07-09-2020 | Special newsletter Coronavirus

EU Commission approves Economic Stabilization Fund for liquidity and capital support for the real economy

By adopting the Act on the Establishment of the Economic Stabilization Fund of March 27, 2020, the German Parliament and the Federal Council established the Economic Stabilization Fund (“ESF”) as a special fund to stabilize the real economy in times of the COVID-19 pandemic. The ESF is intended to support German companies in the real economy suffering from the consequences of the COVID-19 pandemic by providing liquidity and capital support. We already discussed this topic – and numerous changes in corporate law for stabilization measures by the ESF – in our article “Establishing an Economic Stabilization Fund for the real economy“ on May 19, 2020.

On July 8, 2020, the EU Commission approved the central set of rules to grant and implement stabilization measures by the ESF. As a consequence, recapitalization measures of the ESF totaling up to EUR 250 million and ESF guarantees no longer have to be notified individually with the EU Commission. Applicant companies are therefore no longer subject to the sometimes time-consuming notification procedure.

Applications for liquidity and capital support may be submitted to the Federal Ministry for Economic Affairs and Energy. The implementing regulation required for processing of and deciding on applications is to be published shortly. The Federal Ministry for Economic Affairs and Energy has already made an application checklist available and work is underway on applications. The currently expected processing time is several weeks.

Instruments of the ESF

guarantees of the Federal Government to secure loans, including credit lines, and capital market products in debt capital (such as bonds)
recapitalization to directly strengthen equity capital through capital increases, silent partnerships, profit participation rights or similar instruments

Access criteria

balance sheet total > EUR 43 million
revenue > EUR 50 million
employees > 249 (annual average)

Exemptions may be granted on a case-by-case basis for smaller companies which are of particular importance for security or the economy.

The company must not have been a company in financial distress on December 31, 2019.
Other funding options are not available. The ESF is subsidiary and only if other funding options do not offer an economically viable solution or are not sufficient, funding by the ESF is possible. Therefore, the company has to check the other support programs of the Federal Government or the German states prior to submitting an application. We had also addressed the individual programs in our newsletter “Liquidity support through ’unlimited‘ loan guarantees”.
The company has a clear independent continuation perspective after overcoming the COVID-19 pandemic.

Decisions on applications

In addition to the general eligibility criteria, the following criteria will be examined when deciding on applications:

importance of the company for the German economy;
urgency;
effects on the labor market and competition; and
principle of the most economical and efficient use of the ESF funds.

Furthermore, the following conditions must be met for the granting of recapitalization:

The measure is necessary for stabilization.
There is important federal interest in stabilizing the company.
The intended purpose cannot be achieved better and more economically

There is no legal claim to receive support from the ESF.

Costs of the application

The Federal Ministry for Economic Affairs and Energy clearly stipulated that the costs of the application have to be borne by the applicant in accordance with Section 19 Act on the Establishment of the Economic Stabilization Fund and the ESF cost ordinance, which is to be adopted shortly. The amount of the costs remains therefore unknown, but is expected to be close to those of state guarantees or similar measures.