The European Commission temporarily relaxed its state aid rules again on Friday 8 May: subject to strict conditions, it is now allowing European countries to recapitalise companies that are in difficulty because of the coronavirus crisis. The conditions include a ban paying dividends or bonuses to senior managers.
The update to the framework for State aid has been published (https://bit.ly/3fDi139 ) at the same time as the German air transport group, Lufthansa, which is Europe’s largest, is in talks with the German government to discuss partial nationalisation and €9 billion in aid to avoid bankruptcy from the impact of the pandemic on its business.
On 4 May, France was given permission to provide Air France with €7 billion of aid.
On 8 May, the Commission therefore adopted a second amendment to extend the scope of the Temporary Framework for State aid adopted on 19 March 2020. The second amendment supplements the types of measures that were already covered by the Temporary Framework and the existing state aid rules by establishing criteria that Member States may use as the basis for taking action in the form of recapitalisation and subordinated debt instruments to support companies in need, “while maintaining a level playing field in the EU”.
The Commission has so far approved an estimated €1.9 trillion in State aid to the EU economy.
Margrethe Vestager, Executive Vice-President responsible for Competition Policy, said that “if Member States decide to step in, we will apply today's rules to ensure that taxpayers are sufficiently remunerated and their support comes with strings attached, including a ban on dividends, bonus payments as well as further measures to limit distortions of competition” (see EUROPE 12479/6).
Recapitalisation. The second amendment allows well-targeted public intervention in the form of recapitalisation aid to non-financial companies in need.
The framework establishes a number of safeguards: - recapitalisation aid should only be granted if no other appropriate solution is available. Interventions must also be in the common interest; - the State must be sufficiently remunerated for the risk it assumes by providing recapitalisation aid; - beneficiaries and Member States are required to develop an exit strategy, particularly with regard to large companies that have received substantial recapitalisation aid from the State. “If, six years after recapitalisation aid is given to publicly listed companies, or up to seven years for other companies, the exit of the State is in doubt, a restructuring plan for the beneficiary will have to be notified to the Commission”; - 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, strict limits will be applied to the remuneration of their management, including a ban on bonus payments; - to ensure that beneficiaries do not unduly benefit from the recapitalisation aid granted by the State to the detriment of fair competition in the Single Market, they are prohibited from using the aid to support economic activities of integrated companies which were in economic difficulties prior to 31 December 2019. Moreover, until at least 75% of the recapitalisation is redeemed, beneficiaries, other than small and medium-sized enterprises (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.
The Commission also states that the Environmental and Energy State aid guidelines will be revised by 2021 in light of the policy objectives of the European Green Deal to support a cost-effective and socially-inclusive transition to climate neutrality by 2050.
Subordinated debt. The amendment also introduces the possibility for Member States to support companies that are facing financial difficulties by providing subordinated debt instruments granted on favourable terms. (Original version in French by Lionel Changeur)