What Can Member States do to Financially Support their Undertakings Under EU State Aid Rules? 

June, 2020 - Carmen Verdonck

The Covid-19 outbreak is not only a huge challenge for health care, but also has enormous consequences for the economy. Different sectors (such as the hospitality, tourism and transport sectors and many others) will not be able to overcome the difficult times that we are currently facing without public support.

Many Member States have already adopted exceptional aid measures and many more will follow, but public support for undertakings must still comply with the EU State aid rules.

However, in these exceptional times, the European Commission is determined to provide the necessary support to the Member States in this regard, and is clearly using flexibility in applying its State aid rules.

In its coordinated economic response to the Covid-19 Outbreak of 13 March 2020, the European Commission has given an overview of the support measures that can be granted to comply with the existing State aid rules, which include:

1. Measures that apply to all undertakings, such as wage subsidies and the suspension of payments of corporate and value added taxes or social contributions. As there is no selectivity, these measures will not constitute State aid and can be granted without any intervention by the Commission.

2. Financial support to consumers, such as for cancelled services or tickets that are not reimbursed by the operators involved. Since State aid can only exist for aid granted to an undertaking, this financial support can also be put in place without needing the European Commission’s approval.

3. Aid measures enabling Member States to meet acute liquidity needs and to support undertakings facing bankruptcy due to the coronavirus crisis, can be approved by the European Commission based on Article 107 (3)(c) TFEU, which provides the option of granting aid to facilitate the development of certain economic activities or of certain economic areas. The Commission’s Rescue and Restructuring State aid Guidelines of 2014 offer further specifications in this regard. The aid can take the form of short-term rescue aid (a loan or a loan guarantee that makes it possible to keep an ailing undertaking afloat for the short time needed to work out a restructuring or liquidation plan) or long-term restructuring aid (to restore the beneficiary's long-term viability on the basis of a feasible, coherent and far-reaching restructuring plan).

4. Article 107 (2)(b) TFEU provides the possibility for Member States to grant aid to make good the damage caused by natural disasters or exceptional occurrences. The Covid-19 outbreak is considered such an exceptional occurrence. Measures that could be covered are measures compensating companies in sectors that have been particularly hard-hit (transport, tourism, culture, hospitality and retail) and measures compensating the organisers of cancelled events (concerts, festivals, sports events, commercial fairs, etc.) for the damage that they have suffered as a direct consequence of Covid-19. The aid must be limited to the damage caused by the outbreak (i.e. no overcompensation) and to the damage not covered by an insurance. The assessment of the damage suffered must be as precise as possible, which probably explains why the number of notifications on this ground remains rather limited so far. The principle of ‘one time, last time’ of the Rescue and Restructuring State Aid Guidelines does not cover aid that the Commission declares compatible under Article 107(2)(b) TFEU. Also undertakings that have received rescue or restructuring aid in the past, but were no longer in difficulty at the time of the Covid-19 outbreak (as the restructuring plan has been completed), can thus still benefit from compensation. The aid can also be accumulated with other forms of aid provided there are different eligible costs.

Based on this Article, the European Commission has already approved:

  • six Danish aid measures;
  1. EUR 12 million scheme to compensate damages caused by cancellations of large public events;
  2. EUR 1.3 billion scheme to compensate self-employed individuals for damages suffered due to the coronavirus outbreak;
  3. EUR 5.4 billion scheme to compensate companies particularly affected by the coronavirus outbreak;
  4. Danish public guarantee of up to EUR 137 million to compensate the SAS airline for the damage caused by the coronavirus outbreak;
  5. EUR 32 million scheme to compensate media companies for damage caused by decrease in advertising revenues due to coronavirus outbreak;
  6. EUR 97 million Danish scheme to compensate travel operators for damages caused by cancellations due to coronavirus outbreak.
  • one French scheme deferring payment by airlines of certain taxes to mitigate the economic impact of the coronavirus outbreak.

