The COVID-19 crisis is first and foremost a health issue, as governments around the world seek to limit and treat its effects and save lives. However, it is also an immediate economic and social issue, as companies and individuals strive to deal with its effects on their livelihoods—from airlines with no flights and passengers to small businesses which have to close for lack of cashflow and increased costs or due to governmental social distancing measures.
As a result, parallel to quarantine and travel restrictions, EU Member States are announcing State subsidy packages of huge scope daily. In the European Union, such subsidies (termed 'aid') are generally regulated in order to prevent unfair distortions of competition and trade within the EU's Internal Market. To deal with this, on 13 March 2020 the European Commission (the 'EC') issued a "Communication" recalling the various options for Member States that are within the rules. 1 On 19 March 2020, it adopted a further, specific "Temporary Framework" for support measures to help with the effects of COVID-19, after consultation with the 27 EU Member States.2
This Alert aims to offer a high-level overview of key EU State aid issues relating to the COVID-19 outbreak, based on these measures
WilmerHale has formed a Coronavirus (COVID-19) Task Force to lead the legal and strategic counselling of clients around the world in response to the outbreak. The task force consists of
WilmerHale lawyers in multiple key disciplines. The Crisis Management and Strategic Response Group is also involved in helping clients respond to these challenges.
WilmerHale's European Antitrust and Competition team is closely following these issues. The lawyers listed below would be happy to answer any follow-up questions that readers may have.
EC action on State aid to address COVID-19
The EC plans to use all the instruments at its disposal to mitigate the consequences of the outbreak, while Member States use their national budgets to minimize the fiscal effects of the COVID-19 pandemic. Member State subsidy plans may include support schemes for specific industry sectors or types of companies (e.g., small and medium-sized enterprises ('SMEs'), but also packages to support individual companies (e.g., airlines)). 3
A. Instruments Available for EU Member States under the EU State Aid Rules
As a general rule, aid granted by an EU Member State may need to be notified to the EC and suspended until the EC's approval. Under EU State aid law, aid by an EU Member State which affects trade in the EU and distorts competition by favoring some companies is incompatible with the EU Internal Market.4 EU State aid law is designed to ensure that EU Member State measures are effective in helping companies affected by the Coronavirus outbreak, while preventing action which fragments the EU Internal Market.
These are the tools that are available to Member States to design support measures in line with existing EU State aid rules.
Covering Damage Suffered due to the Outbreak
COVID-19 Outbreak as an Exceptional Occurrence. A State aid to remedy the damage caused by natural disasters or exceptional occurrences is deemed compatible with the EU Internal Market.5
In a swift application of this rule in the context of the COVID-19 outbreak, on 12 March 2020 the EC approved a EUR 12 million Danish aid scheme to compensate organizers for the damage arising from the cancellations or rescheduling of public events due to the outbreak.6 Under this approved scheme, Denmark will compensate organizers of events (i) with more than 1,000 participants, or (ii) targeted at designated risk groups, such as the elderly or vulnerable people.
EC's Assessment. According to the press release, the EC considered the COVID-19 outbreak as an exceptional occurrence under the EU State aid rules. The EC also concluded that the Danish scheme was proportionate, directly linked to the pandemic, and addressed the economic damage caused by the virus in Denmark, without unduly distorting competition in the EU Internal Market.
EC's Readiness for Similar Actions. The EC approved the Danish scheme within 24 hours from its notification. The EC stressed that it was ready to work with Member States to ensure that economic measures to deal with the outbreak can be put in place as effectively as possible. The EC also noted that Member States may design similar schemes to compensate damage suffered by companies in sectors such as aviation, retail, tourism and hospitality due to the outbreak, without the need for entities having their viability or liquidity at risk.7
Aid to Companies Facing Financial Difficulties Due to the Outbreak
Aid to Meet Liquidity Needs Arising from the Outbreak. Member States may grant aid to companies facing bankruptcy due to the COVID-19 outbreak, subject to the EC's approval under the EU State aid rules.8 As the EC considers the COVID-19 outbreak an "exceptional and unforeseen circumstance", companies that are not facing bankruptcy, but are in acute liquidity need due to the outbreak can also receive support.9 The rescue aid can be in the form of loan guarantees or loans.
Exceptions to the "One Time, Last Time" Principle Possible. Generally, companies that have received such aid in the past 10 years would not be eligible for further aid, in order to avoid keeping economically unviable companies in the market artificially.10 However, considering the severity of the circumstances, the EC has announced its readiness to accept exceptions to that rule, following an individual notification.
Temporary Restructuring Support, Adaptation of Current Schemes. As an alternative to rescue/restructuring aid, Member States may also cover acute liquidity needs of SMEs and smaller State-owned companies, through temporary restructuring support for a maximum duration of 18 months. 11 France, Germany, Ireland and some other EU Member States have such support schemes in place. The national authorities may repurpose already approved schemes and use them for the COVID-19 outbreak, or directly increase the budget approved for the scheme up to 20% without further involvement of the EC.
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1. Communication from the EC, 13 March 2020 "Coordinated economic response to the COVID-19 Outbreak", available at: https://ec.europa.eu/info/sites/info/files/communication-coordinated-economicresponse-covid19-march-2020_en.pdf, (the 'Communication').
2. Communication from the EC, 19 March 2020, "Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak", available at: https://ec.europa.eu/competition/state_aid/what_is_new/sa_covid19_temporary-framework.pdf. (the 'Temporary Framework')
3. EC Press Release, 13 March 2020, "COVID-19: Commission sets out European coordinated response to counter the economic impact of the Coronavirus"
4. Art. 107(1) Treaty on the Functioning of the European Union (the 'TFEU').
5. Art. 107(2)(b) TFEU.
6. EC Press Release, 12 March 2020, "Commission approves €12 million Danish scheme to compensate damages caused by cancellations of large public events due to COVID-19 outbreak".
7. The Communication, p. 6.
8. Article 107(3)(c) TFEU. Also see the EC's Guidelines on State aid for rescuing and restructuring nonfinancial undertakings in difficulty (the 'Guidelines').
9. The Communication, p. 9; and Annex 3, p. 6.
10. Section 3.6.1 of the Guidelines.
11. The Guidelines, para. 13.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.