In response to the current Coronavirus (COVID-19) crisis, the European Commission has taken swift action to try to stem the tide against what it understandably terms the ‘severe’ financial impact of COVID-19.
The Commission has recently adopted a Temporary Framework to enable Member States to ensure that businesses have sufficient liquidity to keep operating and the support that they need to recover.
Making use of the existing flexibility in state aid rules, the Commission has already declared that the COVID-19 outbreak is an ‘exceptional occurrence’, enabling Member States to compensate companies and other organisations for damage directly incurred as a result of the outbreak. Under the Temporary Framework, the Commission has gone further, tapping into an additional power to approve aid which is ‘to remedy a serious disturbance in the economy of a Member State’.
The Temporary Framework provides for five types of aid:
1. direct grants, selective tax advantages and advance payments of up to €800,000 per company;
2. state guarantees for loans taken by companies from banks to ensure that banks keep providing loans;
3. subsidised public loans to companies with favourable interest rates to help cover immediate working capital and investment needs;
4. safeguards for banks that channel State aid to the economy. Many Member States, and the UK, plan to build on banks' existing lending capacities, using them as a channel for aid particularly to small and medium-sized enterprises. The Temporary Framework makes clear that banks and other financial institutions will be crucial to dealing with the effects of the COVID-19 outbreak and therefore aid channelled to customers to assist them will be treated as direct aid to the final customer and not the banks themselves; and
5. greater flexibility for Member States to provide short-term export credit insurance.
Where aid is granted, having met the conditions stated in the Temporary Framework, Member States benefit from a quick turnaround (sometimes within 24hrs) for an assessment and approval of the aid by the Commission. As we write this update, the Commission has approved around 17 schemes for Member States across Europe, with many more to come. These include two separate schemes to allow the UK to support small and medium-sized enterprises under the Temporary Framework. The so-called Coronavirus Business Interruption Loan Scheme enables the UK to provide: (i) guarantees that cover 80% of loan facilities to small and medium-sized enterprises with turnover of up to £45m to cover their working and investment capital needs; and (ii) direct grants to small and medium-sized businesses affected by the outbreak.
Currently, the UK’s schemes focus on assistance for small and medium-sized businesses. However, this situation is fast-moving and we expect more schemes to be implemented over the coming months. In fact, the Commission is now consulting on whether the Temporary Framework should be expanded to deal more directly with research and development scenarios, particularly where this work is essential to the COVID-19 response, for instance, in the development of vaccines and critical medical equipment.
The Temporary Framework measures can also be added to the many other ways in which the government is already offering assistance under state aid rules, from providing wage subsidies to suspending VAT. For larger organisations, the UK Covid Corporate Financing Facility overseen by the Bank of England, may prove to be helpful.
But as effects of COVID-19 unfold over the coming months, organisations, including those in the higher education sector, will feel its impact. The new Temporary Framework is an acknowledgement by the Commission that it is aware of the impact on these organisations and of the vital importance of state aid as a means to protect them. It has shown it will work quickly with governments to implement schemes to provide all necessary support.
The message is clear: we are in unchartered waters but help is at hand.
Guidance for dealing with COVID-19
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This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, April 2020