  • three Swedish aid measures:

  1. EUR 38 million Swedish scheme to compensate damages caused by cancelled or postponed cultural events due to the coronavirus outbreak;
  2. Swedish public guarantee of up to EUR 137 million to compensate the SAS airline for damage caused by the coronavirus outbreak;
  3. EUR 3.7 billion scheme to compensate companies for damages suffered due to the coronavirus outbreak
  • one German State-guaranteed loan of EUR 550 million to compensate airline Condor for the damage caused by Covid-19.

  • a EUR 650 million Dutch scheme to compensate companies in the floriculture, specialty horticulture and potato sectors for damage caused by coronavirus outbreak;

  • an Austrian scheme of EUR 8 billion to compensate companies for damage caused by coronavirus outbreak;

  • a EUR 120 million Finnish scheme to compensate companies in the restaurant industry for damages caused by coronavirus outbreak;

  • a EUR 1.6 billion Polish scheme to compensate companies for damages suffered due to coronavirus outbreak and provide liquidity support.

  • a EUR 145 million Hungarian scheme to compensate large companies for the damages suffered.


5. variety of additional measures such as de minimis aid up to a maximum of 200,000 EUR over a 3 year period (such as in Belgium, for example, the respective compensation announced by the Flemish and Walloon governments for shops, bar and restaurants that, under the Federal government’s virus ‘containment’ measures, had to close) or aid measures that are exempted from notification by the General Block Exemption Regulation of 17 June 2014 (such as investment and operating aid in favour of SMEs) also remain possible.

6. Finally, to complement the possibilities above, the Commission has adopted on 19 March 2020 a new Temporary State Aid Framework based on Article 107 (3)(b) TFEUThis Article allows Member States to grant additional support to remedy a serious disturbance to their economy and was also used during the financial and economic crisis of 2008. Based on this Framework, additional temporary State aid measures to remedy the liquidity shortage faced by undertakings and to ensure that the disruptions caused by the Covid-19 outbreak do not undermine their viability, can be approved very rapidly after notification.

The new Temporary Framework initially provided for the following five types of aid:

  1. schemes to grant aid in the form of direct grants, selective tax advantages and advance payments of up to 800,000 EUR to an undertaking to address its urgent liquidity needs;
  2. subsidised State guarantees on bank loans (of a maximum of 6 years and 90% of the loan amount);
  3. subsidised public loans to companies (of a maximum of 6 years) with an interest rate on the basis of 1-year IBOR;
  4. safeguards for banks that channel aid to consumers;
  5. additional flexibility on how to demonstrate that certain countries are not-marketable risks, thereby enabling short-term export credit insurance.

On 3 April 2020, the European Commission adopted first amendment extending the Temporary Framework to enable Member States to accelerate the research, testing and production of coronavirus-relevant products, to protect jobs and to further support the economy in the context of the coronavirus outbreak. The first amendment provides for five additional types of aid measures:

  1. Aid for coronavirus related research and development (R&D) (see also our other ALTIUS Q&A on this matter);
  2. Investment aid (of a maximum of 75% of the eligible costs) for the construction and upscaling of testing facilities required to develop Covid-19 related medicinal products. The aid can take the form of direct subsidies, repayable advances or tax advantages.
  3. Aid (of up to 80% of the eligible costs) for the production of Covid-19 related products.
    These include medicinal products (including vaccines) and treatments, medical devices and equipment (including ventilators and protective clothing, as well as diagnostic tools), disinfectants, data collection and processing tools useful to fight the spread of the virus.
  4. The aid can take the form of direct grants, repayable advances or tax advantages.It could also be a targeted aid scheme in the form of the deferral of tax payments and/or suspensions of social security contributions in favour of any undertakings or self-employed individuals particularly affected by the Covid-19 outbreak.;
  5. A targeted aid scheme in the form of wage subsidies for employees to avoid lay-offs in specific sectors or regions that are particularly affected by the Covid-19 outbreak. This is up to a maximum amount of 80% of the benefitting employees’ individual monthly gross salary.

