COVID-19 – bridging insolvency by way of government support
05/28/2020 - Reading time: 4 minutes
The COVID-19 pandemic is pushing many enterprises to the brink of insolvency. To mitigate the adverse economic effects and to prevent a flood of insolvencies, the Austrian government has taken multiple measures by offering different support services. The funds of the COVID-19 crisis management fund which originally amounted to EUR 4 billion were increased to EUR 28 billion within the scope of the Third COVID-19 Act (3. COVID-19 Gesetz).
Below, we will give you an overview of the key aspects of these support services.
1. Hardship Fund – safety net for the self-employed
The Hardship Fund is a quick first-aid measure aimed at helping Austrian self-employed individuals who have suffered turnover losses due to the COVID-19 pandemic. The Third COVID-19 Act increased the funds of the Hardship Fund to EUR 2 billion.
- The funds are aimed at supporting sole proprietors, free service contractors, non-profit organisations and microenterprises (within the meaning of recommendation 2003/361/EC of the EU Commission, microenterprises are enterprises which employ less than 10 employees and whose annual turnover does not exceed EUR 2 million).
- Support in the form of a subsidy (compensation of the net income loss and the comeback bonus) which does not have to be repaid and is made up of two stages: (a) immediate aid in an amount of up to EUR 1,000 (applications may be submitted since 27 March 2020) and (b) subsidies in the amount of at last EUR 500 and up to EUR 2,000 per period under review (see Clause (v) below) for a maximum of six months (applications may be submitted since 20 April 2020). In addition, a funding for young entrepreneurs in the amount of EUR 500 is provided for a maximum of three months. Young entrepreneurs are entrepreneurs who registered with the social insurance institution between 1 January 2020 and 15 March 2020. Furthermore, a comeback bonus in the amount of EUR 500 is granted per period under review (hence, total maximum comeback bonus in the amount of EUR 3,000). Thus, a maximum amount of up to EUR 15,000 can be granted from the Hardship Fund with applications filed before the most recent changes’ entering into force being supplemented by the comeback bonus retrospectively.
- Entrepreneurs whose net income in the last completed business year amounted to less than EUR 5,527.92 (low income threshold (Geringfügigkeitsgrenze)) or more than EUR 33,812 are excluded from support within the first phase of the immediate aid; this restriction, however, does not apply to subsidies in the second phase. Enterprises which were established after 31 December 2019 (date of issue of business license) are excluded from this form of support. Within the scope of the second phase, farmers and foresters, renters of private rooms with a maximum of ten beds, non-profit organisations within the meaning of sections 34 to 47 Austrian Federal Fiscal Code (Bundesabgabenordnung, BAO) and natural persons who, at the time of filing the application, obtain benefits from unemployment insurance, will be excluded from this form of support.
- The prerequisites for being granted a subsidy within the scope of the second phase are (among other things) that (a) the applicants themselves operate a business enterprise in Austria in their own name and for their own account or the applicants themselves exercises a liberal profession, (b) there is a company register identifier (Kennzahl des Unternehmensregisters, KUR) or a Global Location Number (GLN) as well as an Austrian tax number and social insurance number, (c) an economically significant threat exists due to the COVID-19 pandemic (turnover losses of at least 50%), (d) there are no entitlements to benefits from private or professional insurances meant to cushion COVID-19 consequences, (e) no further subsidies in the form of cash payments were disbursed by local authorities to fight the negative consequences of COVID-19 (excluding short-time working), (f) no insolvency proceedings are pending against the applicant and no reorganisation need exists, as well as (g) the most recent income tax assessment from the period between 2015 and 2019 having legal effect shows positive income from self-employment and/or a business operation.
- The number of periods under review has now been extended to nine, with one month (from the 16th of one month to the 15th of the following month) forming one period under review; applicable between 16 March 2020 and 15 December 2020. If the relevant prerequisites are met, a subsidy may be applied for for six periods under review (with the respective periods under review not having to follow immediately upon each other).
- It is not possible to make use of the immediate aid provided from the Hardship Fund and the emergency aid for affected industries at the same time.
- The application procedure (online, at the website of the Austrian Federal Economic Chamber) and the processing of the funds will be handled by the Austrian Federal Economic Chamber (Wirtschaftskammer).
2. Corona relief fund provided by COVID-19 Finanzierungsagentur des Bundes GmbH (COFAG)
To support the economy, the federal government announced further relief measures of up to EUR 15 billion. For handling the relief fund, COFAG was founded; the funding process is handled together with Austria Wirtschaftsservice Gesellschaft mbH (aws), Österreichische Hotel und Tourismusbank GmbH (ÖHT) and Österreichische Kontrollbank AG (OeKB).
