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    Winnovart explainer – Funding readiness check. Are you an “Undertaking in difficulty”?

    Not being an “undertaking in difficulty” is a very important eligibility criteria in most grants-funding programmes in Europe.

    What does this mean?

    An organisation is considered “in difficulty” if at least one of the following circumstances occurs:

    1. 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 following due diligence by the selected financial intermediary), where more than half of its 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. For the purposes of this provision, ‘limited liability company’ refers in particular to the types of company mentioned in Annex I of Directive 2013/34/EU (1) and ‘share capital’ includes, where relevant, any share premium.
    2. In the case of a company where at least some members have unlimited liability for the debt of the 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 following due diligence by the selected financial intermediary), where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses. For the purposes of this provision, ‘a company where at least some members have unlimited liability for the debt of the company’ refers in particular to the types of company mentioned in Annex II of Directive 2013/34/EU.
    3. Where 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.
    4. 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.
    5. In the case of an undertaking that is not an SME, where, for the past two years:
      • the undertaking’s book debt to equity ratio has been greater than 7,5 and
      • the undertaking’s EBITDA interest coverage ratio has been below 1,0.

    We would also suggest reviewing the full applicable regulation here: European Commission regulation no. 651/2014 (especially Art 2, p. 18).

    *Attention!!! – Even though the regulation might not be very clear about the applicable calendar date to be used when assessing the status of “undertaking in difficulty”, some Fund Operators might require this date to be the closing date of the last full financial year, prior to the date of submission. If needed, this should be checked with the Fund Operator prior to submitting the application.

    If you are unsure or you need support to check if you are an “undertaking in difficulty” or not, please reach out to us, we are happy to help.