[ad_1]
Companies that receive capital injections by EU member states as a result of the coronavirus will not be able to pay dividends, buy back shares or provide bonuses or similar remuneration, according to an official document seen by the Financial Times.
The terms and conditions came after the FT reported last week that the European Commission was exploring further relaxation of the bloc’s rules on state aid to help sick companies as a result of the pandemic.
The rescued companies are also prohibited from taking “excessive risks” or even engaging in “aggressive commercial expansion,” says a document setting out amendments to the recent relaxation of state aid rules.
They will not be able to buy rivals or other operators in the same sector while still paying the state, the document added.
The restrictions are designed to prevent “undue distortions of competition” and reflect similar restrictions imposed on the banking sector at the height of the global financial crisis more than a decade ago.
European companies that receive a capital injection of more than 20 percent from a member state will also be required to establish a clear exit strategy for that support after the pandemic.
Brussels also sets clear deadlines to give companies an incentive to pay back aid. If by December 31, 2024, the state’s share has not been reduced to less than 15 percent, companies will be required to submit a restructuring plan to the commission for approval.
“This is more flexible / forgiving than the principles of the financial crisis, where the requirement was generally to present a restructuring plan within 6 months of recapitalization,” said one person familiar with the commission’s thinking.
Contrary to the terms established during the financial crisis, Brussels is also encouraging incentives for companies to exit schemes as soon as possible.
It calls for member states to be reimbursed as close as possible to “market terms” to avoid “potential distortion of competition caused by state intervention.”
“The member state will establish a mechanism to incentivize redemption before January 1, 2023,” the document added.
The commission also proposes that EU countries consider the potential sale of business units for those companies that receive large amounts of aid and with a considerable market share in a certain sector.
“The commission is expected to ask Member States to impose conditions on recapitalizations to preserve competition,” explains Natura Gracia, a partner at the Linklaters law firm in London. “It shows that the EU has learned from past crises.”
The restrictions on the rescued companies arose when regulators were quick to implement a so-called time frame that has seen state aid rules relax to help companies overcome the pandemic.
This week, Competition Commissioner Margrethe Vestager encouraged European countries to build stakes in companies that could be vulnerable to unfair acquisition by state-backed foreign entities.
