Individual support for companies during the corona crisis: lessons learned from the past often applied
Government earmarks €3.5 billion for targeted support for businesses
Ministers applied lessons learned from previous support operations when assessing applications during the corona crisis for individual financial support from companies such as KLM, IHC and HEMA, so concludes the Netherlands Court of Audit following an investigation. The ministers usually considered whether the applications were adequately reasoned and explored alternatives where necessary. NS, the Dutch train operating company, and ground handlers at Schiphol airport, for example, were referred to other schemes. The Court of Audit also found, however, that not everything was in order.
The Court investigated the ministries’ decision-making procedure for 4 companies that received tailored government support during the corona crisis and 3 companies that did not. The investigation, Individual support for companies during the corona crisis, found that ministers first assessed what support was available from non-governmental stakeholders to save a company. Support that might be incompatible with the single market was also usually reported to the European Commission in a timely manner. Between March and August 2020, the government undertook to provide more than €3.5 billion in new funding to support individual companies. HEMA did not receive individual support from the Minister of Economic Affairs and Climate Policy (EZK) because it is essentially a commercially healthy business.
|The Netherlands Court of Audit published a letter on 26 June 2020 setting out 16 lessons learned from previous operations to support individual companies. The lessons formed the framework for the Court’s assessment of the current support operation.|
The report reveals that the government overplayed its hand by prematurely announcing that it would provide billions of euros to save the national airline, KLM. This ‘bailing in’ of KLM, however, was limited during the period investigated (up to 1 September). The State bears 93% of the risk and the banks have only limited risk. The Court sees parallels in this case with the rescue operations for Fokker and NedCar in the 1990s. Furthermore, there is a risk of a conflict of interest in the current support for KLM owing to the dual role played by ABN AMRO as a financier of the support and adviser to the ministry about the support.
Risk greater than reported
The government helped save shipbuilder IHC in order to prevent the loss of €395 million already provided in export credits should the company collapse. According to the government, this support operation would increase the risk to the State to €700 million. The Court of Audit found, however, that the maximum risk to the State was €895 million. The Minister of EZK has not fully informed parliament of this risk. The intention to provide this support should have been announced in the course of a preliminary parliamentary scrutiny procedure so that parliament could form an opinion on it. Furthermore, the minister did not inform parliament in a timely manner or in full about the support provided to Smart Photonics or the SGR travel guarantee scheme.
Are alternatives available?
The investigation found that 3 of the 7 companies had plans for the future when a decision was taken on the provision of targeted support. One of the lessons learned in the past is that the support must be effective and proportional. SGR, for instance, asked the State to guarantee every travel organisation because SGR itself did not have enough capital during the corona crisis. The Minister of EZK ultimately opted for another solution with more appropriate conditions: a €150 million loan to strengthen SGR’s guarantee capital.
Assessment framework presented in the middle of the corona crisis
The government published a framework to assess applications for support on 1 May 2020. The framework highlights, among other things, the importance of understanding whether a company is a going concern when it applies for support. The assessment framework makes up for the absence of a systematic plan to assess individual support applications. The Court of Audit recommends that the assessment framework be expanded upon in several areas and be given a formal status. It also recommends that the law on when a preliminary parliamentary scrutiny procedure must be followed should be formulated more clearly.
Response of the ministers and the Court of Audit’s afterword
In a written response, the Ministers of Finance, EZK and Infrastructure and Water Management agreed in part with the Court of Audit’s recommendations. The ministers did not think it was necessary to amend the law. They were also minded that the Court’s opinion on the limited bail-in of KLM was premature as the government had since agreed a restructuring plan.
In its afterword, the Court of Audit considered a number of cases, such as KLM and IHC, and stressed the importance of informing parliament in a timely manner, particularly if the State was involved in the establishment of a legal person under private law. Where appropriate, the Court will express the same opinion in other cases as it has here with IHC.
The minister observed that the risk of ABN AMRO having a conflict of interest in the KLM case was a matter for the bank itself. The Court pointed out that as the responsible authority the government had a role to play, too.
The Court further notes in its afterword regarding KLM that time will tell how the negotiations with all stakeholders, and especially the shareholders, turn out and whether the Court’s conclusion that the bail-in has been limited was indeed premature, as the ministers claim. The final opinion will be parliament’s as events after 1 September fall outside the scope of this investigation.