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Review of the draft act on granting public aid for rescuing or restructuring enterprises

17 April 2020

A draft act on granting public aid for the purpose of saving or restructuring entrepreneurs has been submitted to the Parliament.

The act will make it possible to obtain support from public funds by entrepreneurs in a difficult economic situation and who are taking corrective measures. State aid in the form of financial support in the form of loans, capital entries and relief in the repayment of certain public receivables will be able to be granted for liquidity support for the period needed to prepare a recovery plan and to finance restructuring measures. Significantly, therefore, financial aid may also be granted to companies that are already in financial difficulty but have not yet started any restructuring procedures. The aid will be granted from the State budget upon written request by the minister responsible for the economy, who may, however, delegate its granting to the Industrial Development Agency.

Which entrepreneurs will be able to apply for public aid

Entrepreneurs in a difficult economic situation will be able to apply for public aid. The draft act considers as such entrepreneurs: insolvent, i.e. those who have lost the ability to perform their due monetary obligations and entrepreneurs threatened with insolvency, who as a result of the losses incurred have lost more than half of their capital, in particular if the sum of the profit (losses) from previous years, the net profit (loss) in a given financial year, the reserve capital, the revaluation capital and other reserve capitals (funds) is negative and its absolute value is greater than 50% of the basic capital (fund), and in the case of entrepreneurs other than small and medium-sized ones, if during the last two years the ratio of debt to equity capital was greater than 7.5 and the ratio of operating profit increased by depreciation to interest was lower than 1.

Entrepreneurs who will apply for aid must also meet the following criteria:

  • have been carrying on business activity in the sector concerned for at least 3 years
  • not be active in the iron and steel, coal or financial sectors
  • not operate in a market where there is or may be long-term structural overproduction
  • not belong to a capital group or be taken over by any entrepreneur belonging to the capital group - the exception is the possibility to prove that the difficult economic situation of the entrepreneur is of an internal nature and does not result from an unjustified division of costs within the capital group or is too serious to be solved by the entrepreneur or entrepreneurs belonging to the same capital group.

The draft assumes that one of the three categories of aid, i.e. aid for temporary restructuring support, can only be granted to micro, small and medium-sized enterprises.

As an exception, aid may be granted to entrepreneurs who do not meet the requirements described above, but provide services of general economic interest, when this will be necessary to maintain the continuity of these services, but not longer than until the obligation to provide these services is transferred to another entrepreneur.

Additional conditions for granting aid

Aid may be granted if it prevents and leads to the reduction of social difficulties or to the overcoming of market failures where, without it, this objective would not be achieved or would be achieved to a lesser extent.

The aid is therefore not only intended to benefit a specific undertaking but also the State.

What assistance will be available to entrepreneurs

The draft law defines three categories of public aid: rescue aid, temporary restructuring support and restructuring aid.

An entrepreneur in economic difficulty will be able to apply for rescue aid and subsequently for restructuring aid. If it is a micro, small or medium-sized entrepreneur, it will also be able to apply for temporary restructuring support granted after rescue aid and before restructuring aid.

Rescue aid

Pursuant to the draft act, rescue aid is granted to an entrepreneur in a liquidity crisis in order to enable him to conduct business activity for the period necessary to develop a restructuring or liquidation plan.

It can be granted only in the form of an interest-bearing loan, which must be secured and of which the amount is calculated using the formula indicated in the act. The amount of the loan will be limited to the amount necessary to maintain the basic business activity of the entrepreneur. The period for which the aid will be granted is determined by the applicant itself, but it may be longer than 6 months.

The draft act excludes the possibility of using the loan for the purchase of assets or for expenses incurred to expand the scope of the entrepreneur's business activity, unless it will be necessary to maintain the entrepreneur's business activity during the period for which the aid will be granted.

An entrepreneur who does not want to apply for further aid regulated by the act will be obliged to submit to the entity that granted the aid a statement on the repayment of the loan received within the time limit specified in the act. However, if the entrepreneur applies for another type of aid, he will have to submit a restructuring plan or a simplified restructuring plan or a liquidation plan of the company, respectively, to the entity granting the aid for approval within a specified period.

Temporary restructuring support

A micro, small or medium-sized entrepreneur will be able to apply for temporary restructuring support. In order to obtain it, such an entrepreneur will not have to meet all conditions of an entrepreneur in a difficult economic situation. It is sufficient that the entrepreneur, due to the occurrence of exceptional and unforeseen circumstances, will require urgent liquidity support and simultaneously:

  • will conduct business activity in a given sector for at least 3 years
  • will not be active in the iron and steel, coal or financial sectors
  • will not operate in a market where there is or may be long-term structural overproduction
  • will not belong to the capital group or be taken over by any entrepreneur belonging to the capital group

Temporary restructuring aid, like rescue aid, will be granted only in the form of an interest-bearing loan, the amount of which will be determined on the basis of the same principles as the amount of the loan granted under the rescue aid. The amount of temporary restructuring support will be limited to the amount necessary to continue the activity of a micro, small or medium-sized enterprise.

The support shall be granted for a period not longer than 18 months. If the temporary restructuring support is directly preceded by rescue aid, the total aid period may not exceed 18 months.

During this period, the entrepreneur will have to submit a statement on loan repayment if the conducted restructuring measures prove sufficient, or a restructuring plan if further corrective measures are necessary and the entrepreneur will apply for restructuring aid or a liquidation plan if the entrepreneur's situation will not qualify for further restructuring.

Restructuring aid

Restructuring aid will be aimed at implementing a restructuring plan that will restore the entrepreneur's long-term ability to compete in the market.

Restructuring aid will be conditional on the entrepreneur demonstrating that, without the aid, social difficulties could not have been prevented or market failures could have been overcome, or only to a lesser extent, while the entrepreneur would have been restructured, sold or liquidated without aid. Restructuring aid will be limited to the minimum necessary to restore the long-term viability of the undertaking and may be granted if the undertaking also provides an own contribution to the restructuring costs. The own contribution will have to be real, be comparable to restructuring aid and represent at least 50% of the restructuring costs. Restructuring aid will also be conditional on the undertaking taking measures to offset distortions of competition on the market. Under the draft act, restructuring aid may be granted in the form of:

  • a loan
  • taking up shares or stocks in the increased share capital or participation in an increase of the share capital by increasing the nominal value of existing shares or stocks
  • taking up shares or stocks in the increased share capital or participation in an increase of the share capital by increasing the nominal value of existing shares or stocks
  • bond subscriptions
  • conversion of a loan, granted as rescue aid or as temporary restructuring support, into shares or stocks of an entrepreneur

Restructuring aid will also be able to be shared in the form of relief from the administrative fine by:

  • deferral of the implementation of the administrative penalty payment or its distribution in instalments
  • deferral of the execution of the outstanding administrative fine or its distribution in instalments
  • cancellation of the administrative fine in whole or in part
  • cancellation of interest for late payment in whole or in part

A condition for obtaining the relief will be that the equivalent of the aid granted will be used to implement the restructuring plan.

Restructuring aid will be granted only if the restructuring measures set out in the restructuring plan are not limited to the restructuring of liabilities and do not provide for new investments, with the exception of investments necessary to restore the entrepreneur's long-term ability to compete on the market.

The amount of funds allocated in the State budget for these purposes

In the bill, an amount of PLN 120 million was assumed for all three categories of aid in total each year, which will be divided as follows: 69% for loans, 29% for capital injections and up to 2% for the costs of granting aid.

Further Reading

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