A statement of intent

The European Commission has extended certain parts of the Temporary Community Framework for State Aid which was due to expire on 31 December 2010. However, it has imposed stricter conditions, writes Lucy Carlile.

On 6 October 2010 the European Commission published a Communication entitled the "Amendment of the Temporary Community Framework for State aid measures to support access to finance on the current financial and economic crisis" (the "Communication").  The Communication sets out the Commission's intention to prolong certain elements of the Temporary Community Framework for state aid measures (the "Framework") until 31 December 2011.

The Framework

The Framework was originally introduced by the Commission on 17 December 2008 under Article 107(3)(b) of the Treaty on the Functioning of the European Union. Such Article allows the Commission to introduce measures which are necessary "to remedy a serious disturbance in the economy of a Member State". The Framework, initially adopted on 19 January 2009, aimed to provide confidence to companies planning to make investments and assist access to finance for companies despite the global financial crisis by providing additional State Aid measures to assist economic recovery.

Extension of the Framework

Before the publication of the Communication on 6 October 2010, the entire Framework was due to expire on 31 December 2010. The Commission justified the prolongation of the Framework by reference to current market circumstances. Whilst the Commission acknowledges that there have been improvements in the economic situation, it also recognises that there continues to be instability in the markets and that assistance continues to be necessary. The Commission has however placed stricter conditions upon the extended measures so as to phase out the support under the Framework and ensure a gradual return to normal State Aid regulation.

Pursuant to the Communication and applicable from 1 January 2011, grantors and grantees of State Aid should be aware that whilst the following provisions have been extended, the extension of such provisions are heavily caveated to ensure that aid being granted is heavily regulated and in line with the Commission's intentions:

• aid in the form of subsided loan guarantees will continue to be available, but only in certain circumstances and where certain criteria are fulfilled
• the provision of aid in the form of subsidised interest rates, as calculated in the Commission Communication on the revision of the method for setting the reference and discount rates has been extended, however reduced rates are only applicable in certain circumstances
• the ability of Member States to provide aid for the production of green products in the form of an interest rate reduction of 15% for large companies and 25% for SMEs has also been extended, subject to certain conditions
• simplification procedures in relation to short-term export credit insurance remain the same as included in the Framework but have been extended.

Risk Capital

Whilst the Communication has not extended the provision detailed in the Framework allowing Member States to provide risk capital of up to 2,500,000 million Euros for each targeted SME over a period of 12 months, the Commission has instead published a Communication extending the risk capital guidelines which allows for increased maximum permitted tranches of finance above 2,500,000 million Euros provided the necessary evidence of market failure is submitted.

Exclusions to the Extension

The Commission's extension of the Framework as set out in the Communication is based on the principles of recovery. As such the Commission has removed short-term aid measures, allowing such measures to expire as originally planned on 31 December 2010, and has only extended measures which provide longer term solutions to assist with economic recovery.

De Minimis Aid

The elements of the Framework which are not to continue beyond 31 December 2010 include the extended de minimis level. The Framework had extended the amount of de minimis aid, such aid being automatically considered compatible with State Aid regulation, from 200,000 Euros to 500,000 Euros. This figure will revert to 500,000 Euros as from 1 January 2011.

Our Thoughts on the Grant or Receipt

Under the Communication

Grantors and grantees should be aware of the extension of provisions relating to aid in the form of guarantees, subsided interest rates and for the production of green products and should consider how these provisions can be utilised to their advantage to assist in providing or receiving aid (as applicable) over the next year.

De Minimis Aid

Grantors and grantees alike should be aware that certain important and well-utilised Framework provisions such as the extended de minimis level are not subject to extension and will therefore no longer be available after 31 December 2010. In our experience the extended de minimis provision has been heavily relied on by grantors and grantees since its introduction. Both grantors and grantees will need to re-familiarise themselves with the rules on de minimis aid following the expiry of the Framework.

Public bodies may wish to seek appropriate advice in respect of the benefits of providing State Aid pursuant to the extended de minimis level before 31 December 2010. Public bodies may consider making grants of any planned aid (resulting in the recipient having received up to 500,000 Euros in a three year rolling period) before the expiry of the Framework to take advantage of the extended rules.

Recipients of de minimis aid granted pursuant to the Framework should consider the amount and nature of aid they have received whilst the Framework has been in place and ensure that they are appropriately advised in respect of any aid to be granted (whether before or after 31 December 2010) to ensure that they do not fall foul of State Aid regulation.

Lucy Carlile is a solicitor in the Public Sector and Projects team at Walker Morris. She can be contacted on 0113 283 2500 and by email on This email address is being protected from spambots. You need JavaScript enabled to view it..  She regularly contributes articles and updates to reach…®, the Walker Morris knowledge database and alerter service.