On 29 May 2020 the EU Commission announced the new Solvency Support Instrument (SSI) to tackle the support needs, which the Commission estimates between € 720 billion and € 1.2 trillion for 2020 alone, depending on the further developments. The SSI is supposed to balance the different impact the pandemic has on the Member States economies and thus safeguard the functioning of the single market by supporting otherwise healthy businesses.
The instrument will work via an EU guarantee to the European Investment Bank (EIB) and the Commission wants to channel the support predominantly through independent financial intermediaries under the governance structure of the European Fund for Strategic Investments (EFSI). Apart from saving viable companies faced with solvency issues only due to the pandemic the instrument will also focus on the EU priorities of the green and digital transitions and on supporting cross-border economic activities.
Even though the SSI will be open for all Member States and it will focus on those most economically impacted by the pandemic and with more limited national solvency support. There will be no geographical quotas, but permanently reviewed geographical concentration limits. The investment period runs until end-2024 in terms of approvals, 60 % of the financing, however, must have been approved by end-2022 to provide the support quickly.
EIP welcomes the courageous action and the necessary signal of cohesion among Member States. The greatest challenges will be the fair distribution and effective use of the support while avoiding market distortion. In this context, EIP advocates to make SSI available for restructurings in formal procedures, because many viable companies will have to choose this option to cope with the consequences of the pandemic, and under the supervision of neutral, possibly court-appointed restructuring professionals there is an increased prospect of correct allocation.
Apart from this, it should be borne in mind that in many cases financial support instruments may work as a vaccine against insolvency, but nevertheless the economic impact of the pandemic will require well-equipped insolvency systems and skilled professionals – just as the health impact requires prepared health systems.