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Make yourself State Aid aware - it pays to be prepared
Trowers Public Insight

Make yourself State Aid aware - it pays to be prepared

With public authorities keen to take advantage of the greater freedoms on offer to pursue commercial interests, another less welcome focus has also come to the fore – the dreaded State Aid.  But the crux of the matter is that being State Aid aware, whether you are a public authority or its commercial partner, can be the difference between the success and failure of any new venture.

Get it wrong and an unexpected demand to repay State Aid could cripple a promising start up venture before it's even off the ground, or render an exciting regeneration opportunity unviable.

Commercial activity brings with it competing organisations that will look to challenge any perceived injustice.  A complaint to the European Commission of unlawful State Aid can be submitted via its website without running up legal costs and a credible complaint can lead to months of delay, in itself potentially fatal for a new business even if ultimately there is no finding of unlawful aid.

So what are the keys to not falling foul of State Aid law?

Get the structure right from the off.  Identify any potential aid at the outset, from the obvious financial grants to the perhaps less patent examples – providing low cost services from in house resources; offering cheaper financing than market lenders; guaranteeing the obligations of a start up.
There are a wide range of exemptions giving rise to permissible aid but more often than not these are only useful if the commercial arrangements are built around them.  Carrying out a "State Aid audit" once the structure of the deal has been agreed is often too late and can unhelpfully unravel lengthy negotiations or lead to the parties making an "11th hour" decision to take State Aid risk, often unnecessarily.

At project inception identify any public service obligations involved (for example the provision of social housing, health or education services).  Could any of the exemptions set out in the General Block Exemption Regulation or a UK approved scheme apply?  Then earmark amounts of potential aid to fund those aspects of the deal bearing in mind any limits on the value and proportion of the aid.

If there are still elements of potentially unlawful aid examine whether the de minimis allowance has been utilised and whether any components of the deal can be adjusted on to a more commercial footing – instead of giving a grant, could the public authority make a commercial loan or investment?
With increased innovation in approaches to public sector activities – establishing mutuals and other trading companies, developing property for private rent, sharing services with other authorities and rolling them out to the private sector- structuring a State Aid compliant deal becomes something of a jigsaw puzzle, and a 3D moving one at that.  But approaching it in the right manner can allow everyone to utilise the greater freedoms on offer.

Want to know more?

We are holding a seminar on 22 April on Commercial State Aid solutions where we will examine in greater detail the relevant considerations for public sector commercial activity, enabling participants from public authorities, and the private and third sectors to embrace new ways of working together while remaining in compliance with State Aid law.

If you would like to register to attend this free event please click here.

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