measures (that do not fit into one of the above-mentioned categories) constitute State aid and require approval from the Commission. In the context of the Covid-19 outbreak, different legal bases can be used under the Treaty on the Functioning of the European Union (the “TFEU”) to ensure the compatibility of the aid measure.
Helpfully, the Commission has indicated that the “one time, last time” principle, following which a company cannot receive new aid if it has received rescue or restructuring aid within the last ten years,  may be waived in the context of Covid-19 (although some uncertainty remains as to the position the Commission will adopt in practice). 
2.1. Article 107(2)(b) TFEU: Aid to compensate companies for damages suffered as a result of the COVID-19 outbreak
Article 107(2)(b) TFEU enables Member States to compensate companies for damage incurred as a result of natural disasters or exceptional occurrences, such as the Covid-19 outbreak as recognized by the Commission.  Such measures can be targeted to assist specific sectors (aid schemes) or individual companies. Although the Commission had initially identified the health, tourism, culture, retail, transport and event-organizing sectors as natural beneficiaries of such aid, it is now generally recognized that aid under article 107(2)(b) TFEU can be granted to all sectors. 
Two main conditions must be verified to ensure the compatibility of such aid: 
- There must be a direct causal link between the aid granted and the damage resulting from the Covid-19 outbreak (e.g. additional costs, forgone revenues, etc., less any costs not incurred); and
- Any aid must be limited to what is strictly necessary to make good the damage (e.g. damage already compensated by insurance grants cannot be compensated twice under such aid measure).
As of today, the Commission has approved only a handful of measures under article 107(2)(b) TFEU, which pales in comparison to the more than one hundred measures approved under other legal bases since the beginning of the crisis (see below). 
Article 107(2)(b) TFEU seems to have been favored by Nordic countries, with three quarters of such measures notified by Denmark , Finland  and Sweden alone.  (France, Germany and Poland each have adopted one aid regime under this legal basis. ) Interestingly, more than a quarter of the measures approved under article 107(2)(b) TFEU were individual measures targeting specific distressed airlines.  The event-organizing sector was also among the top beneficiaries of such aid, with relatively low budgets however,  as well as the restaurant industry  and the travel operators sector .
2.2. Article 107(3)(b) TFEU: Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak
The Commission adopted, on 19 March 2020, after a quick consultation with the Member States, a Temporary Framework under Article 107(3)(b)  (generally applicable until 31 December 2020), which enables Member States to remedy the serious disturbance to their economy, in the form of schemes or individual measures. Such state of disturbance, as first recognized for Italy,  has now been generalized to all other Member States. The Temporary Framework has been amended twice already by the Commission, on 4 April and 8 May 2020, with a view to further extending the categories of measures rendered compatible under this text.
Under the Temporary Framework, Member States are able to grant aid, for a limited period of time, to remedy the liquidity shortage faced by companies and ensure that the disruptions caused by the Covid-19 outbreak do not undermine their viability. Over one hundred measures have now been approved by the Commission on that basis since the beginning of the crisis. 
The Commission applies the Temporary Framework to all relevant notified measures after 19 March 2020 (even if the measures were notified prior to that date), and also to unlawful, non-notified aid if the aid was granted after 1 February 2020.
The Commission will consider such aid compatible, under Article 107(3)(b) TFEU, under certain conditions, including that the aid is granted to companies which were not in difficulty  on 31 December 2019 but entered in difficulty thereafter as a result of the COVID-19 outbreak.
The Commission has specified that aid measures under the Temporary Framework may generally be cumulated with one another, and may also be cumulated with aid under the De Minimis Regulation or under the GBER (provided the cumulation rules of those regulations are otherwise respected). Conversely, aid granted under section 3.2 of the Temporary Framework (state guarantees on loans) shall not be cumulated with aid granted, for the same underlying loan principal, under section 3.3 (loans with subsidized interest rates) and vice versa. However, a beneficiary may benefit in parallel from different measures under section 3.2 or section 3.3 provided the overall amount of loans per beneficiary does not exceed the ceilings set out in the Temporary Framework (see below).
Section 3.1 – Direct grants, selective tax advantages, repayable advances and other advantages
With respect to direct grants, selective tax and payment advantages, repayable advances, as well as (as a result of the amendment of the Temporary Framework of 4 April 2020) guarantees, loans and equity injections (Section 3.1) provided by the Member State, the Commission will consider such aid compatible provided that a certain number of conditions are met, including: 
- The aid does not exceed EUR 800,000 per beneficiary;
- The aid is granted on the basis of a scheme with an estimated budget.
