State aid for companies in the Corona Crisis – what must be considered?

The Corona Crisis poses existential challenges for many companies. Customers stay away, orders are cancelled. At the same time, the demand from abroad declines and international supply chains are in-terrupted. Meanwhile the costs continue. Wages for employees, rents and loans etc. must continue to be paid. The consequences are liquidity shortages and even insolvency. The German Federal Gov-ernment has reacted to this situation with a "protective shield for employees and companies". The aim is to provide companies and businesses with sufficient liquidity to enable them to get unscathed through the crisis. The European Commission has announced a "Corona Response Initiative" with a volume of EUR 37 billion. Almost all measures are subject to EU State aid rules and national subsidy regulations. These must be followed even in times of crises. Failure to do so could have serious con-sequences, including criminal prosecution. Below you will find the most important information at a glance.

1. Which aids are offered?

In addition to tax relief and the flexibilization of short-time work compensation, the German Govern-ment has initially adopted the following measures:

• The conditions for the KfW Entrepreneur Loan (KfW-Unternehmerkredit) (for existing compa-nies) and ERP Start-up Loan (ERP-Gründerkredit) will be loosened by increasing risk assumption (liability exemptions) for working capital loans and by opening the instruments to large companies with a turnover of up to EUR 2 billion (previously: EUR 500 million). Higher risk assumptions of up to 80% for working capital loans of up to EUR 200 million will encourage the willingness of house banks to grant loans.
• For the program for larger companies, the previous turnover limit of EUR 2 billion is raised to EUR 5 billion. This “KfW Loan for Growth” (KfW Kredit für Wachstum) will be converted and made available in future for projects by way of syndicated financing without being limited to a specific area (so far only innovation and digitization). Risk assumption will be increased to up to 70% (pre-viously 50%). This will facilitate the access of larger companies to syndicated financing.
•  For companies with a turnover of more than five billion euros, support will continue to be provided on a case-by-case basis.
• In the case of guarantee banks, the maximum guarantee amount is doubled to EUR 2,5 million. The Federal Government will increase its share of risk with the guarantee banks by 10%. In order to accelerate the provision of liquidity, the Federal Government is opening up the possibility for the guarantee banks to make guarantee decisions up to an amount of EUR 250,000 independently and within 3 days. The large guarantee scheme, which has so far been limited to enterprises in structurally weak regions, will be opened up to enterprises outside these regions (coverage of working capital financing and investments with a guarantee requirement of EUR 50 million or more and a guarantee ratio of up to 80%).
• A KfW special program for the short-term provision of loans (KfW-Sonderprogramm zur kur-zfristigen Versorgung mit Krediten) has been announced for companies that have temporarily run into more serious financial difficulties due to the crisis and therefore do not have easy access to the existing promotional programs.
  
  

2. Where can these measures and aids be applied for?

At KfW and the guarantee banks of the federal states, if necessary directly at the federal government (large enterprises). The BMWi has set up a corona promotion hotline: 0301 8615 8000 (Monday to Thursdays 9:00 am until 04:00 pm).

3. Which legal framework applies?

In principle, all State aid to companies is subject to the rules of EU State aid Law (Article 107 of the Treaty on the Functioning of the European Union - TFEU). State aid is generally prohibited and may only be approved if there is an appropriate legal basis. Aid must be notified to the Commission and may only be granted after it has been approved. However, State aid law contains a provision by means of which the European Union can give the Member States leeway to support companies that have run into economic problems as a result of the Corona crisis. Under Article 107(2)(b) TFEU, aid to make good the damage caused by natural disasters or exceptional occurrences is compatible with the inter-nal market. Since there is little knowledge about the spread of the novel corona virus recognized as a pandemic and about the possibilities of combating it, it can be classified as such an exceptional event. In the course of the Corona Crisis, the Commission has already approved initial measures by the Member States on the basis of Article 107 (2)(b) TFEU at very short notice. In addition, there are ex-plicit rules for so-called rescue and restructuring aid. On March 19, the EU Commission also recog-nized in a so-called temporary framework for the application of state aid law that the economic life of the entire EU is "seriously disturbed" by the corona virus within the meaning of Art. 107 (3) (b) TFEU. To remedy this disturbance, the Temporary Framework provides for five types of aid, namely grants/tax concessions, state guarantees for bank loans, subsidised loans and guarantees for banks. National law also contains regulations for subsidies and grants. Violations may be punishable as subsi-dy fraud (Section 264 German Criminal Code (StGB)).

4. Must all measures be notified to the EU Commission and released by the Commission?

Aid programs are usually notified by the Federal Government. This is also the case with most of the protective shield measures now announced. In the case of individual measures, there is in principle a notification requirement if the measure is not otherwise exempted (e.g. by the General Block Exemp-tion Regulation). A notification requirement exists, for example, in the case of so-called rescue and restructuring aid for firms in difficulty. In principle, the body granting the subsidy is responsible for notification. Nevertheless, companies should keep in mind whether the subsidy or program has been notified to the Commission, approved or otherwise exempted. This is because subsidies that do not comply with State aid law may have consequences such as early reclaim.

5. What else to consider when submitting an application?

It is essential to ensure that accurate information is provided even in times of crisis. Otherwise there is a risk of early and full reclaim. Incorrect statements can be punishable as subsidy fraud (Section 264 German Criminal Code (StGB)) with a prison sentence of up to 10 years and can result in exclusion from public contracts.

We have compiled on our website comprehensive information and recommendations for action in response to the legal implications arising from the coronavirus pandemic: Coronavirus - legal issues