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Freshfields Risk & Compliance

| 4 minutes read

EU Commission publishes fourth amendment to its Temporary Framework for state aid in relation to the COVID-19 crisis

The EU Commission has published a fourth amendment to its 19 March 2020 guidance document on state aid in reaction to the COVID-19 outbreak (see our blog post).

The Temporary Framework was previously amended on 3 April 2020 (see our blog post), on 8 May 2020 (see our blog post) and on 29 June 2020 (see our blog post).

The fourth amendment extends the availability of all the measures set out in the Temporary Framework. Furthermore, it introduces an extension of the temporary removal of all countries from the list of “marketable risk" countries under the Short-term export-credit insurance Communication (STEC). In addition, it modifies recapitalisation aid rules for state-owned companies and introduces a new instrument allowing governments to cover part of companies' fixed costs during the crisis.

Extension of Temporary Framework measures

The exceptional support measures (apart from recapitalisation measures) permitted by the Temporary Framework were initially meant to end by 31 December 2020. The Commission has now adopted a six-month extension until 30 June 2021 for all support measures covered by the Temporary Framework, except for the recapitalisation measures, which are prolonged  until 30 September 2021.

This is intended to ensure that national support measures effectively help affected companies. To ensure legal certainty, the Commission will decide before 30 June 2021 whether the Temporary Framework needs to be further extended.

Extension of temporary removal of all countries from the list of “marketable risk” countries under the STEC

As a consequence of the COVID-19 outbreak, the Commission found in March 2020 that there is a lack of sufficient private insurance capacity for short-term export-credits in general and considered all commercial and political risks associated with exports to the countries listed in the Annex to STEC as temporarily non-marketable until 31 December 2020.

Taking into account the outcome of a public consultation, as well as the overall signs of continuing disruptive impact of COVID-19 on the economy of the EU as a whole, the fourth amendment to the Temporary Framework now provides for an extension until 30 June 2021 of this temporary removal of all countries from the list of “marketable risk" countries under the STEC. This will allow to further make public short-term export-credit insurance available in light of the current crisis linked to the coronavirus outbreak.

The STEC is in force since 2013 and provides that trade within 27 EU Member States and nine OECD countries listed in its Annex, with a maximum risk period of up to two years, entails marketable risks and should, in principle, not be insured by the State or State supported insurers.

Governments may now cover part of companies' fixed costs during the crisis

Many companies are temporarily facing lower demand and so cannot cover all of their fixed costs. In an attempt to provide an efficient solution that does not require those companies to downsize and incur significant restructuring costs, the Commission now allows governments to contribute to part of their fixed costs on a temporary basis. To be eligible, companies must show that their turnover declined by at least 30% as a result of COVID-19. The maximum amount governments may contributed to a company’s fixed costs is €3 million.

The Commission hopes that this may avoid reduction of the companies’ capital, maintain their business activity and ensure they have a strong base from which to recover post-crisis.

Further option for Member States to exit equity and/or hybrid capital contributions

The Temporary Framework’s recapitalisation measures allow Member States to provide aid in the form of equity and/or hybrid capital instruments to companies facing financial difficulties due to the COVID-19 outbreak.

Until now, a Member State has been able to exit a recapitalisation measure either through:

  • the supported company buying back the stake the Member State had acquired; or
  • the Member State selling its shares to other investors via the stock exchange or public consultation of potential buyers. In case of public consultation, existing shareholders may be granted priority rights to acquire the stake at the price resulting from the consultation.

In addition, as some companies receiving COVID-19 aid were already owned entirely or partially by the relevant Member State, the Commission has recognised that public consultation is not always possible. The fourth amendment to the Temporary Framework therefore introduces a new possibility for Member States to redeem their recapitalisation, which can be used two years after the capital injection has taken place.

If the Member State is the only existing shareholder, there will no longer need to be a competitive sale, and instead an independent expert can confirm the sale price as being in line with market conditions. Here, the Commission introduces a legal fiction: if the independent valuation establishes a positive market value, the Member State is automatically considered to have redeemed the COVID-19 recapitalisation, even if the beneficiary remains in state ownership (i.e. the state did not actually sell its shares). For recapitalisation measures that exceed €250 million, the Member State will have to submit the independent valuation to the Commission.

If there are private shareholders in addition to the Member State, this legal fiction applies only to the Member State’s stake that corresponds to its pre-COVID shareholding. For the Member State’s shareholding over and above the pre-COVID-19 level, the competitive sale process continues to be applicable and the Member State will not have priority rights.

An example used in the fourth amendment to describe these new exit rules is explained with the following table:

Simplified example: Member State is one of several pre-existing shareholders in Company “A”   


Total Company “A” shares

Member State’s shareholding

Other investors’ shareholding



50% (= 50 shares)

50% (= 50 shares)

Recapitalisation measure: Member State buys additional 400 shares in Company A



90% (= 450 shares)

10% (= 50 shares)

Two years after recapitalisation measure: Member State wants to exit

Equity class 1:

The Member State may redeem the part of the recapitalisation that it would need to retain in order to restore its pre-COVID-19 shareholding (i.e. 50%) via an independent valuation.

This would correspond to max. 250 shares or 50% of the Member State’s shareholding in Company “A”.

Equity class 2:

For the equity that goes above and beyond the Member State’s pre-COVID-19 shareholding, the pre-existing rules apply, and a competitive sales process is mandatory.

This would correspond to max. 200 shares or 40% of the Member State’s shareholding in Company “A”.


state aid, covid-19, europe