Financial aid for undertakings
The corona virus pandemic is leading to restrictions in daily life that have never existed before. It also has considerable, and in some cases existential, effects on economic life, especially in the directly affected industries: Initially, supply bottlenecks from the Asian region created new challenges, but now it is closure orders, event cancellations, travel bans and much more that are leading to declines in sales without one’s fault.
These declines in sales as a result of the corona virus pandemic are causing considerable financial damage to companies. The federal and state governments have put together aid packages and the EU finance ministers have also been able to reach an initial agreement on a rescue package. Small-sized undertakings up to 10 employees and self-employed persons are entitled to direct subsidies (“emergency aid”). Medium-sized and larger companies in particular receive liquidity support through (simplified) access to low-interest loans.
Against this background, we will give you an overview of the current status of possible state aid below, focusing on the following two questions:
- Are companies that are directly affected by official measures such as closure orders or similar entitled to compensation claims (claims for damages) against the state?
- Which state aid measures can affected companies take advantage of?
I. Are companies entitled to compensation from the state?
Companies affected by government measures to contain the corona virus pandemic are only entitled to direct payment claims against the state in exceptional cases. Such claims may arise from the Infection Protection Act (“IfSG”) or general state liability law. Currently, however, the existing regulations generally do not help the companies affected:
- The IfSG provides for some claims for damages. However, as far as it concerns damages caused by official measures to combat and contain diseases that have already broken out, the claims are essentially limited to individual loss of earnings of those who are not allowed to work because of an actual or suspected infection or - since the amendment of the law at the end of March - have to look after their children as working custodians because of the closure of day-care centres and schools (Sec. 56 IfSG). Damage that a company suffers itself, for example because its production is closed or they have lost sales due to a lack of customers, is not covered by the provision. The IfSG only provides for compensation for such damage if it concerns measures taken to prevent sick leave (Sec. 65 IfSG). An analogous application of the respective standard has not been discussed so far and is likely to fail because it contradicts the quite clear legal decision to grant compensation claims only in certain cases. Therefore, no claims for damages can be directly based on the IfSG.
- Currently, claims can only be based on general state liability law if the measures ordered by the authorities are illegal. In this case the state is liable according to the principles of intervention equivalent to expropriation or according to the respective regulatory authority law (in North Rhine-Westphalia (NRW) according to § 39 para. 1 b OBG). However, this presupposes that the official measures, in particular the general decrees or ordinances issued so far, are unlawful. At any rate, this has not been generally apparent to date. The IfSG authorises the authorities to take quite far-reaching measures (§ 28 para. 1 IfSG). Furthermore, the discretion of the authorities is also broadly defined. Nevertheless, the measures must always be necessary and proportionate to the consequences. In view of the risk situation and the information communicated by experts, there is generally no reason to assume that the measures are generally not suitable or disproportionate. However, the measures must also be so in individual cases. While the closure of retail shops in general may be the right thing to do if you have a department store in mind, this may be questionable, for example, in the case of a small boutique or a small jeweller. For example, the VG Aachen has qualified the closure of a wine shop as unlawful after a summary assessment, as this too is a food trade (7 L 259/20). There is no doubt that a general ruling or statutory order cannot and need not take into account every special case. However, the concept pursued must be consistent in itself. It may be necessary to examine this more closely in individual cases.
- In the present context, there is also much debate as to whether claims for damages exist due to a claim as a so-called "non-disturber". It is true that state liability law recognises such claims for compensation and grants them to those who are sued, even if they have not caused a danger. The regulatory authority laws of the federal states expressly provide for such claims (e.g., § 39 para. 1 a OBG NRW). However, these bases of claims are blocked if compensation claims are regulated in other laws (e.g., § 39 para. 3 OBG NRW). Here again, the fact that the IfSG - as explained - only offers compensation within narrow limits comes into effect. This course would be undermined if more extensive claims for compensation were to be based on this general norm.
