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Undertaking in difficulty for SME’s

Definition of an Undertaking in Difficulty (“UID”) for micro, small and medium-sized enterprises (“SMEs”) applying for Coronavirus Business Interruption Loan Scheme (“CBILS”)

Section 1:

A UID is an SME that had:

  • started, or had fulfilled the criteria to be put into collective insolvency proceedings; or
  • previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated); or
  • received restructuring aid, and was still under a restructuring plan; or
  • accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies it’s capital.  (The test date for accumulated losses in relation to UID status is detailed in the definitions section later in this document)

 

If an SME fails any of the above tests, then it is a UID and not eligible for CBILS, except in the cases outlined in Sections 2 and 3 below:  

Section 2:

The accumulated losses test for UID status in Section 1 (d) will not apply if the enterprise has fewer than 50 employees and an annual turnover or balance sheet total that does not exceed €10m (and is therefore a Micro or Small Enterprise). 

Section 3:

In the case of all SMEs, the accumulated losses test in Section 1 (d) does not apply if:

  • The enterprise  has traded for less than three years at the time of the application for CBILS or;
  • Is a trust, sole trader or unincorporated association. 

 

Guidance on the definition and the calculation of relevant data for SMEs can be found through   https://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en

 

Definitions

 

What does the accumulated losses criteria for an Undertaking in Difficulty (“UID”) mean?

The CBILS definition of a UID includes businesses that have accumulated losses that are greater than half of their subscribed share capital, as at the test date (defined below). For a limited liability company, this means having accumulated losses greater than half of its capital, if deducting accumulated losses from the company’s reserves leads to a negative amount that exceeds half of the company’s subscribed share capital.

What is the accumulated losses test date?

As at the date of application for CBILS, the financial accounts for the enterprise as at the latest year-end should be used to test the accumulated losses. If these latest accounts are dated on or after 1st January 2020 and they show the enterprise is classed as a UID, then the previous set of annual accounts in existence as at 31st December 2019 can be used to determine UID status. If the latest annual accounts dated on or after 1st January 2020 show that the enterprise is not a UID, then there is no need to look back at the previous accounts and the enterprise will not be considered to be a UID. If the financial position of the enterprise has materially changed since the relevant annual accounts used to determine UID (e.g. a major equity injection after the accounts date but prior to the date of application) then interim or management accounts may be used.  

What are “collective insolvency proceedings”?

These are as defined by the Commission Regulation (EU) 2015/848 of 20 May 2015, The following UK proceedings are categorised as ‘collective insolvency proceedings’ under the Insolvency Regulation:  

  • winding-up by, or subject to the supervision of, a court
  • creditors’ voluntary winding-up (with confirmation by the court)
  • administration
  • voluntary arrangements under insolvency legislation
  • bankruptcy or sequestration

 

The ‘voluntary arrangements’ listed above include company voluntary arrangements and individual voluntary arrangements. 

Receiverships, members' voluntary liquidations and schemes of arrangement under Part 26 of the Companies Act 2006 are not included in the scope of the Insolvency Regulation and therefore fall outside of the definition of “collective insolvency proceedings”.

What does “fulfils the criteria under its domestic law” mean in collective insolvency proceedings?

There is no official guidance from the European Commission on what this means. However, if a borrower is the subject of any of the proceedings listed above, or is not subject to any insolvency proceedings, but meets the criteria above, the borrower should be categorised as a UID.

What defines rescue aid or restructuring aid?

Rescue or restructuring aid is normally the subject of a specific state aid approval from the European Commission. For the avoidance of doubt, aid provided under the Enterprise Finance Guarantee Scheme and Covid Business Support Schemes are not rescue or restructuring aid.

Which companies can be classed as SMEs for the UID definition?

This can include self-employed people, family businesses and partnerships or associations regularly engaged in an economic activity. It also includes any micro, small or medium-sized business that employs fewer than 250 people and has an annual turnover of no more than €50 million or balance sheet of no more than €43 million.

Should the tests for a UID be on an individual or group basis?

You should calculate these on a group basis.  

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The Coronavirus Business Interruption Loan Scheme (CBILS) is managed by the British Business Bank on behalf of, and with the financial backing of the Secretary of State for Business, Energy and industrial Strategy (BEIS). British Business Bank plc is wholly owned by HM Government and is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). Full details on CBILS and the list of participating CBILS lenders can be found on the British Business Bank website