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CBILS Update – Relaxation of ‘Undertaking in difficulty’ rules

Changes have been announced to the EU State Aid ‘Undertaking in Difficulty’ test from the end of July, therefore increasing access to the Coronavirus Business Interruption Loan Scheme (CBILS). This test is important as it has been the reason for a number of rejections of CBILS applications.

 How it has been working

 A ’business in difficulty’ as defined on the British Business Banks FAQs for SMEs on CBILS is one that, as at 31 December 2019, had:

  • accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies its capital
  • started, or had fulfilled the criteria to be put into collective insolvency proceedings
  • previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated)
  • received restructuring aid, and was still under a restructuring plan
  • (where it not meet the SME criteria) has fallen below solvency ratios for the previous two years

What is changing?

From 30 July, the amendment means that smaller businesses with fewer than 50 employees and less than £9,000,000 in annual turnover and/or annual balance sheet will not be considered undertakings in difficulty unless they are:

  • subject to collective insolvency procedure under national law
  • in receipt of rescue aid (which has not been repaid) or restructuring aid (and are still subject to a restructuring plan)

Smaller businesses with more than 50 employees or more than £9,000,000 in annual turnover and/or annual balance sheet will still be subject to the ‘Undertaking in Difficulty’ test as defined by the European Union.

Applicants will need to determine their turnover and number of employees in line with Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises.

This change will apply from 30 July 2020, and means lenders may now be able to offer CBILS to businesses who had previously been unable to access CBILS.

Bounce Back Loan Scheme

The Bounce Back Loan Scheme (BBLS) is unaffected by this change.

PKF Francis Clark

We are continuing to work with clients on CBILS applications and in the past week we have noticed an increase in enquiries which we can only think will further increase with this amendment.

It will be interesting to see how much the difference in ‘Undertaking in Difficulty’ rules makes in (re) opening up CBILS to some business who would have been automatically rejected previously.

If you would like to speak to us about a CBILS application or any other query, please do let us know and we’ll be more than happy to help.

FEATURING: Richard Wadman
Richard qualified as a Chartered Accountant with KPMG in 1993. Since 2006 he has worked in Corporate Finance, firstly with the predecessor firm in Truro… read more
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