7 minute read 31 May 2021

How an undertaking in difficulty can keep its head above water

Steven Claes

EY Belgium Tax & Law Leader and Talent Leader

Trying to make a difference every day.

Koen Illeghems

EY Belgium Business Tax Advisory Manager

Supporting companies in financing solutions and subsidizing R&D & I.

7 minute read 31 May 2021

Undertaking in difficulty – What does it  mean, what are the implications and what are your options for grants and funding?

In brief

  • Based on objective rules, you can check if your business qualifies as an undertaking in difficulty.
  • There are many options for grants and funding, even for an undertaking in difficulty.

The General Block Exemption Regulation (GBER) sets out how central governments can legitimately provide aid (caps on the various categories of aid, mandatory incentive effect, etc.). In Belgium, for example, the aid instruments commonly used by VLAIO, Innoviris, and SPW for training, research, development and innovation, as well as regional and economic aid, come under the GBER.

The GBER also stipulates that undertakings in difficulty (UIDs) are not eligible for this type of grant. It is therefore important to check what this means for your enterprise, especially if your undertaking is looking for finance (grants, equity, crowdfunding, (subordinated) loans, etc.).

When am I a UID?

The definition of UID can be found in article 2, point 18 of the GBER and is based on a number of concepts arising in your company’s annual financial report. Here, a distinction is made between SMEs and large enterprises.

So, first of all, you have to determine whether your undertaking is an SME or a large enterprise. This may seem trivial as there’s a clear EU definition of this (there’s also a fiscal definition, but that doesn’t apply here): SMEs employ fewer than 250 people and have an annual turnover not exceeding €50 million or a balance sheet total of a maximum of €43 million. However, it isn’t always as simple as it appears:

An ‘autonomous’ enterprise only achieves SME status if it exceeds these thresholds over two successive accounting periods. But if one or more other enterprises hold 25% or more of the capital or voting rights, you’re no longer considered an ‘autonomous’ company. The figures for these partner enterprises (25% to 50% of the capital or voting rights) then have to be taken into account when testing against the criteria mentioned above - pro rata or in full in the case of linked enterprises (more than 50% of the capital or voting rights). Enterprises that exceed the SME thresholds due to their shareholder structure can lose their SME status instantly.

Once the SME character is clear, it’s relatively simple to determine your UID status. Here’s how:

1. All enterprises (SMEs and large enterprises) qualify as UIDs if:

a) “half of [their] subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital.”

You can check this by working out the “own funds” (as specified in item 10/15 of the financial statements of a Belgian company) and the subscribed capital (item 100), which has to be > 0.5 in order not to be a UID.

Note that VLAIO includes non-called up and non-paid up capital when calculating own funds (item 101).

b) “the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors”;

c) “where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan”;

2. Further criteria apply for large enterprises. The GBER stipulates that they also qualify as UIDs where they have fulfilled the following criteria for the past two years:

a) the company's book debt to equity ratio has been greater than 7,5

For this purpose, equity/own funds can be determined as described above. For Belgian companies, book debt can be calculated by adding together “Provisions and deferred taxes” (code 16) and debt (code 17/49).

b) the company's EBITDA interest coverage ratio (=interest expenses; code 650 for Belgian companies) has been below 1,0.

The above aspects are typically analysed by the subsidising authority based on the last available (interim) financial statements, certified by an auditor.

Since the introduction of the Companies and Associations Code on 1 May 2019, it is possible to set up companies without capital, where there is no subscribed capital, but “investment other than capital”. It’s not quite clear yet how subsidising authorities are to deal with this in view of the UID criteria. Since the lawmakers introduced the notion of ‘initial capital’ in the new Companies and Associations Code, the classic concept of capital is no longer relevant by definition. The most prudent approach would be to treat the item ‘investment’ as equivalent to ‘capital’.

