Dams against tsunamis? Governmental economy support packages

Back to Closely Held and Growing Business Enterprises Committee publications


18–29 May 2020

Virtual Entrepreneurship Conference

Black Swan Ruling: entrepreneurship and the economy under and after the pandemic

Presented by the Closely Held and Growing Business Enterprises Committee.

Supported by the IBA Corporate and M&A Committee, IBA European Regional Forum, IBA Latin American Regional Forum, IBA Law Firm Management Committee and IBA Young Lawyers' Committee.


Monday 22 May 2020

Dams against tsunamis? Governmental economy support packages



Christian Becker  Görg, Munich


Karl Hepp de Sevelinges  Jeantet, Paris

J Brian Davis  BakerHostetler, Washington, DC

Adam J Higgins  BakerHostetler, Washington, DC

Florian Jörg  Bratschi, Zürich

Nicole van Ranst  CCO Golazo, Paal-Beringen; Corporate Counsel Liaison Officer

Richard Spink  Burges Salmon, Bristol

Sergio Sánchez Solé  J&A Garrigues, Barcelona; LPD Council Member



Karl Hepp de Sevelinges
Jeantet, Paris



Marco A Rizzi
Bratschi, Zürich; Chair, IBA Closely Held and Growing Business Enterprises Committee

In order to combat Covid-19, governments around the world have shut down national economies, in some cases almost entirely. Economic life in many jurisdictions has abruptly come to a standstill and international trade has been disrupted. Economists forecast that industrialised countries will experience at five to ten per cent shrink of their economies. The survival of many industries and businesses, and the success of the pace of economic recovery, will depend on government policies undertaken during the crisis. Governments need to provide exceptional support to private companies, with appropriate conditions. Policies in support of businesses and the financial sector will involve a mix of liquidity measures and solvency measures. At the same time, domestic policies need to be supported by maintaining international trade and cooperation.

On the basis of a comparative overview of state aid for business programmes in selected European countries as well as the European Union and the United States, which is being expanded to include other parts of the world, the webinar presented and discussed key measures being taken, as well as early experiences of the implementation and granting of company support measures.

Introduction to state aid programmes in selected jurisdictions


Karl Hepp de Sevelinges, Jeantet, Paris

France is a centralised country with strong tradition in government intervention. Regarding the structure of the economy, there are big companies and relatively few medium-sized companies which affect state aid. France is also an indebted country, with a huge debt of 98 per cent of GDP which affects its capacity to grant loans.

The state aid programme totals €300bn and will take the form of state-guaranteed loans. The loans are granted by commercial banks to every type of legal entity, provided they are not undergoing insolvency proceedings. The programme is designed to support the lack of cash flow but not to refinance existing debt. The maximum amount of the loan granted is three months’ turnover. The interest rates are very attractive. The loans are guaranteed by the state up to 90 per cent. This programme will run until 31 December 2020. There are certain requirements for large companies of more than 5,000 employees and €1.5bn in turnover for them to benefit from the programme. Such companies must not pay dividends or buy back any shares in 2020.

Other schemes also exist in specific sectors. For example in the tourism sector an investment fund of €7bn has been implemented, the airline sector benefits from €1bn aid and in the automotive industry, subsidies to purchase cars have been granted.


Christian Becker, Görg, Munich

There are several programmes in Germany. During this webinar, attention was drawn to the two major ones.

Selected KfW Covid-19 loan programmes

This programme consists of a guarantee of up to 80-90 per cent of the house bank’s risk and in granting real loans with same risk assessment. It has an average interest rate of three per cent. To be eligible, businesses must be commercial companies with private shareholding and significant operations in Germany. Companies also have to have been affected by the Covid-19 crisis and, as of 31 December 2019, were not in insolvency proceedings.

