Last week, the European Commission approved a further UK Coronavirus state aid measure: an “umbrella” scheme to support companies affected by the coronavirus outbreak under the Commission’s Temporary Framework for State Aid Measures to Support the Economy in the COVID-19 Outbreak. Read the announcement here.
Alastair Smith, Director of Legal, Compliance & Operations at The North East Fund, explains more.
Last week's announcement followed the approval on 25 March of the Coronavirus Business Interruption Loan (CBILs) scheme and of a £600m SME grant scheme, and it dwarfs the latter in its scale – having an estimated budget of £50 billion, for aid to be granted by any UK authorities including central government, local authorities and publicly funded schemes administered by independent organisations. Under the scheme, aid of up to €800,000 can be granted to any SME or large corporation in various ways and for different purposes, including:
- Direct grants or equity injections of up to €800k to support the urgent liquidity needs, including working capital, of any business.
- Subsidised loans of up to €800k, for working capital or investment needs of any business, which can be on favourable terms, including zero-interest rates, for loans with a nominal amount up to €800,000.
- Support for coronavirus-related R&D to address the current health crisis in the form of direct grants or repayable advances up to €800k.
- Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak.
- Support for the production of products relevant to tackle the coronavirus outbreak.
The Commission’s currency converter currently attributes a GBP sterling value of £711,200 to €800k.
This UK Coronavirus Umbrella Aid Scheme has been approved to for use until the end of 2020 and can be used to provide support to all types of business. The only caveat is that the business must not already have been deemed to be an “undertaking in difficulty” as at 31 December 2019. Usually, the recipient of the public support is assessed on its financial position at the time when the grant or other publicly-funded support is provided. By permitting the assessment to be based on each company’s situation/finances as at 31/12/19, the European Commission has acknowledged that companies which were viable before the COVID-19 crisis should not be denied support if they have become an “undertaking in difficulty” as a consequences of the extraordinary disruption to the economy caused by the pandemic.
The definition of “Undertaking in Difficulty” is set out in page 18 of the General Block Exemption Regulation but can be summarised as being any company which:
- has lost more than half of its share capital due to accumulated losses – i.e. where the deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital; and/or
- is subject to insolvency proceedings or is likely, due its financial / trading position or to action from creditors, to enter insolvency proceedings e.g. by an administrator, receiver or liquidator being appointed by creditors or by the directors of the company, to avoid trading while insolvent.
Companies which are within three years of incorporation generally cannot be considered to be an “undertaking in difficulty”, unless the circumstances in the second bullet point above (actual or imminent insolvency proceedings) apply.
If aid is provided under the UK Coronavirus Umbrella Aid Scheme, the undertaking in difficulty test/assessment should be based on the company’s circumstances as at 31/12/19 – and so any deterioration since then resulting from the COVID-19 crisis can be disregarded, if the company was not ‘in difficulty’ under the criteria of the test at 31 December 2019. It is understood that MHCLG are likely to accept that this approach to assessing Undertaking in Difficulty status can now be applied to most ERDF-supported programmes, but this should be confirmed direct with MHCLG as it may depend on the terms of individual funding agreements and on the specific state aid basis on which individual projects were approved.