- The target group of said fund is comprised of SMEs as well as large enterprises who, due to the COVID-19 pandemic, are currently facing severe liquidity shortages because they are particularly effected by COVID-19 measures such as barring orders, travel restrictions or assembly restrictions, or because, as a consequence of the pandemic, they are confronted with large turnover losses and/or with the basis of their business being at great risk. The goal here is to ensure these companies’ economic survival.
- Support shall be granted on a flexible basis in the form of operating resources subsidies or guarantees depending on the immediate need: a. Subsidies are available for covering fixed costs during the COVID-19 pandemic. The prerequisites are, among other things, that both the business location and the business activities are located in Austria and that fixed costs, in operative terms, are incurred in Austria as well as that pandemic-related turnover losses of at least 40% have occurred. Depending on the scale of the turnover losses between 25% and 75% are reimbursed for covering fixed costs. Filing applications will presumable be possible as from 15 April 2020. Applications must be filed via the online tool made available by aws. b. Guarantees issued by the Republic covering 90% of the loan amount of working capital loans, with the maximum amount being set at twice the annual wage bill, 25% of the annual turnover or EUR 120 million. The term is five years and may be extended by a maximum of five years. The interest rate shall amount to a maximum of 1% and a guarantee fee depending on the size of the enterprise shall be payable. Large enterprises have been able to apply for guarantees since 8 April 2020; SMEs will probably be able to file applications as from 15 April 2020. Applications must be filed via the respective house bank; the OeKB is responsible for applications of large enterprises, aws is re-sponsible for SMEs and ÖHT is responsible for tourism enterprises. SMEs have the option of a 100% government guarantee for emergency loans granted in the form of working capital loans in the amount of up to EUR 500,000.
- Rescheduling existing loans, investments or dividend payments, as well as premiums for managers and share repurchases will not be financed.
- Only “healthy enterprises” may be subject to financial support measures, with the specific criteria still being worked on. In any case, half of the share capital must not have been lost before 31 December 2019, no insolvency proceedings may be pending and the borrower must not be materially insolvent, taking into account the new financing which is subject to a guarantee. With regard to large enterprises, in one of the two previous years (i) the company’s or groups indebtedness in terms of the carrying amount must not have amounted to more than 7.5 or (ii) the company’s or group’s interest cover rate calculated on the basis of the EBITDA must not have amounted to less than 1.0.
3. Bridge financings for sole proprietors and SMEs
aws offers guarantees for bridge financings. The application shall be filed jointly with the financing bank, as, due to the very simple (fast-track) procedure, it is envisaged that the guarantee commitment is issued directly upon submission of the application subject to the suspensive condition of a formal approval by the federal government. The enterprises and banks are informed about the fulfilment of this condition within 24 hours.
- This measure is aimed at helping sole proprietors as well as small and medium-sized enterprises (“SME”; less than 250 employees; maximum annual revenue of EUR 50 million or a balance sheet total of EUR 43 million) of all industries (except tourism and leisure industry; see item 4 below).
- Support for working capital fundings (current costs such as personnel and material expenses) and for financing the extension of payment periods of existing credit lines by way of guarantees covering up to 80% of a loan amounting to up to EUR 2.5 million per sole proprietor/SME (including, but not limited to, affiliated companies). The term of the guarantees amounts to a maximum of five years.
- Neither loan collateral nor the owner of the enterprise assuming personal liability, is required.
- Enterprises (a) which met the criteria set out in the Company Reorganisation Act (Unternehmensreorganisationsgesetz, URG) in the preceding business year (cumulative equity ratio less than 8% and imputed debt repayment period of more than 15 years), (b) which have been materially insolvent already before the outbreak of the COVID-19 pandemic, (c) banks and other financing institutions as well as insurance companies (except insurance brokers and agents), (d) real estate companies (property developers, letting and leasing activities), (e) associations, and (f) fishery, aquaculture and the primary production of agricultural products are excluded from this form of support.
- Along with the application, a preliminary bank approval of the financing, a bank rating in the form of a probability of default estimate for one year, and a confirmation by the bank with regard to URG criteria not being met are to be submitted. Within the scope of the Third COVID-19 Act also the 1977 Guarantee Act (Garantiegesetz) was changed to the extent that government guarantees issued vis-à-vis aws in connection with the bridge financings related to the COVID-19 pandemic shall not be counted towards the liability limit within the meaning of section 4 1977 Guarantee Act. aws also does not have to pay any fees for these guarantees.
4. Guarantees granted by the Österreichische Hotel- und Tourismusbank GmbH
Jointly with the ÖHT, the Federal Ministry of Agriculture, Regions and Tourism provides federal guarantees as collateral for bridge financings.
- This measure is aimed at supporting member companies of the tourism and leisure division of the Austrian Federal Economic Chamber.
- Support of bridge financings of up to EUR 500,000 by way of guarantees covering 80% (guarantees thus cover a maximum amount of EUR 400,000).
