12 May 2020
In March, the European Commission adopted a Temporary Framework allowing EU member states to use certain types of ‘state aid’ to support the economy during the COVID-19 crisis. The European Commission has now extended the framework to allow EU member states to provide recapitalisation measures to companies in need. Companies benefitting from recapitalisation will be subject to a range of restrictions, including restrictions on management remuneration.
Impact on remuneration
- Companies benefitting from recapitalisation measures will be subject to restrictions on management remuneration.
- As long as at least 75% of the recapitalisation measures have not been redeemed, the remuneration of each member of an impacted company’s management must not go beyond the fixed remuneration as it was on 31 December 2019. For persons becoming members of the management on or after the recapitalisation, the applicable limit is the lowest fixed remuneration of any of the members of the management on 31 December 2019. Under no circumstances will bonuses or other variable or comparable remuneration elements be paid.
- Also, as long as the recapitalisation measures have not been fully redeemed, impacted companies cannot make dividend payments, nor non-mandatory coupon payments, nor buy back shares, other than in relation to the state.
- Although the original Temporary Framework measures were originally stated to be in place until the end of December 2020, the European Commission has extended the period until the end of June 2021 for recapitalisation measures only.
Tapestry comment
The threat of widespread economic downturn and a liquidity crisis is a cause for concern across the EU and so well targeted state intervention providing recapitalisation could contribute to preserving the economy and supporting its recovery. The amendment to the Temporary Framework will help to facilitate this and ensure that EU member states are able to help businesses that urgently need liquidity to access it.
The European Commission has, however, made it clear that the recapitalisation measures come with ‘strings attached’, including in relation to remuneration, to ensure that only those companies that absolutely need this support will rely on it. There are a few points of uncertainty in how the remuneration restrictions are drafted. For example, the scope of 'management' impacted is not defined. We anticipate that EU member states will refine and add further detail to these measures when they are applied in practice.
If we can support you with your remuneration arrangements, please do contact us.
Matthew Hunter