Economic Stabilisation fund

The fund has a total of €600bn, of which €400bn is for state guarantees, €100bn is for recapitalisation measures and €100bn is for KfW (the German state-owned development bank). It has been designed for medium-sized companies. To be eligible, two of the three following criteria must be met: a balance sheet of more than €43m; turnover of more than €50m; an annual average of more than 249 employees. Start-up companies with a valuation of €50m may also be eligible for this fund. To benefit from this programme, companies must not have been in insolvency proceedings as of 31 December 2019 and shall not have access to other forms of financing.


Sergio Sánchez Solé, J&A Garrigues, Barcelona; LPD Council Member

Unusually for Spain, the central government declared a state of emergency which allows for centralised action. Spain’s state aid has two main parts: loan programmes and state guarantee; and state-supported temporary employment.

State guarantee for loans and bonds on the alternative market

As Spain is a highly indebted country, the means are limited. The total amount of funding for this programme is €100bn. To be eligible, companies must be located in Spain. Banks are not allowed to profit from these loans, so interest rates are low.

Temporary employment aid

Companies do not have to pay social security contributions and salaries for employees who have been temporarily dismissed. The state pays part of the salary directly to the employee.


Florian Jörg, Bratschi, Zurich

This country-wide programme is implemented through a federal solidarity guarantee. It is designed for small and medium-sized companies. The total fund is CHF40bn (approximately US$42bn). There are two types of loans in this programme: the Covid-19 loan of up to CHF500,000; and the Covid-19 loan plus, for amounts exceeding CHF500,000. The confederation guarantees 100 per cent of the Covid-19 loan and 85 per cent of the Covid-19 loan plus. To be eligible, companies must be domiciled in Switzerland and founded before 1 March 2020. They also must have been economically affected by the Covid-19 pandemic and have a maximum annual turnover of CHF500m. Companies can ask for a minimum of ten per cent of 2019 turnover up to a maximum of CHF20m. Interest rates for the state-guaranteed part are: nought per cent for the Covid-19 loan, and 0.5 per cent for the Covid-19 loan plus. Banks can negotiate higher interest rates for the non-state-guaranteed part of the loan. Loans are repayable after five years with a two-year extension possible. Dividend restrictions may apply.

Other programmes exist on a regional basis. Cantons have made programmes totalling up to CHF500m. The Swiss National Bank guarantees liquidity to banks which grant loans based on state or canton aid programmes.

United Kingdom

Richard Spink, Burges Salmon, Bristol

Four key schemes have been implemented.

Coronavirus Corporate Financing Facility (CCFF)

A UK government fund has been implemented to purchase sterling-dominated commercial papers (unsecured short term-debt) with a maturity of up to 12 months from issue, with rating requirements as at 1 March 2020. This measure is to support large investment grade or equivalent UK corporations. To be eligible, businesses must make a material UK contribution. There are dividends and salaries restrictions for paper maturing after 19 May 2021.

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

This consists of a government guarantee of 80 per cent of new debt to enable banks to make a loan of up to £25m to businesses with an annual turnover of £45m-£250m and between 25 per cent of the turnover and £200m, to businesses with an annual turnover over £250m. The loans have a term of up to three years. To be eligible, a business must have its activity located in UK and should not be in insolvency proceedings as of 31 December 2019. Dividend and salary restrictions may apply, especially for loans over £50m.

Coronavirus Business Interruption Loan Scheme (CBILS)

This scheme is designed for small and medium companies with a turnover of less than £45m. It consists of a government guarantee of 80 per cent of new debt, to enable banks to make a loan of up to £5m. Loans have a term of up to six years. To be eligible, a business must have its activity located in UK. The government pays the first year’s interest and lender’s fees.

Future Fund (sector wide)

This fund is targeted at innovative companies that have raised equity in the previous five year. To be eligible, companies must have more than 50 per cent by sales or employees in the UK. It is a limited fund of £500m, consisting of bridge funding of £125,000-£5m. Loans are repayable after three years, with 100 per cent redemption premium and an eight per cent interest rate. Dividend and bonus restrictions may apply.

