Coronavirus: Commission Statement on consulting Member States on proposal to expand State aid Temporary Framework to further support micro, small and start-up companies and incentivise private investments*
Today, the European Commission has sent to Member States for consultation a draft proposal to further extend the scope of the State aid Temporary Framework adopted on 19 March 2020 to support the economy in the context of the coronavirus outbreak. The Temporary Framework was first amended on 3 April 2020 to increase possibilities for public support to research, testing and production of products relevant to fight the coronavirus outbreak, to protect jobs and to further support the economy. On 8 May 2020, the Commission adopted a second amendment extending the scope of the Temporary Framework to recapitalisation and subordinated debt measures.
The Commission is now proposing to further extend the scope of the Temporary Framework by enabling Member States (i) to support certain micro and small enterprises, including start-ups that were already in difficulty before 31 December 2019, and (ii) to provide incentives for private investors to participate in coronavirus-related recapitalisation measures. Member States now have the possibility to comment on the Commission’s draft proposal.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said “Micro, small and start-up companies face specific challenges as a result of the coronavirus crisis. They are crucial for the economic recovery of the Union. That’s why we propose to extend the Temporary Framework to enable Member States to give further support to micro and small companies, including start-up companies. Furthermore, we propose to introduce conditions that provide incentives for private investors to participate alongside the State in recapitalisations. This is welcome as it reduces the need for State aid and the risk of distortions to competition.We continue to work closely with Member States to ensure that European businesses have access to urgently needed liquidity, to contribute to the economic revival post-coronavirus.”
The main purpose of the Temporary Framework is to provide targeted support to otherwise viable companies that have entered into financial difficulty as a result of the coronavirus outbreak. Therefore, companies that were already in difficulty before 31 December 2019 are not eligible for aid under the Temporary Framework, but may benefit from aid under existing State aid rules, in particular the Rescue and Restructuring Guidelines. These Guidelines set clear conditions according to which such companies must define sound restructuring plans that will allow them to achieve long-term viability.
However, micro and small companies have been particularly affected by the liquidity shortage caused by the economic impact of the current coronavirus outbreak, exacerbating their existing difficulties to access financing compared to medium-sized and large enterprises. If left unaddressed, these difficulties could lead to a large number of bankruptcies of micro and small companies, causing serious disturbances for the entire EU economy.
The Commission is therefore consulting Member States on the possibility of providing public support under the Temporary Framework to all micro and small companies, even if they qualify as being in financial difficulty on 31 December 2019. This would apply, unless such companies are in insolvency proceedings, have received rescue aid that has not been repaid or are subject to a restructuring plan under State aid rules. Given their limited size and involvement in cross-border transactions, temporary State aid to micro and small companies is less likely to distort competition in the Internal Market than State aid to larger companies.
This amendment will effectively increase the possibilities to support start-up companies, especially innovative ones which may be loss-making in their high-growth phase, which are crucial for the economic recovery of the Union.The Commission recalls further that all small and medium-sized enterprises that were in existence for less than three years on 31 December 2019 could already benefit from the aid measures laid down in the Temporary Framework.
Furthermore, the Commission also proposes to adapt the conditions for recapitalisation measures under the Temporary Framework for those cases when private investors contribute to the capital increase of companies together with the State. First, the proposed changes would allow enterprises with an existing State shareholding to raise capital similar to private enterprises, whilst maintaining the same safeguards to preserve effective competition in the Single Market. Second, the proposed changes would encourage capital injections with significant private participation also in private companies, limiting the need for State aid and the risk of competition distortions.