Specific conditions apply for aid in the form of loan and loan guarantees, for both investment and working capital needs. Such aid may be cumulated with direct grants, repayable advances or tax advantages. The Commission specifies that such aid can be provided directly by the Member State or through credit institutions and other financial institutions. 
Section 3.2 – Aid in the form of guarantees on loans
With respect to aid in the form of guarantees on loans (Section 3.2), the Commission will consider such aid compatible provided that a certain number of conditions are met, including:
- The duration of the guarantee is limited to maximum 6 years;
- Guarantee premiums are set at a minimum level as follows: 
- For loans with a maturity date beyond 31 December 2020, the amount of the loan principal does not exceed: (a) double the annual wage bill of the beneficiary  for 2019 (or last year available); or (b) 25% of total turnover of the beneficiary in 2019.  For loans with a maturity until 31 December 2020, the amount of the loan principal may be higher with appropriate justification; and
- The guarantee cannot exceed 90% of the loan principal, provided losses are sustained proportionally and under the same conditions by the credit institution and the State.  As a result of the amendment of the Temporary Framework of 4 April 2020, Member States can provide guarantees covering 100% of the risk for loans up to the nominal value of EUR 800,000 (see section 3.1).
Section 3.3 – Aid in the form of subsidised interest rates for loans and subordinated debt
With respect to aid in the form of subsidised interest rates for loans and subordinated debt (Section 3.3), the Commission will consider such aid compatible provided that a certain number of conditions are met, including:
- The loan contracts are limited to a maximum of 6 years;
- The loans must be granted at reduced interest rates which are at least equal to the base rate (1 year IBOR or equivalent as published by the Commission ) applicable on 1 January 2020 plus the credit risk margins applicable for guarantees (see table above). As a result of the amendment of the Temporary Framework of 4 April 2020, Member States can provide zero-interest for loans with a nominal amount up to EUR 800,000;
- For loans with a maturity date beyond 31 December 2020, the amount of the loan does not exceed the “double wage / 25% turnover” limits applicable for guarantees (see above).  For loans with a maturity until 31 December 2020, the amount of the loan principal may be higher with appropriate justification.
As a result of the second amendment of the Temporary Framework of 8 May 2020, subordinated debt  may also be approved by the Commission under certain conditions:
- Credit risk mark-up added as compared to loans with subsidised interest rates (i.e. plus 200 bps for large enterprises and 150 bps for SMEs);
- Limitation of the amount of subordinated debt compared to senior debt (i.e. one third for large enterprises and half the amount for SMEs); and
- Limitation of the overall amount of subordinated debt per beneficiary (i.e. two thirds of the annual wage bill of the beneficiary for large enterprises and the annual wage bill for SMEs, or 8.4% of the beneficiary’s total turnover in 2019 for large enterprises and 12.5% for SMEs).
The Commission has indicated that, if such subordinated debt does not comply with the conditions set out in section 3.3 of the Temporary Framework, such measure would need to be assessed under the stricter recapitalisation conditions set out in section 3.11 (see below).
Section 3.5 – Aid related to short-term export credit insurance
With respect to short-term export credit insurance (Section 3.5), which is already covered by European legislation,  the Commission acknowledges that, due to the Covid-19 crisis, cover for marketable risks could be temporarily unavailable in certain countries, which may justify public intervention. As a result of the amendment of the Temporary Framework of 4 April 2020, this is available for all countries, without the need for the Member State to demonstrate that the respective country is temporarily “non-marketable.”
Section 3.6 - Support for coronavirus related R&D
Since the first amendment to the Temporary Framework of 4 April 2020, Member States can grant aid in the form of direct grants, repayable advances or tax advantages for Covid-19 and other relevant antiviral R&D (a bonus may be granted for cross-border cooperation projects).
Section 3.7 – Support for the construction and upscaling of testing facilities
Since the first amendment to the Temporary Framework of 4 April 2020, Member States can grant aid in the form of direct grants, tax advantages, repayable advances and no-loss guarantees to support investments enabling the construction or upscaling of infrastructures needed to develop and test products useful to tackle the Covid-19 outbreak, up to first industrial deployment  (companies can 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).
