Financial Shield Beneficiaries – Can You ‘Become’ an SME and Benefit ‘More’?

The PFR support programme, i.e. the Financial Shield, envisages differentiated support for different groups of entrepreneurs, with support to be granted in a flexible manner for SMEs through banking systems as well as through declarations submitted by entrepreneurs, and for large enterprises through applications addressed directly to the PFR. Entrepreneurs applying for support should pay attention to the type of support under these financings, but above all they should be able to identify what kind of enterprise they actually are – micro, small, medium or large.

The forms of support under the Financial Shield are differentiated in terms of conditions and types according to the status of the enterprise. For the SME group, i.e. micro, small and medium-sized enterprises, the Financial Shield will consist of a subsidy, which may be partially non-refundable (up to 75%).

• For large enterprises, the support programme envisages more diversified forms of support, either liquidity support of a fully repayable and chargeable nature or preferential financing with the possibility of partial cancellation of support or investment financing using equity instruments on market terms and under state aid.
• Micro-enterprises can expect relatively more support with fewer conditions to be met, small and medium-sized enterprises can also receive substantial support, but with somewhat stricter conditions.
• Aid for micro-enterprises is dependent on the number of employees and can amount up to PLN 324,000, with the amount of aid depending on the number of employees and the scale of the decrease in revenue.
• Aid for small and medium-sized enterprises is conditional solely on the scale of the drop in revenue, with aid available to enterprises whose turnover has fallen by at least 25%. The maximum amount of aid that can be obtained by this category of enterprises is PLN 3.5 million.
• Large enterprises, on the other hand, can count on support, the amount of which has not been definitively determined at the moment.

Many of the aid programmes currently in operation, aimed at entrepreneurs, remain differentiated according to the status of the beneficiaries. Obtaining a more attractive form of financing will depend on the status of the enterprise. Importantly, entrepreneurs wishing to benefit from the financial shield will specify the status of their enterprise in a declaration, which, once submitted, will be verified by the relevant services.

Therefore, it is worth knowing how to correctly determine one’s status and, contrary to appearances, the matter is not simple.

Let us start with where the category of micro, small and medium-sized enterprises comes from. It was the European Commission which decided to single out this type of company, recognising that they deserve greater support than large enterprises which do not face the problems and barriers typical of SMEs. Therefore, this group of companies is, in principle, treated better and can count on greater support in various types of programmes. Also now, under the Financial Shield, SMEs will be able to count on, among other things, a simplified system for obtaining support or on more non-refundable forms of support. The Commission has introduced rigid SME criteria (i.e. thresholds for employment, turnover and balance sheet total), the fulfilment of which leads to a presumption that the entrepreneur in question is facing the above-mentioned problems.

Importantly, a company must have had the parameters indicated for at least the last two full financial periods in a row to be considered, for example, a medium-sized enterprise.

It is worth noting that there is currently a discussion in the European Union concerning so-called mid-caps, i.e. entrepreneurs whose employment threshold is between 250 and 500 employees. Currently, these entities belong to the group of large enterprises. This problem particularly affects Polish enterprises – among large enterprises in our country, one can find many which, although they employ well over 250 employees, whose financial figures remain at the level of medium-sized enterprises. I wrote more about this problem, among others, in the article: Is an update of the SME definition needed?

The definition of enterprises contained in the Enterprise Law refers to the EU definition of SME contained in the European Commission’s Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (the 'Recommendation’).

According to the Recommendation, determining the status of an enterprise requires calculating data not only for one company, but also taking into account data of other entities in a relationship of affiliation/partnership with the beneficiary company.

[Partner enterprises] are those which have the following mutual relationship: an enterprise (upstream enterprise) holds, either alone or jointly with one or more linked enterprises, 25% or more of the capital or voting rights of the other enterprise (downstream enterprise).

Importantly, there are a number of exceptions to when companies can be partnerships listed in the recommendation.

