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State Aid Update: European Commission extend the Temporary Framework

21 October 2020
The Temporary Framework has provided nearly €3 trillion of State aid to be awarded across Europe during the COVID-19 pandemic. However, on 13 October 2020, the European Commission decided to extend the measures until 30 June 2021. Read our insight for more information.

The European Commission has decided to prolong the State aid Temporary Framework recognising that the economic fallout caused by the pandemic will not be resolved by the end of 2020. The move has been welcomed by public sector bodies administering State aid support programmes and businesses alike as, in most cases, it has made awarding public funding easier. However in the UK there remains uncertainty whether a new Subsidy Control regime will be as flexible, while still offering legal certainty.

The evolution of the Temporary Framework

The original Temporary Framework was adopted by the European Commission on 19 March 2020 and created new ways for governments to support businesses, including the popular €800,000 'limited amounts of aid' option. The Temporary Framework was first extended on 3 April 2020 adding further routes to support COVID-19 related R&D&I, testing centres and factories to manufacture Coronavirus related devices, equipment and treatments.

The UK's State aid umbrella scheme was approved on 6 April 2020, allowing the UK's Public Sector bodies to make use of six of the State aid options within the Temporary Framework.

The Temporary Framework was extended for a second time on 8 May 2020 to allow for recapitalisation aid and subordinated debt instruments. On 29 June 2020, the undertaking in difficulty test was relaxed. The October amendment is therefore the fourth change to the Temporary Framework in six months.

Latest changes to the Temporary Framework

The Temporary Framework was due to expire on 31 December 2020. This amendment prolongs it for an additional six months until 30 June 2021, on the same terms. Recapitalisation measures are prolonged for a further three months until 30 September 2021.

Change to €800,000 'limited amounts of aid' option

The Commission has clarified that the actual advantage at a given moment in time must be calculated and always be within the overall limits of the Temporary Framework. In respect of the €800,000 'limited amounts of aid' option, this means that a repayable advance could be paid back and the recipient able to access a new award.

Support for uncovered fixed costs of companies

The amendment also introduces a new, very generous, measure to enable Member States to set up aid schemes to support companies facing a decline in turnover during the eligible period of at least 30% compared to the same period of 2019 due to the coronavirus outbreak. Uncovered fixed costs are the fixed costs incurred by undertakings during the eligible period which are not covered by the profit contribution (i.e. revenues minus variable costs) during the same period and which are not covered by other sources such as insurance or other aid measures.

The aid may be in the form of direct grants, guarantees or loans and is to be set against uncovered fixed costs as per the above definition and may be up to €3 million per undertaking provided also that it is not more than 70% of the uncovered fixed costs (unless the beneficiary would be a small or micro sized enterprise, in which case the limit is 90%). Notwithstanding that this aid is designed as a form of gap funding, the limit of €3 million per undertaking is generous indeed in the context of the previous limitation of €800k per undertakings in respect of general support measures.

Recapitalisation Exit

The Commission has also adapted the conditions for recapitalisation measures under the Temporary Framework, in particular for the State's exit from the recapitalisation of enterprises where the State was an existing shareholder prior to the recapitalisation. The State may now exit from the equity by way of an independent valuation.

Conclusion

The European Commission is to be congratulated on acting quickly to update the Temporary Framework during the pandemic. Public Sector bodies which have followed these changes closely have had new ways to support businesses at a difficult time.

Meanwhile with less than 80 days until the end of the EU-UK Transition Period it is still not clear what subsidy control regime the UK will have, however UK businesses will hope that it affords at least the same abilities for the government to intervene to support business adversely affected by the pandemic as those enjoyed in the EU.

DWF has the largest State aid law team in UK private practice as is able to draw upon market leading experts in our UK and other international offices. Our experience in this area includes working within the European Commission, Central Government, Local Government and with private sector bodies receiving funds. Therefore, we are on hand if it would be useful to discuss the issues raised in this Article or any other element of State aid law.

Further Reading