- Ultimately, according to the current state of affairs, a constellation is conceivable for otherwise lawful measures that would trigger claims for compensation: the IfSG itself would have to be unlawful. The question arises precisely because the law grants the authorities very far-reaching powers, but does not flank them with equally far-reaching compensation regulations. In state liability law, however, the principle applies that although the state may also cause painful encroachments on property and assets on a statutory basis, it must normally provide for claims for damages. Whether this principle also applies to the IfSG, which could lead to horrendous compensation claims that would also present the state with enormous challenges, has not yet been clarified. However, this question will certainly be raised in view of the current measures. However, fundamental questions would have to be clarified and short-term claims for compensation would not be possible.
It should be noted that, following in-depth examinations, there may be indications of claims for damages in certain constellations. However, there are no general and easy-to-implement compensation claims for companies affected by closure orders, for example.
II. What kind of financial aid can companies receive from the state?
This result seems to contradict several (media) statements from federal and state governments that economic damage suffered by companies as a result of the corona virus pandemic should be compensated. However, this is to be done by other means: On 23 March 2020, the Federal Cabinet adopted an "unprecedented aid package" in the corona crisis, the federal states put up rescue parachutes, and on 9 April 2020, the finance ministers at EU level were also able to agree on a 500 billion euro rescue package.
Legally, such financial measures are generally classified as state aid under Article 107 of the Treaty on the Functioning of the European Union (TFEU) and not as claims for damages or compensation against the state. Such aid within the meaning of Article 107 TFEU is only permissible if the requirements of Union law are complied with. The companies benefiting from such aid should also ensure that these requirements are complied with, as otherwise they would be exposed to considerable recovery risks for up to 10 years, including interest claims. Even if the state aid requirements at EU level are primarily addressed to the Member States, companies are therefore well advised to check compliance independently and, where possible, to ensure it.
In the context of the corona virus pandemic, the Commission responsible at EU level has already published initial indications of the arrangements under which financial assistance can be provided in accordance with EU law. In the meantime, a number of measures have already been notified or released by the Commission. Re Germany, these are
- the Federal „Small Grants Scheme 2020“, under which emergency aid (direct subsidies) is paid in particular to small-sized undertakings (up to 10 employees) self-employed persons (SA.56790), and
- the extension of the “KfW loan programme” with an increased risk assumption by KfW of up to 90% (SA.56714) together with a time expension of the measure (SA.56863).
In general, de minimis support of up to EUR 200,000 for an undertaking (in three tax years) is easily possible. Factually, this threshold have been raised to EUR 800,000 under certain conditions due to the corona pandemic. Taking into account in particular the Commission Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (2014/C 249/01), significantly more far-reaching measures are also permissible.
Undertakings seeking support should consider both, federal and regional aid (from the region where they have their (main) headquarters). Depending on the size of the undertaking, the following instruments are available, focused on the federal measures:
- Emergency aid: Direct subsidies to cover operating costs for the next three months if the existence is threatened or liquidity is not ensured. This only applies to companies with up to 10 employees (full-time equivalents).
- Loans with subsidised interest rates and extensive risk assumption by the KfW in the KfW Special Programme 2020 as well as through the KfW Quick Loan 2020. The loans are open to all undertakings, some with different conditions depending on size or time since market entry.
- Bonds: The existing programmes have been extended, express guarantees are offered.
- Taxes: Liquidity support is also to be achieved by facilitating the adjustment of advance tax payments, tax deferrals and the suspension of enforcement measures. In some regions, moreover, value-added tax paid can be reclaimed.
- Other individual measures include support for start-ups, additional state guarantees or adjustments to the advisory aid for SMEs and freelancers. These are complemented by extended and easier access to short-time work benefits or deferrals of social security contributions.
The BMWi offers an up-to-date overview at https://www.bmwi.de/Redaktion/DE/Coronavirus/kleine-mittlere-grosse-unternehmen.html - under "Soforthilfen" (“emergency aid”) there is also a link leading to the federal state institutions who disburse the aid. This is also a good place to start looking for any additional state aid. An overview of the current state support from NRW is provided under https://www.wirtschaft.nrw/coronavirus-informationen-ansprechpartner and the NRW financial administration.
Brussels is expected to provide support for undertakings from the European Investment Bank as well as under the "Sure" short-time work programme as part of the EU rescue package, in addition to an expansion of the European Stability Mechanism (ESM).