With more than a year of hindsight since their implementation, we now can see that a multiplication of aid schemes linked to the COVID-19 pandemic creates various unexpected legal problems. We provide here a brief overview that is neither exhaustive nor definitive.
The obligation to refund public aids in certain cases: a potential burden in the event of bankruptcy
Many aid schemes include in their conditions the obligation to repay the aid in the event of the transfer of the business, liquidation or bankruptcy of the recipient company. Thus, the aid granted is far from being definitively acquired.
Although the context is particular, all companies are still required to declare bankruptcy within one month of the cessation of payments. However, one should not be fooled: with the various aids granted and the official or tacit moratoria on bankruptcy, many companies are today in a virtual state of bankruptcy and should have already filed for bankruptcy to comply with the legal requirements.
Since, in the event of bankruptcy, most public aids paid will be claimed by the subsidising authority by means of a declaration of claim addressed to the bankruptcy trustee and the later will have to take it into account, the amount of this premium will form part of the liabilities which will be claimed by the bankruptcy trustee from the director of the company, either obligatorily – in the case of non-limited liability companies – or according to the circumstances – when the personal liability of the director seems to be engaged.
Therefore, accepting a public aid is not a neutral decision, especially if it turns out that the company does not have credible prospects for continuity.
When the one who collects the public aid is not the one who bears the costs of the crisis: problems of contractual execution in sight
The aid schemes were all adopted in a hurry. The amounts of aid, the way they are calculated when they vary and, sometimes, even the very identity of the beneficiaries seem to be the result of decisions taken without having taken into account certain pitfalls.
A striking example is the public aid scheme set up in Belgium by INAMI (Federal Institute for Health Insurance) for health care providers. Justified because of the obvious explosion in the price of medical equipment and consumables since the beginning of the COVID-19 pandemic, this system remains surprising since, for many medical professions practiced outside the hospital networks, the aid can be claimed by a health care provider practicing in a private structure even though it is the structure, and not the provider, that has borne the costs of purchasing medical equipment and consumables.
Contracts between healthcare providers and private structures often do not cover the allocation of public aids between them, in addition to the fees generated by the providers and usually shared between the structure and the provider.
Such a situation has already led to contractual enforcement issues, with structures arguing – rightly in our view – that the aid should actually go to the one who has borne the costs. This brings the issue of good faith performance of contracts back to the forefront and sets the stage for some interesting court decisions on how to place the cursor in this crisis when parties to a contract are competing for the benefit of public aid.
When accepting a public aid becomes a source of blame with potentially disastrous legal consequences
Case law is currently very divided in Belgium on the issue of the rights and obligations of the landlord and the tenant when the tenant is prohibited from carrying on its business or is unable to do so, such as when a restaurant chooses not to offer take-out food to its customers.
However, it can be observed at present that some decisions use the granting of pandemic-related aid as an argument against the tenant using the aid for purposes other than rent payments.
In case of discussion or dispute, if you are a tenant, explain to the landlord the purpose of the grants received. If you are a landlord, ask your tenant what aid has been received: not all of it is intended to cover the operating costs of the legal entity. For instance, the collection of the bridging fee by the company's director is, in our opinion, not intended to cover the costs of the legal entity, but to ensure the financial survival of the director herself or himself when her or his has stopped its activities.
Subsidising authorities : ensure compliance of the scheme with the European state Aid control
Finally, subsidising authorities that introduce aid must always have the reflex of checking the conformity of the planned scheme with the European framework for state aid control. Although this framework has been made more flexible for the moment, the aids constitute a distortion of competition which, although it may be justified in the light of the European legal framework, must nevertheless be examined carefully so that the scheme is not subsequently called into question, with the harmful financial consequences of a recovery of state Aid.
These few examples drawn from practice show that the crisis generated by the COVID-19 pandemic raises new legal questions. It is up to the companies and subsidising authorities to be well equipped and to be accompanied in order to adequately address the legal issues raised by the aid schemes adopted or envisaged.
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.
