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What is Undertaking in Difficulty

What does ‘Undertaking in Difficulty’ mean?

When you apply for a grant, we need to check whether your organisation is classed as an 'undertaking in difficulty'. This is a legal term used in subsidy control rules. It helps decide if a business or organisation is financially stable enough to receive public funding.

In simple terms, an organisation might be seen as in difficulty if:

  • it has serious financial problems, like large losses
  • it’s insolvent or close to insolvency
  • it has taken rescue or restructuring aid in the past and hasn’t yet paid it back
  • it has very high debt and cannot cover its interest payments

Small businesses that are new (less than 3 years old) are usually not affected by this rule.

You don’t need to assess this yourself. We’ll ask you some questions during the application process to help us check if this rule applies to you.

Legal definition

The 'Undertaking in Difficulty' test can be found at Article 2(18) of the General Block Exemption Regulation which reads:

‘Undertaking in difficulty’ means an undertaking in respect of which at least one of the following circumstances occurs:

(a) In the case of a limited liability company (other than an SME that has been in existence for less than three years or, for the purposes of eligibility for risk finance aid, an SME within 7 years from its first commercial sale that qualifies for risk finance investments), more than half of its subscribed share capital has disappeared due to accumulated losses.

(b) In the case of a company where at least some members have unlimited liability for the debt of the company (other than a qualifying SME), more than half of its capital as shown in the accounts has disappeared due to accumulated losses.

(c) The undertaking is subject to collective insolvency proceedings or meets the criteria for such proceedings under domestic law.

(d) The undertaking has received rescue aid and has not yet repaid the loan or terminated the guarantee, or has received restructuring aid and is still under a restructuring plan.

(e) For undertakings that are not SMEs, for the past two years:

  • the book debt to equity ratio has been greater than 7.5; and
  • the EBITDA interest coverage ratio has been below 1.0