State aid for rescuing and restructuring firms in difficulty

1) OBJECTIVE

To authorise under certain conditions the granting of state aid for rescuing and restructuring firms in difficulty.

2) ACT

Commission notice - Community guidelines on state aid for rescuing and restructuring firms in difficulty (Notice to Member States including proposals for appropriate measures) (Text with EEA relevance) [Official Journal C 288 of 09.10.1999].

3) SUMMARY

Background

Following recent developments including completion of the internal market, the introduction of the single currency and the growth in intra-Community trade, the present guidelines, which replace those adopted by the Commission in 1994, are designed to authorise under certain conditions the granting of state aid for rescuing and restructuring firms in difficulty.

Scope

The guidelines are based on Article 87(3)(c) of the EC Treaty, which considers to be compatible with the common market state aid "to facilitate the development of certain economic activities or of certain economic areas". They apply to any firms in difficulty, including small and medium-sized enterprises, and to any sector, including agriculture.

Definitions : firm in difficulty, rescue aid and restructuring aid

The guidelines relate to rescue and restructuring aid granted by Member States to firms in difficulty. A firm in difficulty is one unable, through its own resources and without outside intervention by the public authorities, to stem losses which will almost certainly condemn it to go out of business in the short or medium term. In addition, a firm is regarded as being in difficulty if it is:

• a limited company where more than half of its registered capital has disappeared and more than one quarter of that capital has been lost over the preceding twelve months;
• an unlimited company where more than half of its capital has disappeared and more than one quarter of that capital has been lost over the preceding twelve months;
• a company fulfilling the criteria of insolvency under its domestic law.

Newly created firms or companies belonging to a group are not normally eligible.

Even if rescue aid and restructuring aid involve different processes, they are often two parts of a single operation. Rescue aid should make it possible to keep an ailing firm afloat for the time needed to work out a restructuring or liquidation plan. Restructuring aid, on the other hand, should be based on a feasible, coherent and far-reaching plan to restore a firm's long-term viability.

General conditions for the authorisation of aid

Rescue aid must be regarded as exceptional and must not be authorised for more than six months. It cannot be authorised if it is designed to maintain the status quo.

• As regards the general conditions for authorisation, it must:
• consist of loan guarantees or loans;
• be reimbursed within twelve months of disbursement of the last instalment;
• be warranted and have no adverse spillover effects on other Member States;
• be accompanied on notification by a restructuring/liquidation plan or proof that the loan has been reimbursed in full;
• be restricted to the amount needed during the period for which it is authorised.

Since it may distort competition, restructuring aid is governed by the "one time, last time" condition, i.e. it may be granted only once. The conditions for granting such aid concern:

• the eligibility of the firm, which must be a firm in difficulty;
• the formulation and implementation of a restructuring plan;
• measures to mitigate the adverse effects on competitors;
• the amount and intensity of the aid, which must be limited to the minimum;
• the imposition by the Commission of specific conditions and obligations;
• the full implementation of the restructuring plan;
• the monitoring that the Commission must be able to carry out through detailed regular reports communicated by the Member State concerned.

Notification procedure

Any aid scheme not satisfying the conditions laid down in the notice or the de minimis rule must be notified by means of a standard form.

Notification must in all cases show that the aid in question leads firms to engage in additional activities that, without the grant, would not have taken place or would have been less ambitious.

These guidelines expired on 9 October 2004 and new guidelines have been adopted by the Commission.

Last updated: 08.07.2005