State aid support to the Hotel and Leisure sector following the COVID-19 outbreak

By Jose Rivas, Graeme Payne, Karen Friebe

04-2020

The European Commission has recognised the Hotel and Leisure sector as one of the sectors hit hardest by the COVID-19 outbreak.

The impact of the COVID-19 crisis on the Hotel and Leisure sector is unparalleled. The European tourism industry is predicted to experience an estimated financial loss of roughly €1 billion per month and the United Nations World Tourism Organisation (UNWTO) estimates that in 2020 the decline in international tourism receipts will be between EUR 280-420 billion as a result of the crisis.

This note is intended to assist Bird & Bird's Hotel and Leisure clients understand the control exercised by State aid law on the financial support available to this sector following the COVID-19 outbreak.

1. Why is State aid law relevant for Hotel and Leisure businesses following the COVID-19 outbreak?

The massive and unprecedented financial impact on the world economy caused by the COVID-19 virus pandemic has led to a number of European governments promising aid to various business sectors and companies. There is State aid when a public authority, (at local, regional or national level) grants public resources to companies. State aid to undertakings is generally prohibited but it might be justified under certain conditions. EU State aid rules enable Member States to take swift and effective action to support companies facing economic difficulties due to the COVID-19 outbreak, ensuring at the same time that competition in the market is not distorted.

2. Can Hotel and Leisure businesses benefit from public support in line with State aid rules?

Hotel and Leisure businesses may receive public support in connection with a so-called aid scheme or in the form of individual aid to a company or limited number of companies.

Only aid plans which have been notified to and approved by the European Commission's Directorate-General for Competition [1] are valid and legal.

Aid which does not conform to EU State aid rules must be paid back by aid recipients with interest (See Question 5 below).
To ensure the validity of any aid which your company plans to receive, make sure it was notified to and approved by the European Commission. Prevention is always better than cure!

3. Measures for the Hotel and Leisure Sector - Specific EU State aid rules in response to the COVID-19 outbreak

On 19 March 2020, the European Commission adopted a "Temporary Framework"[2]aiming at facilitating the approval of national schemes of aid with a view to ensuring that sufficient liquidity remains available to affected undertakings during and after the COVID-19 outbreak.
Some of the measures included in this Temporary Framework which may be of interest for companies active in the Hotel and Leisure sector include:

  • Direct grants (or tax advantages) up to €800,000 per company;
  • Subsidised State guarantees on bank loans;
  • Public and private loans with subsidised interest rates;
  • Tax deferrals and/or deferrals of social security contributions; and
  • Wage subsidies for employees to avoid lay-offs during the COVID-19 outbreak.


4. Examples of national State aid schemes approved since the COVID-19 outbreak and what Hotel and Leisure Businesses should be doing

The wide range of national support measures already approved by the European Commission go from horizontal aid schemes available for companies of different sizes active in all sectors (see for example the "Spanish umbrella scheme to support economy in coronavirus outbreak") to specific measures targeting the most affected sectors of a national economy (see for example the Danish aid schemes in support of travel and event's organisers for cancellations due to the COVID-19 outbreak or the Portuguese scheme providing for state guarantees on loans for SMEs active inter alia in the following activities: tourism, restaurants and travel agency activities, touristic animation and event organisation). There are two aid schemes in the UK providing for public support in the form of direct grants and state guarantees on loans for SMEs affected by the COVID-19 outbreak.

The full list of measures approved by the European Commission since the COVID-19 outbreak can be consulted here.

Hotel and Leisure businesses can find out from their trade association, chamber of commerce, relevant national authority, etc. which is the national scheme of aid as a result of COVID-19 that fits best their needs. If no such scheme of aid exists yet in your country, you may consider collaborating with one or more of these entities to lobby your government for its adoption.

5. What happens if State Aid rules are infringed?

  • The consequences of receiving unauthorised illegal aid can be severe:Aid payments can be suspended;
  • Recipients of aid may have to repay the aid to the State with interest;
  • Aggrieved competitors may sue infringers before local courts and complain to the European Commission.
  • Recipients of aid could be sued by a competitor for damages.

6. Does Brexit impact on State aid control?

Businesses that are either headquartered in the UK or have operations in the UK are still eligible for aid and subject to state aid control.

According to the Agreement on the Withdrawal of the UK from the EU, the whole of the UK will remain subject to EU state aid rules until 31 December 2020 (end of the “transition period”)[3]. Until this date UK Public authorities must continue to ensure that their support to companies located in their territory comply with EU State aid rules.

The European Commission and the Court of Justice of the European Union will remain competent until 31 December 2024 to deal with State aid procedures when the aid has been granted before 31 December 2020.

The European Commission has approved under the new Temporary Framework two aid schemes in the UK providing for public support in the form of direct grants and state guarantees on loans for SMEs affected by the COVID-19 outbreak. 

7. How can Bird & Bird help you?

A unique opportunity is presented to companies and their national, regional or local authorities, to ward off some of the negative financial consequences of the COVID-19 outbreak.

However, to guard against a future repayment obligation, beneficiaries still need to verify the legality of state aid under EU law.
The existing State aid rules are complex and navigating these remains a challenge.

Companies are strongly advised to contact the relevant trade association, chamber of commerce or public authority to find out more about general post COVID-19 aid schemes available in their own country. If no such aid scheme exists that meets your needs or those of your business sector, Bird & Bird can help devise such a scheme.

Individual forms of aid may be more specific and complex. Whether you are a potential aid beneficiary or a competitor of a recipient of aid, we can assist you in the assessment of any State aid measure to ensure the aid is valid and ultimately to exclude any potential recovery risks.
In the spirit of solidarity with clients and contacts in these extraordinary times, Bird & Bird's state aid experts will, at no cost, guide you with your preliminary state aid queries by phone/email. You will find their contact details below.

Graeme Payne
, Partner, International Co-head Retail & Consumer Group

José Rivas, Partner, Competition & EU

Karen Friebe
, Partner, Head of international Hotels and Leisure Group


All of our Competition & EU contacts can be found here.


[1] Member States may also provide support to Hotel and Leisure businesses affected by the COVID-19 pandemic in line with the de minimis rules and the General Block Exemption Regulation (GBER) which do not require prior authorization to the Commission. 
[2] On 3 April 2020, the European Commission extended the scope of the Temporary Framework enabling a faster approval of new categories of aid.   
[3] In Northern Ireland EU State aid rules will apply at least until 31 December 2024.