COVID-19 economic impact: Using State Aid to help with a liquidity crisis

The spread of the COVID-19 pandemic globally will have a significant economic impact on all nations. Several European countries are considering or have already announced support measures for citizens or companies to help with liquidity problems.

Any businesses that are worried about liquidity, or believe that they will need financial support during the pandemic, should contact their local government to establish what help is available. 

Some of the financial support measures currently being proposed may entail State aid and others will not. It is important that businesses understand that State aid measures require special legal treatment to legitimise it, otherwise the business recipient will be exposed to legal risk.

The types of measures which will fall outside the scope of State aid control include financial support granted to health services or other public services to tackle the COVID-19 situation. The same applies to any public financial support given directly to citizens.  Public support measures that are available to all companies, for example an extension of payment deadlines for corporate tax, would not fall under State aid control.  All of these measures can be implemented by a government, and taken advantage of by its businesses and citizens, without the need for approval under the EU State aid rules (which are still valid and enforceable during the Brexit transition period).

There will be a raft of other measures made available, however, which will constitute State aid and some of this will be permissible under existing State aid approvals. For example:

• Central or local governments are allowed to give individual grants to a business up to a maximum of €200,000 in any given 3 year period.   This is called De Minimis State aid an is permissible under a block exemption;
• The Scottish Government has introduced a variety of measures as part of a £320m COVID-19 support package, including 75% rates relief for retail, hospitality and leisure sectors (rate value of less than £69,000) and fixed rate relieves of up to £5,000 for all pubs (rateable value of less than £100,000).   These measures are similarly block exempted.
• In last week’s Budget, the UK Government announced a £12bn package of support measures for public sector, individuals and businesses, including a new temporary Coronavirus Business Interruption Loan Scheme which will support businesses in accessing bank lending and overdrafts, with loans benefiting from an 80% government backed guarantee.   Again, this is compliant with existing State aid rules on State-backed guarantees. 

These measures are unlikely to be enough however, given the rapid spread of COVID-19 across Europe and the significant escalation in Government imposed management measures.This is a fact acknowledged by the Chancellor of the Exchequer, Rishi Sunak, today. The Government is widely expected to announce more measures, which will hopefully go further that the current support packages proposed.  Anything more significant in terms of value and scope, however, may not comply with existing State aid rules and may need bespoke approval from the European Commission. This is not necessarily problematic, the European Commission has been vocal in its willingness to support EU member states in designing State aid compliant financial measures to implement during the COVID-19 crisis. The European Commission has already approved an emergency funding package for Denmark in which Danish businesses forced to cancel large scale events would be given financial compensation. In a manner reminiscent of the Financial Crisis of 2008, the European Commission approved this measure in just 48 hours.

The UK could well seek approval for similar measures to which it imposed during the Financial Crisis, such as substantial financial bail outs of ailing airlines (similar to the banking bailouts in 2008). The UK may also seek to implement a similar framework of financial measures to the 2009 Temporary Framework, which saw such things as interest free loans and an increase in De Minimis aid up to €500,000 to single businesses. Such measures would certainly need to be re-approved by the European Commission.

Everything points towards the fact that the European Commission will be swift, proactive and supportive of the UK seeking to provide additional financial support during this testing time. And until such time as additional measures are approved, businesses should still take advantage of the existing measures which are on the table. Businesses would be well advised to ask for financial assistance now, as some measures may take time to implement and approve.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.