Section 3.8 – Support for the production of products relevant to tackle the Covid-19 outbreak
Since the first amendment to the Temporary Framework of 4 April 2020, Member States can grant aid in the form of direct grants, tax advantages, repayable advances and no-loss guarantees to support investments enabling the rapid production of Covid-19-relevant products (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).
Section 3.9 – Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions
Since the first amendment to the Temporary Framework of 4 April 2020, in order to further reduce the liquidity constraints on companies due to the Covid-19 crisis and to preserve employment, Member States can grant targeted deferrals of payment of taxes and of social security contributions in those sectors, regions or for types of companies that are hit the hardest by the outbreak.
Section 3.10 – Targeted support in the form of wage subsidies for employees
Since the first amendment to the Temporary Framework of 4 April 2020, in order to help limit the impact of the Covid-19 crisis on workers, Member States can contribute to the wage costs of those companies in sectors or regions that have suffered most from the Covid-19 outbreak, and would otherwise have had to lay off personnel. This aid is subject to the condition that (i) the wage subsidy is granted over a period of not more than 12 months after the application for aid, for employees that would otherwise have been laid off and subject to the condition that the benefitting personnel is maintained in continuous employment, (ii) the monthly wage subsidy shall not exceed 80% of the monthly gross salary (including employer’s social security contributions) of the benefitting personnel  and (iii) the combined support  does not lead to overcompensation of the wage costs of the personnel concerned.
Section 3.11 – Recapitalisation measures in the form of equity and/or hybrid capital instruments
As a result of the second amendment to the Temporary Framework of 8 May 2020, the Commission has added a new, much debated section on recapitalisation measures in the form of equity and/or hybrid  capital instruments (Section 3.11), which can be part of schemes or individual measures. The potential aid package to Lufthansa, at least insofar as the German State would take an equity interest in the airline, is being assessed under this section. Interestingly, the Commission encourages the design of national support measures in a way that meets the EU’s policy objectives related to green and digital transformation of their economies. Such measures, which are by definition of a longer-term nature than the ones listed above, and must be at the written request of the beneficiary, need to meet the following main conditions to be declared compatible by the Commission:
- By derogation to other measures contemplated in the Temporary Framework, recapitalisation measures shall not be granted later than 30 June 2021;
- All individual aid above EUR 250 million must be notified (even if part of an already- approved scheme);
- It must be demonstrated that, without pubic intervention, the beneficiary would go out of business (or would face serious difficulties to maintain its operations) and the beneficiary is not able to find financing on the markets at affordable terms (while existing horizontal measures at the national level must also be insufficient to cover its liquidity needs);
- It must also be in the common interest of the Member State to intervene, i.e. to avoid social hardship and market failure due to significant loss of employment, the exit of an innovative company, the exit of a systemically important company, the risk of disruption to an important service (or similar situations);
- In any event, Covid-19 recapitalisations must not exceed the minimum needed to ensure the viability of the beneficiary, and should not go beyond restoring the capital structure of the beneficiary pre-crisis. Importantly, in assessing the proportionality of the measure, other State aid received (or planned) in the context of the crisis shall be taken into account;
- The Member State must receive adequate remuneration:
- For equity instruments:
– Capital injection: at the average share price of the beneficiary over the last 15 days (or by independent expert if company not listed);
– Buy-back by the beneficiary: price should be the higher amount of the nominal investment by the State increased by an annual interest remuneration 200 basis points higher than for hybrid instruments (see table below), and of the market price at the moment of the buy-back;
– Sale to third parties: at market prices, following an open and non-discriminatory consultation of potential purchasers (or sale on the stock exchange). The State may give existing shareholders priority rights.
- For hybrid instruments:
– Until conversion: remuneration at least equal to 1 year IBOR (or equivalent as published by the Commission), plus the following premium:
- At conversion into equity: price 5% or more below the so-called theoretical ex-rights price (TERP) at the time of the conversion;
- For equity instruments:
- A so-called “step-up mechanism” shall also be included to encourage the State’s exit:
- For equity instruments: additional shares granted to the State (or equivalent measure) corresponding to a minimum of 10% increase in the remuneration of the State after 4 years (if the State has not sold at least 40% of its Covid-19 equity injection), and then again after 6 years (if the State has not sold in full its Covid-19 equity injection) (for unlisted companies, after 5 and 7 years respectively). The Commission may consider alternative mechanisms;
- For hybrid instruments: same mechanism as above (i.e. additional shares corresponding to a 10% remuneration increase) if the State has not sold its Covid-19 equity injection 2 years after the conversion.
