On 13 October 2020, the Commission decided to extend the coverage of the Temporary Framework and prolong it for six months until 30 June 2021, except for the section on recapitalisation support, which was extended for three months until 30 September 2021 (4th Amendment).
In March 2020, the European Commission adopted the Temporary Framework to support the economy in the context of the COVID-19 outbreak, which allows EU Member State to have State aid approved quickly by the Commission. This is the fourth amendment. A 1st Amendment took place in April 2020, increasing possibilities for public support to research, test and produce products relevant to fight the COVID-19 outbreak, to protect jobs and to further support the economy. A 2nd Amendment followed in May 2020 to enable recapitalisation and subordinated debt measures, and a 3rd Amendment in June 2020 was aimed at further supporting micro, small and start-up companies and at incentivising private investments.
Key takeaways
The Temporary Framework’s 4th Amendment of 13 October 2020 has:
- prolonged the Temporary Framework until 30 June 2021 except the conditions for approval of recapitalisation measures (section 3.11), which were prolonged until 30 September 2021;
- included State aid measures in the form of support for uncovered fixed costs as an additional category of aid for which swift approval can be obtained;
- clarified and amended certain conditions including in relation to the exit of the State from previously State-owned companies; and
- extended the temporary removal of all countries from the list of marketable risk countries under the Commission’s Short-term export-credit insurance Communication.
In more detail
Extension of the Temporary Framework
Section 3.1 to 3.10 of the Temporary Framework and the new section 3.12 will now apply to measures granted before 30 June 2021. Section 3.11 (recapitalisation measures) will apply to measures granted before 30 September 2021.
Effect of prolongation on approved aid measures
The duration of existing Member State measures approved by the Commission under the Temporary Framework may be extended in accordance with the prolongation of the Temporary Framework. Member States are invited to notify a list of all existing aid measures the duration of which they envisage extending using the table format provided in the annex to the 4th Amendment.
Clarifications provided by the 4th Amendment
The 4th Amendment clarifies that for sections 3.1, 3.2 and 3.3 (i.e. aid in the form of direct grants, repayable advances, tax advantages, guarantees on loans and subsidised interest rates for loans), the actual advantage may, at any given moment in time, not exceed the overall limits of the Temporary Framework.
Support for uncovered fixed costs of companies
The Commission recognises that, as a result of the COVID-19 outbreak, many undertakings temporarily face lower demand not allowing them to cover part of their fixed costs. Although in many instances, demand is expected to recover over the coming months, it may not be efficient for those undertakings to downsize if doing so entails significant restructuring costs. The 4th Amendment therefore introduces a new measure that will enable Member States to support companies facing a decline in turnover during a period to be specified of at least 30% compared to the same period of 2019 due to the COVID-19 outbreak. The support, which must be granted under an aid scheme, can amount to up to 70% (90% in case of micro and small companies) of the beneficiaries’ fixed costs that are not covered by their revenues, up to a maximum amount of EUR 3 million per undertaking. According to the Commission, this support aims at preventing the deterioration of the beneficiaries’ capital, at maintaining their business activity and provides them with a strong platform to recover, and allows more targeted aid to companies that demonstrably need it. The Commission has published a helpful flowchart and example explaining the application of the new measure here and here.
Exit of the State from previously State-owned companies
The 4th Amendment also introduces an additional option for the State to exit companies in which it held a shareholding already before the COVID-19 recapitalisation. Prior to the 4th Amendment, the State could only exit via a buy back by the beneficiary or through a trade sale (stock exchange or after an open and non-discriminatory consultation of potential purchasers). Now and in case the State was already an existing shareholder prior to recapitalisation, the State may sell the equity stake that represents its pre-COVID shareholding at a price determined by an independent valuation.
For the sale of the remaining equity stake the State should still resort to the buy back or trade sale option.
A helpful flowchart explaining the application of this modification to the Temporary Framework can be found here.
Extension of the temporary removal of all countries from the list of “marketable risk” countries under the Short-term export-credit insurance Communication
Finally, the 4th Amendment ensures that swift State aid approval remains available for short-term export credit aid schemes regardless of the destination of insured exports. In parallel, the temporary removal of all countries from the list of “marketable risk” countries under the Commission’s Short-term export-credit insurance Communication has been extended until 30 June 2021.
For more resources on this topic (including an overview of previous amendments to the Temporary Framework), you may visit Baker McKenzie’s COVID-19 and Antitrust Law page.
