Definition of the “Ailing Business”

There is no Community definition of an undertaking in difficulty*. However, the Commission considers that an undertaking is in difficulty if it is not capable, by its own financial resources or with the resources it is able to obtain from its owners/shareholders and creditors, to halt its loss-making course which, without external intervention by the State,  it will lead it towards an almost certain economic extinction in the short or medium term.

A small and medium-sized  enterprise (SME) is considered problematic in the following cases:

  • in the case of a limited liability company, if more than half of its subscribed capital has been lost and more than a quarter of that capital has been lost during the last twelve months,  or
  • in the case of a company in which at least certain members have unlimited liability for the debts of the company, provided that more than half of its capital as shown in the company’s accounts has been lost and more than a quarter of that capital has been lost during the last twelve months,  or
  • regardless of the form of the company, provided that the undertaking concerned meets the conditions of domestic law to be subject to collective bankruptcy proceedings.

SMEs set up for less than three years shall not be considered, for the purposes of this Regulation, to be problematic in relation to that period unless they meet the conditions set out in point (c) of this paragraph.

A large  enterprise is considered to be in difficulty in the following cases:

  • in the case of a limited liability company, if more than half of its subscribed capital has been lost and more than a quarter of that capital has been lost during the last twelve months,  or…
  • in the case of a company in which at least certain members have unlimited liability for the debts of the company, provided that more than half of its capital as shown in the company’s accounts has been lost and more than a quarter of that capital has been lost during the last twelve months, or

· Irrespective of the form of the company, provided that it fulfils the conditions of the national law applicable to it as regards its being subject to collective insolvency proceedings.

Even in the absence of any of the circumstances mentioned above, a company may continue to be considered in difficulty, particularly when there are the usual indications of an undertaking in difficulty such as an increase in losses, a decrease in turnover, an increase in inventories, overcapacity, declining cash flow, increasing borrowing, an increase in financial burdens as well as a weakening or disappearance of the value of the net assets. In the most serious cases, the undertaking may have already been declared bankrupt or may be the subject of collective bankruptcy proceedings in accordance with the provisions of the national law applicable to it.