The first amendment also expands on the existing types of support that Member States can give to companies in need. For example, it now enables Member States to give, up to the nominal value of EUR 800,000 per company, zero-interest loans, guarantees on loans covering 100% of the risk, or provide equity. This can be combined also with de minimis aid (to bring the aid per company up to EUR 1 million) and with other types of aid.

On 8 May 2020, the European Commission has adopted a second amendment to extend the scope of the Temporary State aid Framework to recapitalisation and subordinated debt measures.

While the possibility of providing national support in the form of equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the Covid-19 outbreak already existed to a certain extent, this amendment was adopted because the cap of 800.000 EUR was found to be too low. The Commission, however, has underlined that such support should only be considered if no other appropriate solution can be found and it is subject to stringent conditions:

  • Recapitalisation aid to undertakings

    Recapitalisation aid should be granted in the common interest, for example to avoid social hardship and market failure due to significant loss of employment, the exit of an innovative or a systemically important company, or the risk of disruption to an important service.

    The aid must not exceed the minimum needed to ensure the viability of the beneficiary, and should not go beyond restoring the beneficiary's capital structure to the one predating the Covid-19 outbreak;

    Recapitalisation interventions should be subject to clear conditions as regards the State’s entry, remuneration and exit from the undertakings concerned, governance provisions and appropriate measures to limit distortions of competition:
    1. Entry: the State must be sufficiently remunerated for the risks it assumes. Moreover, the remuneration mechanism needs to incentivise beneficiaries and/or their owners to buy out the shares acquired by the State using State aid to ensure the temporary nature of the State's intervention.
    2. Exit: beneficiaries and Member States are required to develop an exit strategy, in particular as regards large companies that have received significant recapitalisation aid. If the State participation has not been reduced below 15% after 6 years for listed companies (or seven years for other companies), then they are obliged to submit to the Commission a restructuring plan.
    3. Governance: until the State has exited in full, beneficiaries are subject to bans on dividends and share buybacks. Moreover, until at least 75% of the recapitalisation is redeemed, a strict limitation of the remuneration of their management, including a ban on bonus payments, must be applied.
    4. Prohibition of cross-subsidisation and acquisition ban: beneficiaries cannot use the aid to the support integrated companies that were in economic difficulties prior to 31 December 2019. Moreover, until at least 75% of the recapitalisation is redeemed, beneficiaries, other than SMEs, are in principle prevented from acquiring a stake of more than 10% in competitors or other operators in the same line of business, including upstream and downstream operations.
  • Aid in the form of subordinated debt

    The Commission has introduced the possibility of providing subordinated debt (debt instruments that are subordinated to ordinary senior creditors in the event of insolvency proceedings) to companies on favourable terms. Such aid should fulfil the existing respective conditions under section 3.3 (aid in the form of subsidised interest rates for loans). If, however, Member States want to provide subordinated debt in amounts exceeding the foreseen thresholds, then all conditions for recapitalisation measures set out above will apply.

The second amendment also clearly places emphasis on the green transition and the digital transformation that, according to the Commission, will play a central and priority role in ensuring a successful recovery. Large undertakings, for example, must report on how the recapitalisation aid received supports their activities in line with EU objectives and national obligations linked to the green and digital transformation. The Commission also welcomes steps taken by Member States to take these challenges into account when designing national support measures.

Only undertakings that have entered into difficulty after 31 December 2019 are eligible for aid under the Temporary State aid Framework. The Framework will be in place until the end of December 2020. With a view to ensuring legal certainty, the Commission will assess before that date if it needs to be extended. 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. More details on the compatibility conditions can be found here.

On 12 June 2020, the European Commission has sent to the Member States for consultation a draft proposal to further extend the scope of the Temporary Framework. The proposal would enable 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.

Based on the Temporary Framework, the European Commission has already approved a huge number of aid measures/schemes in different Member States of which a complete overview can be found via the following link.