United States

J Brian Davis, BakerHostetler, Washington, DC

Adam J Higgins, BakerHostetler, Washington, DC

Unprecedented measures have been taken, and approximately$5tr ($2.2 tr for spending and $2.3tr monetary policies) will be invested.

The Federal Reserve provides liquidity to the market and lends money directly to businesses outside the banking sector which has not been seen since the Great Depression.

There are four programmes.

Payroll protection loan program

This has a total volume of $670bn. It has been designed for distressed small businesses (with less than 500 employees) to maintain their payroll for eight weeks. Loan amounts are up to $10m. The loan rate is one per cent.

Economic stabilisation fund

This has a total volume of $500bn. It has been designed only for specific sectors, namely the airlines and the national defence industries. Dividend and buy-back restrictions may apply.

Secondary corporate market facility

This programme is designed to facilitate private corporate borrowings via the Federal Reserve. Eligible businesses will have to maintain payroll in order to benefit.

Main street facility program

This programme will operate from June 2020. It has a total volume of $600bn. The funding comes from the Treasury Department. Eligible businesses must have a maximum of 15,000 employees and 2019 revenues of up to $5bn and must be unable to secure adequate credit with normal bank procedures. The loan is capped at $25m. Dividends and buy back restrictions may apply.

There will be possible additional programmes through local government funding and incentives to realign supply chains in the United States. However, political consensus has yet to be reached.

Practice report on government aid from an in house perspective: how does covid-19 affect a company?

Nicole van Ranst, CCO Golazo, Paal-Beringen; Corporate Counsel Liaison Officer, IBA Closely Held and Growing Business Enterprises Committee

Golazo is a leading sports marketing agency with activities in Belgium, the Netherlands, France, Germany and Kenya. Its core activities are organising events during championships, mass participation events, urban sports events and award ceremonies. It has 350 employees and organises about 1,000 events per year.

On 13 March 2020 the government decided to prohibit mass participation events. This is a global crisis affecting all sectors. This led to an existential crisis for Golazo. Dozens of events had to be rescheduled in order to give a perspective, employees had to be reallocated.

The main focus for the company was on cash. Temporary employment with less red tape was very important. There have been cuts to management fees; long-term contracts have been renegotiated; applications were filed to the first state aid plans (delays to tax and VAT payments, and social security contributions).

It is also important to plan for recovery and adapt the business model to survive as company. Events have been converted into virtual events and the development of digital applications accelerated.


In Germany the Lufthansa airline case was under discussion for a volume of €9bn and the state will participate in shareholding up to 20 per cent, two seats on the supervisory board. Lufthansa rejected the entrepreneurial influence of the state.

In Switzerland, parliament approved a CHF1.85bn package for the airlines and related businesses. The conditions are no other means to gain liquidity. Unlike in Germany, the government should not be on the board of an airline. However, as Lufthansa has subsidiaries in Switzerland, one other condition is not to pay dividends to Lufthansa. Zurich should remain a hub.

In France, the loans were first granted without any counterpart from the companies involved. As automotive firm Renault announced possible plant shutdowns, the government guaranteed a €5m loan, specifically asking Renault not to shut plants. This  is not a long-term solution.

In the US, ensuring business survival is critical to the economy. Foreign ownership of a business, that is supported by the state, should be fine, but certifications are required for the reasons for loans and their purposes.


Christian Becker, Görg, Munich

Overall, state programmes are quite similar. However, there are some differences, for example very low amounts of aid in France and in other countries and rather high amounts in Germany. The discussion showed that major issues are, in particular, the exclusion of dividends; that there will not be share buy backs; and the limitation of management remuneration in some programmes. There is a certain sort of ‘nation mind-set’, which is to say that that state aid shall remain within the respective state. In any case, it is of paramount importance for the European Union to have strong European programmes. A major package will be put in place by France and Germany, which is still being negotiated. Governments are still receiving criticism. We hope that we will all get through this crisis.

The webinar can be watched here: /Dams-against-tsunamis