EU state aid framework expanded to support lossmaking small businesses

29 Jun 2020 2:31 pm by Michael Acton

state aid

Lossmaking small businesses will be eligible to receive EU support under the temporary Covid-19 state aid framework, after the European Commission tweaked the rules today.

The framework previously excluded companies that were in “financial difficulty,” which it defined as being lossmaking — even though that is the business model for many startups.

Now, companies with fewer than 50 employees and less than 10 million euros in annual revenue ($11 million) will be able to receive government aid "even if they were already in financial difficulty" on Dec. 31, 2019, the commission said in a press release.

But companies won't be able to access aid if they are in insolvency proceedings, are undergoing restructuring, or have already received rescue aid and not yet paid it back.

The temporary state aid framework was introduced in March as the effects of the pandemic lockdown on Europe's economy began to take hold. It relaxes the EU's normal state aid rules, allowing governments to step in and provide more fiscal support than would usually be allowed.

Today's amendment also aims to incentivize private investors to take part in more recapitalization measures, where direct stakes are taken in companies.

Under the former framework, companies that received such support were banned from making acquisitions and faced a cap on executive pay.

That rule has now been changed. If private investors follow government recapitalization support by providing at least 30 percent of the new equity injected, then the ban on acquisitions and the pay cap will be limited to three years, the commission said.

And if existing shares in the company are diluted to under 10 percent of the total, a ban on shareholder dividends will also be lifted for both the existing and the new shareholders.

Finally, the commission has also clarified in the rules that no state support should be conditional on a company relocating activity from another EU member state.

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