Slovenia: Slovenia Adopts New State Aid Legislation

Slovenia adopted a new law regulating rescue and restructuring state aid, which entered into force in mid-February. When notified to the European Commission as a state aid scheme, it will allow the Republic of Slovenia to support companies and cooperatives in difficulty without having to notify support mechanisms in accordance with the provisions of the law as an individual aid measure to the European Commission.

Background

The Act Governing Rescue and Restructuring Aid for Companies and Cooperative Societies in Difficulty (the "State Aid Act") is based on the European Commission's Guidelines on state aid for rescuing and restructuring non-financial undertakings in difficulty (2014/C 249/01) (the "Guidelines") and regulates the conditions under which the Republic of Slovenia will approve state aid measures to companies and cooperatives in the form of credit lines, subventions, guarantees and capital investments.

Although the Government laid out that the Act was a pre-condition for establishing an institutional framework for an active role by the Republic of Slovenia in restructuring proceedings, if and when required in order to ensure national economic benefits, it also made clear that state aid measures will be granted only if, and to the extent that, they are necessary and justified by a cost-benefit analysis and economic-social impact for Slovenia and one of its regions.

The aim of the State Aid Act is to choose the measures and grant state aid to companies and cooperatives more selectively and to ensure efficient use of public resources by giving a more prominent role to economic stakeholders, applying adequate support mechanisms and preparing satisfactory restructuring plans.

The funds available for state aid support mechanisms are determined by the annual budget plan of the Republic of Slovenia, which is currently set at EUR 8 million for 2016 and 2017.

Which companies and cooperatives are eligible to receive state aid?

The State Aid Act lays down three conditions that companies must be able to demonstrate as fulfilled before asking for state support, namely:

  1. The company or cooperative is in financial difficulty;1
  2. It must have an important systematic role in the development of the Republic of Slovenia, any of its regions or the respective sector; and
  3. No insolvency or liquidation proceedings have been initiated against the company or cooperative.

The definition of "important systematic role" is further specified and means that the winding up of an undertaking would, for example, lead to serious social problems, including increased unemployment, market disruption and distortion of competition, loss of important service or product, etc. Nevertheless, in the case of innovative SMEs or cooperatives with significant growth potential or significant interlinkages with other local or regional companies and/or cooperatives, smaller companies will also qualify as companies with an important systematic role and hence be eligible for state aid.

It should be noted that some entities are excluded from the scope of the State Aid Act, such as entities in the steel and coal sectors, newly established entities that have been operating less than three years, financial institutions and entities established out of liquidation or a takeover of a company's or cooperative's assets within the last three years.

What is new?

The State Aid Act defines three types of support measures, ie rescue aid and restructuring aid (which were already defined in the previous state aid act) as well as a new form of aid: temporary restructuring support.

Temporary restructuring support may only be granted to SMEs and cooperatives, including SMEs/cooperatives in which the state directly or indirectly holds 25 % (or more) of shares or voting rights. This aid is subject to a limited duration of 18 months and is carried out mainly from the own resources of the undertaking in difficulty.

Another important change is the establishment of the burden sharing principle when granting restructuring aid. Adequate burden sharing means that the incumbent shareholders and, when necessary, subordinated creditors must absorb losses in full. Therefore, state intervention should only take place after losses have been fully accounted for and attributed to the existing shareholders and subordinated debt holders. Moreover, new obligatory components of the restructuring programme are introduced, namely provision of an alternative scenario in case restructuring aid is not granted as well as of a cash-flow projection.

In short: same-same, but (slightly) different

It is expected that the State Aid Act will have significant positive benefits on the economy, as it will allow the Republic of Slovenia to intervene and support companies (and cooperatives) in difficulty, but only after all market options are exhausted and with minimum distortion of competition.

While it is true that the structure of the Act follows the former state aid act, which covered rescue and restructuring aid, the new State Aid Act specifies which companies (and cooperatives) will be eligible to receive support as well as the conditions to be fulfilled in much more detail.

In order to increase the chances of receiving the aid and to accelerate the procedure, it is recommended that the applicants structure their submission to the Ministry of Finance of the Republic of Slovenia (i) taking into account all mandatory pre-conditions under the State Aid Act, and (ii) closely following the logic of the European Commission Guidelines and available decisional practice.

When notified to the European Commission as a scheme, the State Aid Act will allow the Republic of Slovenia to support companies and cooperatives in difficulty without having to notify the respective support mechanism as an individual aid measure to the European Commission.

Footnote

[1] In line with the European Commission Guidelines, an undertaking is considered to be in difficulty when, without intervention by the State, it will almost certainly be condemned to going out of business in the short or medium term. Further conditions are established on the basis of the type of undertaking, for example: "In the case of a limited liability company, where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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