The EU Commission adopts a sixth amendment to the temporary framework for State aid to combat COVID-19 pandemic

6th Revision of the Temporary Framework for Covid-19 State Aid*

Introduction

On Thursday, 18 November 2021, the European Commission adopted a sixth amendment to the Temporary Framework [TF] for State aid measures to combat covid-19. The document laying down the new amendments can be accessed here:

https://ec.europa.eu/competition-policy/document/download/a822acec-f0c6-4c8c-ab49-fc2dd34188ec_en

The TF was scheduled to expire on 31 December 2021. The new amendment extends its validity to 30 June 2022. It also changes the aid ceilings for uncovered fixed costs, it allows aid to support investment for sustainable recovery and for solvency and clarifies and adjusts certain conditions for other aid measures already allowed by the TF.

The Commission decided to prolong and widen the TF in order to enable Member States to address the continuing economic problems, facilitate the recovery process, tackle the heterogeneous impact of covid-19 on different sectors and mitigate the risk of corporate insolvencies.

The TF is now a hefty document. It has grown from about 15 pages in March 2020 to 47 pages after the latest amendment. An informal consolidated version can be accessed here:

https://ec.europa.eu/competition-policy/system/files/2021-11/TF_consolidated_version_amended_18_nov_2021_en_1.pdf

Amendments

All new amendments take effect as of 18 November 2021. The most important of the amendments to the current provisions are the following.

Limited amounts of aid

The ceiling is raised from EUR 1.8 million to EUR 2.3 million per undertaking at any given point in time.

The ceiling is also raised for fishing and agricultural undertakings from EUR 270,000 and EUR 225,000, respectively, to EUR 345,000 and EUR 290,000 per undertaking, respectively.

Support for uncovered fixed costs

The ceiling is raised from EUR 10 million to EUR 12 million per undertaking.

In addition, the new TF provides that “measures granted […] in the form of repayable advances, guarantees, loans or other repayable instruments may be converted into other forms of aid such as grants, provided the conversion takes place by 30 June 2023”.

Export risk

All commercial and political risks associated with exports to EU Member States and certain other industrialised countries such as Australia, Canada, Switzerland, the UK and the US, are temporarily non-marketable until 31 March 2022.

In addition, the revision of 18 November 2021 made many other small changes, especially with respect to deadlines.

New provisions

Section 3.13 on investment support towards a sustainable recovery

Member States may support private investment as a stimulus to overcome an investment gap accumulated in the economy due to the crisis. Aid under this section may be granted until 31 December 2022.

Aid is compatible with the internal market if it conforms with certain conditions the main of which are:

  1. The aid is granted on the basis of a scheme. The maximum individual aid amount per undertaking may not exceed 1% of the total budget available.
  2. Eligible costs may include only the costs of investments in tangible and intangible assets.
  3. Aid may be limited to investments in specific economic areas of importance for the economic recovery.
  4. The aid intensity may not exceed 15% of the eligible costs, plus 20% for small enterprises and 10% for medium-sized enterprises, provided it remains below EUR 10 million per undertaking.

Section 3.14 on solvency support

Member States may support economic recovery by strengthening the solvency of undertakings, especially where the debt levels of companies have risen due to the economic crisis, which may hamper further investment and long-term growth. Aid under this section may be granted until 31 December 2023.

Aid measures which are designed to incentivise private investments into undertakings with growth potential are compatible with the internal market if the conform with certain conditions the main of which are:

  1. Solvency support incentivises private investments into equity, subordinated debt, or quasi-equity.
  2. The aid is granted on the basis of a scheme, in the form of public guarantees for dedicated investment funds as an incentive to invest in final beneficiaries. Investment must be made via financial intermediaries in the form of such investment funds that are selected in an open, transparent, and non-discriminatory procedure. The remuneration of the managers of those funds should be based on the performance of the entire portfolio of the fund.
  3. Eligible final beneficiaries are limited to SMEs and small mid-caps.
  4. Aid schemes must leverage additional new investments from private investors.
  5. The aid measure must ensure that an appropriate share of the risk is borne by investors so that investments are profit-driven. In case of first losses covered by the state, such risk sharing can be achieved by limiting the value of the guarantee to no more than 30% of the underlying portfolio.
  6. The duration of the guarantee may not exceed eight years in total. In case of guarantees on debt, it may not exceed the maturity of the underlying debt instrument.
  7. The mobilisation of the guarantee is contractually linked to specific conditions (“guarantee events”) which may go as far as the compulsory declaration of bankruptcy of the beneficiary undertaking, or any similar procedure.
  8. The risk taken by the state is reflected in an adequate, market-oriented return. Such return can take the form of direct remuneration in form of a guarantee premium or rights to participate in profits to be accumulated by such funds, depending also on the nature of the instrument (be it subordinated loans or equity).
  9. Effective safeguards are implemented to ensure that the advantage is passed on to the final beneficiaries to the maximum extent possible.
  10. The total amount of finance provided does not exceed for EUR 10 million per undertaking.
  11. Financial institutions are excluded as final beneficiaries.

*Article published on Lexxion Blog (click here), republished in e-Competitions with the courtesy of the author(s). The original title of this article appears below the e-Competitions title. Authors are welcome to write an alternative article on this case/text, provided they have no relationships with a party or related third party. Article will need e-Competitions Board approval before publication.

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Citation

Phedon Nicolaides, The EU Commission adopts a sixth amendment to the temporary framework for State aid to combat COVID-19 pandemic, 18 novembre 2021, e-Competitions November 2021, Art. N° 105790

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