As far as Belgium is concerned, it initially remained very quiet, but , but so far, eleven aid schemes have been approved:

  • 10 April: Flemish guarantee scheme of up to EUR 3 billion for working capital and investment loans to support companies active in the Flemish Region that are affected by the coronavirus outbreak. The measure will only be open to undertakings whose loans are not eligible for a guarantee under the Belgian loan guarantee scheme (see below).

  • 11 April: Belgian guarantee scheme mobilising EUR 50 billion support for companies affected by the coronavirus outbreak. The support, in the form of State guarantees on new short-term loans, will be accessible to all companies, including SMEs and self-employed traders.

  • 11 April: Belgian aid scheme deferring payment by Charleroi and Liege airport of concession fees due for the year 2020 to mitigate the economic impact of the coronavirus outbreak.

  • 24 April: EUR 200,000 Belgian regional scheme to support agricultural and aquacultural sectors in the Brussels-Capital region in the context of the coronavirus outbreak. This public support, which will take the form of direct grants, will be accessible to companies of all sizes active in these sectors in the Brussels-Capital region.

  • 27 April: EUR 4 million Belgian regional aid scheme to support coronavirus-related R&D projects in the Brussels-Capital region. The public support will take the form of direct grants and will be accessible to small, medium-sized and large enterprises from all sectors, capable to carry out such activities, which have at least one place of business in the Brussels-Capital region.

  • 30 April: Walloon guarantee scheme of up to EUR 530 million to support the Walloon economy. The measure aims at limiting the risk associated with issuing or restructuring loans to those companies that are most severely affected by the economic impact of the coronavirus outbreak, ensuring the continuation of activities.

  • 5 May: Flemish subordinated loan scheme of EUR 250 million to support start-ups, scale-ups and SMEs, active in the Flemish region and affected by the coronavirus outbreak.

  • 12 May: EUR 25 million Belgian regional aid scheme to support coronavirus related R&D activities in Wallonia. The public support will take the form of direct grants and repayable advances. The scheme is open to all companies active in Wallonia that are capable of carrying out R&D projects relevant to the coronavirus outbreak.
  • 15 May: EUR 903.2 million quota-share reinsurance programme for short-term credit and surety risks linked with the COVID-19 outbreak. The measure will be implemented by way of bilateral reinsurance agreements to be signed between Credendo ECA, on behalf and for account of the Belgian State, and the participating private trade credit insurers.

  • 19 June: EUR 21 million Belgian regional scheme to support the production of coronavirus-relevant medical products, equipment, technologies and raw materials in the Flemish region. The public support will take the form of direct grants and will be open to all companies active in the Flemish region, except for financial institutions. The aim is to incentivise companies to direct their activities to the production of certain crucial products such as vaccines and treatments, medical equipment and devices, disinfectants, data collection and processing instruments.

It is important to add that financial support from the EU or Member States granted to health services or other services of general interest for overcoming the coronavirus crisis fall outside State aid controls, as they do not constitute economic activities.

Normally, obtaining the European Commission’s approval for the granting of State aid can often take several months. As that time period would be catastrophic in the current circumstances, the European Commission is now taking decisions at a very fast pace, as can be seen from the various approved aid schemes based on the Temporary State aid Framework. They were all approved within a couple of days and sometimes even within 24 hours of the notification.

The Commission has set up a dedicated mailbox and telephone number to assist Member States with any queries they have: Telephone number: (+32) 2 296 52 00; e-mail address: [email protected]

To further facilitate Member States’ swift action, the Commission has also provide templates (for notifications under article 107 (2) (b) and the Temporary Framework). It has also adopted a specific template for state aid measures in a form of recapitalization of non-financial undertakings (section 3.11 of the Temporary Framework).

AlLTIUS will keep you informed about the latest developments in this area and we are available for any questions you might have.

Do not hesitate to contact Hanne Baeyens  or Carmen Verdonck for further information.


Link to article


WSG Member: Please login to add your comment.