EU introduces more flexibility in State aid rules: Member States can support micro and small companies that were already in difficulty before the coronavirus crisis

Temporary EU State aid rules now allow Member States to grant aid to micro and small companies that were already in financial difficulties before the onset of the coronavirus epidemic. In addition, the European Commission eased the criteria under which Member States can recapitalise companies during the crisis. The Commission expanded the temporary flexibilities in the State aid rules on 29 June 2020.

The temporary flexibilities aim to secure access to financing for start-ups and innovative companies. While start-ups are of crucial importance for the economic recovery of the EU, they may be loss-making for a long time in their high-growth phase. As a result, many start-ups have not been eligible for state aid under the more flexible State aid rules introduced this spring. Before the latest amendments, Member States could grant support under the temporary rules to companies that are facing financial difficulties as a result of the coronavirus epidemic.

With the new amendments, Finnish authorities can now grant aid under the temporary State aid rules even to micro and small companies in difficulty. This means that Finnvera and other granting authorities could, on a case-by-case basis, grant aid or funding to growth-seeking companies and start-up companies that were already in financial difficulty before the coronavirus epidemic. However, it would not be possible to grant aid under the State aid rules to small companies that are facing bankruptcy or restructuring proceedings due to insolvency.

Amendments to recapitalisation rules

The Commission has eased the temporary State aid rules regarding public support in the form of equity and hybrid capital instruments. These changes apply especially to situations where a large number of private investors participate in recapitalisation measures at the same conditions as the State. In such cases, the criteria set out in the State aid rules to prevent competition distortions will be less strict than normally.

There are flexibilities concerning the dividend ban, the acquisition ban and the cap on the remuneration of the management of the beneficiary. The aim is to encourage private investors to participate in recapitalisation measures during the coronavirus epidemic.

Third amendment to the temporary State aid rules

The European Commission has introduced greater levels of flexibility in the State aid rules several times this spring in response to the coronavirus epidemic. Within the temporary framework, Member States are able to safeguard the liquidity of companies through loans, guarantees and aid, to provide public support to research, development, innovation and production of products relevant to fight the coronavirus epidemic and to grant companies support in the form of equity.

The main objective is to support companies that are facing financial difficulties due to the exceptional economic situation caused by the coronavirus epidemic. Most of the temporary rules will remain in force until the end of 2020, and their use will require a notification of State aid to the Commission and approval by the Commission.

Inquiries:

Olli Hyvärinen, Senior Ministerial Adviser, Ministry of Economic Affairs and Employment, tel. +358 29 504 7026