Extension of State Aid to Small and Start-up Companies has been Proposed

This article was written by Dr Michael Psaila and Dr Laura Spiteri

On the 12 June 2020, the European Commission sent a draft proposal to Member States, purporting to further extend the scope of the State Aid Temporary Framework (the ‘Framework’) that was initially put into effect on the 19 March 2020, for feedback.

The European Commission had issued the Framework with the aim of supporting the economy in these unprecedented times. This latest proposed amendment to the Framework has the aim of supporting micro and small enterprises, including start-ups, and providing incentives for private investors to participate in recapitalisation measures taken in connection with, or as a result of, the coronavirus.

Given that the aim of the Framework is to support businesses that have entered into financial difficulties as a result of the current pandemic, any company that experienced such difficulties prior to 31 December 2019 fell outside the scope of the Framework.

Nevertheless, it is now being proposed that micro and small companies should also benefit under the Framework if they ran into financial difficulties prior to the 31 December 2019 provided these companies are not insolvent, have not received rescue aid that has not been repaid and are not subject to a restructuring plan.

The aim of this extension is to prevent the bankruptcies of micro and small companies, which would seriously affect the EU’s economy, and to increase support to start-up companies.

Given their size, the European Commission is of the view that granting of temporary State Aid to such enterprises is unlikely to distort competition in the internal market.

While this proposal will extend the reach of the Framework, it should be noted that any small and medium-sized enterprise that was in existence for less than three years on the 31 December 2019 could already benefit from the State Aid schemes laid out in the Framework. Moreover, any companies that are not eligible to benefit from State Aid as delineated in the Framework could still benefit from aid under the Rescue and Restructuring Guidelines that were issued by the European Commission in 2014.