As of 1 March 2021, VLAIO uses the term “inbreng” (“investment”), see the latest order of the Flemish Government (cabinet 26 February 2021).


Does your business qualify as a UID according to the above criteria? Don’t worry, there are a number of exceptions that might apply.

1. Are you an SME that has been in existence for less than three years? If so, you’re not a UID! The idea behind this is that start-ups typically take a few years before they can generate sufficient income and are past the cash burn phase.

VLAIO applies a further exception here, whereby SMEs can take advantage of this rule for up to five years, depending on the amount of start-up aid they’ve received since their creation (based on article 22 of the GBER).

2. Do you claim aid from VLAIO? If so, you may be able to take advantage of the following temporary relaxation of the UID rules due to the covid-19 pandemic: “An undertaking which, based on its financial statements for the year ending between 1/1/2020 and 30/6/2021, qualifies as an ‘undertaking in difficulty’, can nevertheless be considered not to be an ‘undertaking in difficulty’ until 30/6/2021 if it can demonstrate that it was not an ‘undertaking in difficulty’ on 31/12/2019. However, the situation as at 31/12/2019 must be certified ‘true and correct’ by an external accountant or be filed with the National Bank of Belgium.”

What are the options if you still want to claim aid as a UID?

Do you already qualify as a UID or will you qualify as a UID in the near future? The following solutions can ensure you’re still eligible for aid:

1. Analysis of timing. When were you a UID? When weren’t you? What do the filed financial statements and the (certified) interim financial statements show? If, for example, the last financial statements you filed show that you qualify as a UID, but recent (certified) interim financial statements demonstrate that this has been remedied (see below), this is generally sufficient to still be eligible for aid. So, you need the right subsidy strategy and schedule!

From 1 March 2021, VLAIO sets the timing of compliance with the UID criterion at the date of filing the application for aid (this used to be the date of the decision). Where only one undertaking applies for innovation aid, the undertaking has up to four months (after the decision) to remedy its UID status.

2. One way of remedying your UID status is by a capital increase. This may be the most obvious solution, but not always. Since fresh capital is included in both own funds and subscribed capital, it has limited leverage! There are also many other (legal) factors involved in an investment round.

3. Another way, which companies sometimes tend to overlook is by a capital reduction. A capital reduction for the absorption of losses carried forward can restore the ratio of equity to capital. Note: this is associated with potential disadvantages and caveats both fiscally (e.g. if fiscal paid-up capital would disappear as a result) and under company law (e.g. if this would mean that the undertaking no longer meets the mandatory minimum capital requirements).

The above remediation plans (capital increase, capital reduction, etc.) are often sufficient for certain subsidising authorities to grant conditional aid to undertakings that qualify as UIDs at the time of filing or the decision, where, for example, the first tranche of aid is withheld until the condition is met. However, this does not apply to EU aid: in this case, aid is not granted on a conditional but on a suspensive basis (project cannot start while you’re still a UID).

Conclusion – Plan your funding strategy

UID is a complex issue that can suddenly turn out to be a showstopper. For example, there are some start-ups that draw up a grant application but don’t take sufficient notice of the timings for submission, assessment and validation.

  • Exceeding the time limit (more than three or five years, see above), even slightly, at the time of validation and suddenly being faced with UID status – and therefore not receiving a grant – after lengthy efforts, is far from pleasant...

  • Another case that commonly arises is paying insufficient attention to the definition of SME, where enterprises consider themselves as SMEs (e.g. only a few employees) and, due to attracting an investor, suddenly have to perform a consolidation exercise, which shows that they qualify as a large enterprise or UID...

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When you qualify as an undertaking in difficulty, there are still  options open to you for grants and funding. Discover how EY can help you with this.

About this article

Steven Claes

EY Belgium Tax & Law Leader and Talent Leader

Trying to make a difference every day.

Koen Illeghems

EY Belgium Business Tax Advisory Manager

Supporting companies in financing solutions and subsidizing R&D & I.