British Business Bank confirms changes to ‘undertaking in difficulty’ guidance

From today, businesses applying for the Coronavirus Business Interruption Loan Scheme (CBILS) or Coronavirus Large Business Interruption Loan Scheme (CLBILS) will benefit from more flexibility on the date the test of whether or not their business is an ‘undertaking in difficulty’ is assessed.

To be eligible for these schemes, businesses previously had to demonstrate that they were not an ‘undertaking in difficulty’ – a requirement under EU State aid law – as of 31 December 2019.

The definition of ‘undertaking in difficulty’ includes businesses that:

• had accumulated losses greater than half of their subscribed share capital (for limited liability companies) or capital (for unlimited liability companies)
• had entered into collective insolvency proceedings or fulfilled the criteria to be put into collective insolvency proceedings
• had previously received rescue aid that was yet to be reimbursed or (in the case of a guarantee, terminated)
• had received restructuring aid and were still under a restructuring plan
• had (where the undertaking is not an SME) fallen below the required solvency ratios (see further below) for the previous two years.

The new guidance allows for the ‘undertaking in difficulty’ assessment to be determined at the date of application for the schemes. Businesses that were ‘undertakings in difficulty’ on 31 December 2019 but are no longer ‘undertakings in difficulty’ will now be (in principle) eligible for the schemes.

This flexibility means that businesses can take action to convert their debt (for example, in the form of loan notes) to shares (equity) in order to qualify for the schemes, giving them the option to restructure their finances before application so they may become eligible.