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State aid: Commission consults on draft guidelines for supporting firms in difficulty

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Joaquín Almunia, Commission Vice-President in charge of competition policy, commented: "While keeping inefficient firms artificially alive is a waste of taxpayers' money which harms competition and hinders economic growth, the jobs and know-how of companies that are viable if they restructure can be preserved through well-targeted support. Our guidelines on state aid for firms in difficulty aim to preserve this fine balance. Today's proposal pursues the same objectives as the current guidelines but envisages better tools to achieve them."

The European Commission is inviting comments on the conditions under which Member States can grant public funding to rescue and restructure firms in difficulty.

The proposal aims to ensure that such support is targeted at the cases where it is needed most and that investors in failing firms carry their share of the costs of restructuring, rather than leaving the burden for taxpayers to bear. The proposal applies only to non-financial firms in difficulty; a separate set of rules is in place for banks and other financial institutions (see most recently IP/13/672). Comments can be submitted until 31 December 2013. The Commission plans to adopt new guidelines in the first half of 2014. The Commission will carefully analyse all the comments received before taking any final position.

The main elements of the Commission's proposals are:

  • A new concept of temporary restructuring support, designed to simplify the granting of State funding for restructuring while reducing distortions of competition, by making it easier for Member States to employ measures that are less distortive of competition such as loans and guarantees. Such temporary support will only be available to SMEs.
  • Better filters to ensure that state aid is targeted at cases where it is really needed. This includes the need to show that the aid is needed to prevent hardship, for example in areas of high unemployment, and that the granting of restructuring aid will improve the outcome.
  • Suggestions on how burden sharing can be implemented for non-financial firms. This concept requires that a company's investors make a fair contribution to the costs of its restructuring. It has been a valuable tool in protecting the interests of taxpayers and consumers in the context of the large amounts of public money made available to banks during the current crisis.

The Commission is also inviting stakeholders' views on the definition of "undertakings in difficulty". Only firms that qualify as undertakings in difficulty can receive aid under the rescue and restructuring guidelines. Since their viability is in doubt, they are also generally barred from receiving other types of aid. Today's draft guidelines set out some ideas as to how that definition could be made more objective and precise.

The proposal, together with an explanatory note, is available at:

http://ec.europa.eu/competition/consultations/2013_state_aid_rescue_restructuring/index_en.html

Comments should be sent by 31 December 2013 to: Stateaidgreffe@ec.europa.eu. Contributions received will be published on the Commission's competition website unless clearly marked as confidential.

Background

The rescue and restructuring guidelines that are currently in force date from 2004 (see IP/04/856). They were originally due to expire in 2009, but have been extended twice, most recently in 2012 (see IP/12/1042) to avoid pre-empting the discussions on modernisation of the state aid regime (see IP/12/458).

Under the 2004 EU guidelines on rescue and restructuring aid, companies in difficulty may receive state aid under certain conditions. Such aid has a high potential of distorting competition in the EU internal market, as it artificially keeps companies alive that would have otherwise exited the market. Aid may be granted for a period of 6 months ("rescue aid"). Beyond this period, the aid must either be reimbursed or a restructuring plan must be notified to the Commission for the aid to be approved ("restructuring aid"). The plan must ensure that the long-term viability of a company is restored without further state support, that distortions of competition induced by the state support are addressed through compensatory measures and that the company contributes to the costs of restructuring. Finally, restructuring aid may be granted only once over a period of ten years ('one time, last time' principle).

The Commission started the current review in December 2010, with a public consultation inviting stakeholders to comment on their recent experience with the rules on rescue and restructuring aid (see the consultation page on the Commission's competition website). Today's draft guidelines draw on the results of that consultation, as well as the Commission's experience in applying the existing rules and the principles of the state aid modernisation agenda.

Joaquín Almunia, Commission Vice-President in charge of competition policy, commented: "While keeping inefficient firms artificially alive is a waste of taxpayers' money which harms competition and hinders economic growth, the jobs and know-how of companies that are viable if they restructure can be preserved through well-targeted support. Our guidelines on state aid for firms in difficulty aim to preserve this fine balance. Today's proposal pursues the same objectives as the current guidelines but envisages better tools to achieve them."

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