At the end of September, the Supreme Court reached a favourable decision for KredEx Foundation in a rare court action related to state aid. On the one hand, the decision provides important instructions to undertakings applying for loans as state aid and to (state) authorities granting loans in Estonia; however, on the other hand, it also has the more general goal of ensuring the purposefulness of granting loans as state aid. In the court action, KredEx and the undertaking argued over granting an extraordinary working capital loan (so-called corona measure). The Supreme Court found that KredEx’s views on assessing the borrower’s solvency were appropriate and in a situation where repayment of the loan is rather unlikely, the foundation did not have to start looking, on its own initiative, for special circumstances that would still justify granting the loan.
TGS Baltic’s state aid and administrative disputes team consisting of Triinu Järviste, Vitali Šipilov, and Helmut Pikmets successfully represented the Estonian Business and Innovation Agency (formerly Foundation KredEx) in the Supreme Court in a dispute with an undertaking regarding the granting of an extraordinary working capital loan.
On 22 September, the Supreme Court confirmed in its decision that KredEx’s decision to grant an extraordinary loan is a forecast decision, and KredEx was able to consider a wide spectrum of different circumstances when assessing the solvency upon issuing the loan. According to the Supreme Court, KredEx correctly found that when assessing the borrower’s solvency, in addition to the obligation to repay the working capital loan, the borrower’s other obligations, the bad debt claims of the borrower against buyers, and the notes of the annual report must be considered as well.
The Supreme Court emphasised that when the repayment of the loan is rather unlikely, the foundation does not have to start looking, on its own initiative, for special circumstances that would still justify granting the loan. Therefore, in this case, the assumption applies that the loan must not be granted. The Supreme Court explained that if a loan was given while knowing that it would probably not be repaid, it would have a completely different economic meaning and effect as state aid than a refundable loan. Thus, the Supreme Court found that KredEx’s views on assessing the borrower’s solvency were appropriate.
TGS Baltic also represented KredEx in two other parallel cases regarding the same measure concerning an extraordinary working capital loan. The corresponding cases also ended positively for KredEx in lower instances in October and April 2021.
Senior associate Triinu Järviste, who represented KredEx in the court proceedings, said: “The decision of the Supreme Court is especially important from the point of view of ensuring the effectiveness and purposefulness of state aid. Namely, the Supreme Court confirmed KredEx’s broad competence in deciding on the issuance of loans, through which the institution can effectively ensure that loans go to those undertakings who need them and can repay the loans with sufficient certainty.” Vitali Šipilov, another representative of KredEx, added that the decision of the Supreme Court gives KredEx the certainty that KredEx is relatively free in making decisions about issuing loans, and several different criteria, which indicate that the undertaking may not, in reality, return the loan, can be taken into account. As such, the Supreme Court’s decision is in line with the economic logic of granting loans and confirms that KredEx’s practice in assessing solvency has been correct and can be continued in the case of future measures as well.
The decision of the Supreme Court is available here: https://www.riigikohus.ee/et/lahendid/?asjaNr=3-20-1548/31