[Associated enterprises] are those which have one of the following relationships:

(a) an enterprise has a majority of the shareholders’ or members’ voting rights in another enterprise;
(b) an enterprise has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of another enterprise;
(c) an enterprise has the right to exercise a dominant influence over another enterprise pursuant to a contract entered into with that enterprise or to a provision in its instrument of incorporation or statutes;
(d) an enterprise which is a shareholder or member of another enterprise controls alone, pursuant to an agreement with other shareholders or members of that enterprise, a majority of the shareholders’ or members’ voting rights in that enterprise.

In addition, a link between undertakings may also occur through natural persons acting if they carry out their activity or part of their activity in the same relevant market or related markets.

The European Commission has also prepared a handbook explaining the key elements of the SME definition. 

On the surface, everything seems clear, but only on the surface – until entrepreneurs start filling in the forms for assistance.

• How to calculate the fulfilment of the employment threshold for the enterprise, bearing in mind that not only employees as defined by national law have to be taken into account, but also other persons, e.g. persons working for the enterprise, subordinated to it and considered as employees under national law; owners-managers; partners with regular activities in the enterprise and obtaining financial benefits from it?
• Which accounting data to take into account – is it for the closed period or for the last period not yet approved?
• Finally, how do we determine whether we are a partner/associate enterprise given the range of exceptions described in the Recommendations?

The real problem, however, arises for entrepreneurs where certain rules on links are not explicitly written in, but result from the practice of the European Commission and the jurisprudence of the courts.

On the surface, such enterprises appear to be unconnected, but the jurisprudence of the European Commission and the courts may indicate that in this case we are also talking about connected enterprises – what matters here is the scale and intensity of the interrelationship. Significantly – contrary to the literal wording of the recommendations – these companies do not even have to operate on the same or related markets, as long as the intensity of the relations between the companies is significant enough to indicate an affiliation.

We have written about these doubts as Brysiewicz and Partners, among others, in the material Business Case Review – EU funds and state aid.

Similarly, companies with institutional investors or venture capital funds in their ownership structure will not be entirely free of doubts – everything depends on the circumstances and the influence of the given entity on the beneficiary company. In such circumstances, ideas are also often put forward to e.g. sell or fragment the controlling stake (e.g. to so-called trusted persons), change the composition of the Management Board or the Supervisory Board, or to make other moves e.g. to establish employment relations with employees within another company, which would ostensibly provide the entrepreneur with SME status – more favourable in terms of aid instruments.

I already wrote about the problems of company linkage years ago in one of my first blog posts and not much has changed since then – the awareness of entrepreneurs has not increased significantly and the definition of companies has remained unclear as it still is.

All the questions and problems described above will arise for many entrepreneurs applying for support under the Financial Shield. The support measures seemingly appear easy to obtain – with the exception of large entrepreneurs, they will be obtained through the banks’ electronic systems and only on the basis of statements by the entrepreneur, including statements as to his or her status.

Only apparently, however, will support be 'easy’. The incorrect determination of a company’s status, like the failure to name the real beneficiary or other false statements, will be verified by the secret services and the tax apparatus.

The announcement of an anti-corruption shield for the Financial Shield came almost in parallel with the latter. The KAS even announces the creation of a special algorithm to track possible irregularities in the support collected.

Beneficiaries of the Financial Shield should therefore not forget that the declarations they make will be verified, and that irregularities, e.g. in determining their own status or in other mandatory prerequisites for assistance, may result in criminal and fiscal liability for their hubs in addition to the obligation to repay the support.

Experts from the law firm BBS i Wspólnicy from the EU Funds and State Aid practice, invite all beneficiaries of the Polish Development Fund’s Financial Shield S.A. (large companies and representatives of SMEs), to participate in a free webinar to be held on 7 December from 10.00 to 12.00.

During our virtual meeting, we will jointly discuss both 🔹problems arising at the subsidy application stage, which may result in the need for reimbursement, as well as 🔹future changes in the legal or factual situation of companies affecting the support granted under the Financial Shield.

We will also comment 🔹 on the scope and course of a possible audit of the disbursement of funds provided by the PFR and its consequences and the beneficiary’s preparation process prior to the audit. 🔹We will advise on how to proceed in practice in the event of a risk that a subsidy has been wrongfully collected.

This is an unusual opportunity to get answers to a number of burning questions related to the settlement of PFR Financial Shield funds.

SIGN UP FOR THE WEBINAR !