- If 6 years (7 years for SMEs and non-listed companies) after the Covid-19 recapitalisation the State’s intervention has not been reduced below 15% of the beneficiary’s equity, a restructuring plan (in accordance with the Commission’s Rescue and Restructuring Guidelines; see below) must be notified to the Commission for approval. The Commission has indicated that, in such a case, it may take into account EU objectives and national obligations linked to the green and digital transformation.
- Additionally, a series of governance measures must be followed by the beneficiary:
- As long as the Covid-19 recapitalisation has not been fully repaid, the beneficiary cannot make dividend payments, non-mandatory coupon payments, or buy-back shares (other than in relation to the State);
- As long as at least 75% of the Covid-19 recapitalisation has not been repaid, the remuneration of each member of the management must not go beyond its fixed remuneration as of 31 December 2019 (or, for new members, the lowest fixed remuneration of the management), and no bonuses (or other variable remuneration) can be paid;
- As long as at least 75% of the Covid-19 recapitalisation has not been repaid, the beneficiary (other than SMEs) are prevented from acquiring a stake of more than 10% in competitors (or other operators in the same line of business, including upstream and downstream), unless necessary to maintain the beneficiary’s viability;
- Recapitalisation cannot be used to cross-subsidise other economic activities that were in difficulty on 31 December 2019 (to that effect, clear account separation shall be put in place in integrated companies);
- Need to consider offering structural or behavioral commitments (in the sense of EU merger control) if the aid is above EUR 250 million and the beneficiary has significant market power in at least one of its relevant markets; and
- The beneficiary cannot advertise the receipt of the aid for commercial purposes.
- A beneficiary (other than SMEs) that has received a Covid-19 recapitalisation of more than 25% of its equity must demonstrate a credible “exit strategy” which should be submitted to the Member State within 12 months (unless the State’s new injection is reduced below 25% within 12 months). This exit strategy shall lay out: a plan on the continuation of the beneficiary’s activity and the use of the State’s funds (including a payment schedule of the remuneration and repayment of the State investment), as well as the measures undertaken to abide by this schedule. The beneficiary must report annually to the Member State on progress and use of the aid, while the Member State should, in turn, report periodically to the Commission.
With respect to all aid described above, Member States will generally have to publish relevant information on each individual aid grant under the Temporary Framework within 12 months of granting (3 months for recapitalisations under Section 3.11).
2.3. Article 107(3)(c) TFEU: Aid to companies facing acute liquidity needs and/or facing bankruptcy due to COVID-19 outbreak
Article 107(3)(c) TFEU, which targets the rescue and restructuring of distressed companies,  enables Member States to meet acute liquidity needs and support companies facing bankruptcy “due to or aggravated by” the Covid-19 outbreak.
Rescue measures, which are temporary liquidity support to cover the company’s expected operating needs (including loan and guarantees), are compatible provided that they meet a certain number of conditions, including:
- any loan must be reimbursed and any guarantee must come to an end within 6 months (18 months for SMEs);
- a “normal” remuneration for the loans and/or guarantees has to be paid by the beneficiary. 
Restructuring measures involve more permanent assistance in order to restore the long-term viability of the beneficiary. They are compatible provided that they meet a certain number of conditions, including:
- The Member State must submit a “feasible, coherent and far-reaching” restructuring plan to restore the beneficiary’s long-term viability (including, typically, financial restructuring in the form of capital injections by new or existing shareholders and debt reduction by existing creditors);
- If Member States are free to choose the form of the restructuring aid, they must ensure that it is appropriate to the issue addressed (e.g. in the case of solvency problems, increasing assets through recapitalisation might be appropriate, whereas in a situation where the problems mainly relate to liquidity, assistance through loans or loan guarantees might be sufficient);
- The amount and intensity of restructuring aid must be limited to the strict minimum necessary to enable restructuring to be undertaken (in particular, a sufficient level of own contribution to the costs of the restructuring and burden sharing with other creditors or shareholders must be ensured).
The Commission has indicated that companies that are not yet in difficulty can also receive such support if they face acute liquidity needs due to the COVID-19 outbreak.