- Enterprises which have required reorganisation pursuant to URG already before the COVID-19 pandemic started, with the 2018 financial statements forming the basis for such assessment, are excluded from this form of support provided by ÖHT.
- The application shall be submitted, after consultation, jointly with the financing bank, via ÖHT’s online portal.
- Fast approval process of 3 days upon receipt of the complete documents, with processing and guarantee fees being borne by the federal government.
5. COIVD-19 support provided by Österreichische Kontrollbank AG (“special loan facility”, (Sonder-KRR))
With the support of their house bank, exporting companies may currently apply for a loan facility with OeKB to ensure that liquidity and jobs are maintained.
- This support is aimed at helping Austrian exporting companies (large-scale companies and SMEs) which, in general, create 25% of the value in Austria and have been economically sound before the COVID-19 pandemic (to be evidenced by the balance sheet as at the last balance sheet date).
- Support by way of revolving loans on the basis of a bill guarantee in the amount of 10% (large-scale companies) or 15% (SMEs) of the respective companies’ last year’s export turnover. A maximum amount of EUR 60 million per group of companies applies in this context (however, in addi-tion to framework financings already provided by OeKB, if any), and a loan facility in the total amount of EUR 2 billion is currently provided. Furthermore, the federal government is prepared to assume liability for up to 70% of these loans.
- Members of the tourism and leisure division of the Federal Economic Chamber are excluded from this form of support.
- The application shall be submitted, after consultation, jointly with the financing bank using the regular form for special loan facilities (KRR-Formular) with a note that the application is submitted under the special programme COVID-19 Aid (COVID-19-Hilfe).
- The costs depend on the sum used. Whether collateral must be agreed or provided, is to be assessed on a case-by-case basis.
6. Emergency fund of the City of Vienna and the Austrian Federal Economic Chamber in Vienna
The City of Vienna and the Austrian Federal Economic Chamber (“WKW”) in Vienna have increased the funds in the emergency fund to EUR 20 million for rent allowances concerning business locations and for compensating turnover losses caused by the COVID-19 pandemic; however, it is not possible to apply for both fundings. The basis for this measure is provided by the Regulation COVID-19 Special Funding (Richtlinie COVID_19 Sonderförderung).
- The funds are aimed at supporting sole proprietors in Vienna and microenterprises (in accordance with the Recommendation 2003/361/EC of the European Commission, a microenterprise is defined as an enterprise with less than 10 employees – part-time employees are recognised on a pro-rata basis – and an annual turnover not exceeding EUR 2 million) which got in distress due to the COVID-19 pandemic (decrease in turnover of at least 50%).
- Support in the form of non-repayable rent allowances (up to EUR 600 per month) provided that the decrease in turnover is between 50% and 74%, or in the form of non-repayable subsidies for decreases in turnover (up to EUR 1,000 per month) provided that the decrease in turnover is at least 75%.
- The decrease in turnover related to the COVID-19 pandemic must persist for at least one month and can be applied for for a maximum of five months.
- Sole proprietors and microenterprises which (a) on 1 March 2020 have been members of the Federal Economic Chamber in Vienna for at least two years, (b) have an active business license issued for Vienna, (c) can evidence a business activity (turnover) at the Vienna location and (d) got into economic distress due to the COVID-19 pandemic (decrease in turnover of at least 50%) are eligible for filing the application.
- Applications may be submitted with the Federal Economic Chamber in Vienna as from 1 April 2020.
Furthermore, the City of Vienna and WKW are providing EUR 10 million for the new sureties offer of Wiener Kreditbürgschafts- und Beteiligungsbank (“WKBG”). SMEs in Vienna may apply for additional sureties provided by WKGB via their house bank. This applies to bridging loans ranging between EUR 5,000 and EUR 500,000, and the support is granted by way of sureties provided by WKBG for up to 80% of the loan amount.
7. “Stolz auf Wien” investment company of the City of Vienna
The City of Vienna established a further support measure amounting to EUR 50 million in the form of investments. Details are envisaged to be communicated in the following weeks and operating activities are planned to commence in mid-May.
- The measure is aimed at helping companies based in Vienna the existence of which is threatened by the COVID-19 pandemic but which are generally characterised by a positive economic outlook.
- Support will be provided in the form of equity made available to help stabilising the relevant companies. The investment is limited to a maximum of EUR 1 million per company or 20% of the company’s shares and has a term of no more than seven years.
- An experts committee will be tasked with deciding which companies will be invested in.
8. Further government measures
The government is also making further measures available, e.g. in the form of deferral of tax payments and short-time working models, and regularly adds to the bundle of measures.
Within the scope of the Third COVID-19 Act also the SME Funding Act (KMU-Förderungsgesetz) was amended to the extent that the written form requirement (as bureaucratic “obstacle”) for guarantee confirmations issued by the respective authority was eased. The guarantee agreement may now be transmitted electronically and signed by replicating the handwritten signature.