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On 19 March 2020, the European Commission adopted the Temporary Framework on State aid measures to support the economy in the current context of the COVID-19 outbreak ("Temporary Framework"). The Temporary Framework is based on Article 107(3)(b) TFEU and aims to remedy a serious disturbance in the European economy. The Temporary Framework allowed States to adopt measures to contribute to the continuity of economic activity during the COVID-19 pandemic and to ensure recovery after the crisis.

The Temporary Framework, adopted in March 2020 and initially in force until the end of 2020, provided for five categories of aid which could, under certain conditions, be considered by the Commission to be compatible with the internal market:

aid in the form of direct grants, repayable advances or tax concessions, up to a maximum amount of EUR 800,000 per company;

aid in the form of loan guarantees;

aid in the form of subsidised interest rates for public loans;

aid in the form of public guarantees and reduced interest rates provided to enterprises through credit or other financial institutions; and

aid in the form of short-term export credit insurance.

In view of the pandemic's development and its impact on the economies of EU Member States, the Temporary Framework has been amended several times and its duration extended.

On 3 April 2020, the Commission adopted a first amendment so that aid could be used to accelerate research, testing and production of COVID-19-related products, to protect jobs and to further support the economy during the crisis (see our article of 7 April 2020).

On 8 May 2020, it adopted a second amendment to further facilitate access to capital and liquidity for companies affected by the crisis (see our article of 13 May 2020).

On 29 June 2020, it adopted a third amendment to further support start-ups and micro, small and medium-sized enterprises and to encourage private investment (see our article of 10 July 2020).

On 13 October 2020, it adopted a fourth amendment to prolong the Temporary Framework and to allow aid to be used to cover part of the uncovered fixed costs of companies hit by the crisis (see our article of 16 October 2020).

On 28 January 2021, it adopted a fifth amendment to further extend the Temporary Framework, to adapt the aid thresholds set out in the Temporary Framework and to allow reimbursable instruments to be converted into direct grants under certain conditions (see our article of 3 February 2021).

Finally, on 18 November 2021, the European Commission extended the Temporary Framework until 30 June 2022 (see our article of 24 November 2021). The main change concerns the introduction of two categories of phasing-out aid, i.e. the option for Member States to grant investment and solvency support measures beyond the fixed expiry date (i.e. beyond 30 June 2022).

Member States can stimulate private investment in enterprises, provided that the investment aid is granted under an aid scheme and in various forms and that the maximum individual aid to an enterprise does not exceed EUR 10 million in nominal value. This ceiling is increased to EUR 15 million where the aid scheme provides for aid exclusively in the form of guarantees or loans. In addition, individual aid must not exceed 1% of the total budget of the scheme, save in exceptional situations duly justified by the Member State concerned.

The eligible costs covered by these investment support measures must only include the costs of investment in (in)tangible assets, excluding financial investments.

In addition, the aid intensity must not exceed 15% of the eligible costs, although increases may be justified where small or medium-sized enterprises are concerned. In the case of aid in the form of guarantees or loans, the aid intensity must not exceed 30% of the eligible costs.

Finally, Member States may limit investment aid to specific economic areas that are of particular importance for economic recovery, provided that such limits are designed in a general way and do not constitute an artificial restriction on eligible investments.

This instrument is available to Member States until 31 December 2022 if the investments concerned were made before 1 February 2020.

Solvency support is intended to alleviate the difficulties associated with a company's level of indebtedness and to act as an incentive for private investment in equity, subordinated debt or quasi-equity, with the aim of achieving risk sharing between Member States and private investors.

Risk sharing is achieved by limiting the value of such a guarantee to a maximum of 30% of the underlying portfolio when covering first losses, with a limit of EUR 10 million on the total amount of funding provided per company.

Like investment aid, solvency support is granted under an aid scheme established on the basis of transparent and objective criteria, in the form of state guarantees or similar measures. Such support will be granted on market-oriented terms and will only be targeted at SMEs as final beneficiaries. Financial institutions are explicitly excluded from the measure.

This instrument is available to Member States until 31 December 2023.

In addition, the Commission has made other changes, namely:

extending from 30 June 2022 to 30 June 2023 the option for Member States to convert certain reimbursable instruments (such as guarantees, loans and repayable advances) granted under the Temporary Framework into other forms of aid, such as direct grants;

adjusting the maximum amounts of certain types of aid in proportion to their extended period;

clarifying the exceptional flexibility provisions of the Commission's rescue and restructuring guidelines; and

extending by three months (from 31 December 2021 to 31 March 2022) the adapted list of non-marketable risk countries for short-term export credit insurance.

At the beginning of 2022, the Commission consulted Member States on a possible extension of the Temporary Framework and requested related macroeconomic data.

However, the European Commission announced on 12 May 2022 that the Temporary Framework would not be extended beyond 30 June 2022, although some measures can be implemented by States after this date; for example, Member States will still be able to convert loans into limited amounts of aid in the form of direct grants, subject to the conditions of the Temporary Framework and provided that this option has been envisaged in their national schemes. This conversion option could be used under strict conditions to cancel loans or parts of loans for the benefit of borrowers who are unable to repay.

Similarly, Member States will also be able to implement their schemes to restructure loans, for example by extending their duration or lowering the applicable interest rates, within defined limits.

In addition, during the phasing-out and transition phase, Member States will be able to adopt the specific investment support and solvency support measures described above until 31 December 2022 and 31 December 2023 respectively, subject to prior authorisation by the Commission (see above).

In conclusion, just over two years after the Temporary Framework's entry into force, the Commission will have enabled Member States to provide rapid and flexible support to companies affected by the COVID-19 crisis. The Commission has in fact adopted more than 1,300 decisions in the context of the coronavirus pandemic, authorising almost 950 national measures for a total amount of State aid estimated at almost EUR 3,200 billion.

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Phasing-out of the Temporary Framework on State aid linked to the COVID-19 crisis - Lexology