Innovative startups and scale-ups are missing out on financing because they are wrongly classified as non-viable businesses under the EU’s Undertakings in Difficulty (UID) definition. The latest proposal by the European Commission to address this issue from 2027 onwards is considered insufficient by the Netherlands and ten other EU member states. Today, Minister Heleen Herbert of Economic Affairs and Climate Policy of the Netherlands took the initiative to propose improvements on behalf of this group which has a shared objective: the EU has to become a startup powerhouse.
In May, eight countries, led by the Netherlands, already called for a revision of the UID definition to strengthen the EU’s innovation capacity. Now, Austria, Belgium, the Czech Republic, France, Germany, Italy, Latvia, Luxembourg, the Netherlands, Poland and Slovakia, are jointly proposing to extend its scope to include quasi-equity instruments. This is not part yet of the current Commission’s proposal.
The eleven countries submitted a joint statement to the European Commission. The issue has also been placed on the agenda of the EU Competitiveness Council in Brussels on Thursday, 24 September. Minister Herbert will also discuss the need for these amendments directly with EU Commissioner Teresa Ribera (Executive Vice-President and Competition) today.
Minister Heleen Herbert (Economic Affairs and Climate Policy) of the Netherlands: “The economic growth rate within the EU is concerning. This has a major impact on our prosperity including the affordability of public services. Therefore, we need to invest more and more in our innovation, competitiveness and technology. Especially through successful startups and scale-ups we can enable a stronger, more sustainable economy for all and realize our common goal to reduce dependencies.”
The Minister continues: “For the Netherlands and ten other countries it is very clear that we need to ensure that these startups and scale-ups are not unnecessarily hindered in their potential. The current Undertakings in Difficulty framework is outdated and wrongly apply to promising and financially stable innovative businesses. Together with a coalition of EU member states, I will continue to raise this issue with the European Commission.”
Definition of Undertakings in Difficulty
EU rules prevent non-viable companies from receiving subsidies, guarantees, or loans to avoid unfair competition through state aid. However, the current UID definition also disproportionately disadvantages viable startups and scale-ups with financing needs.
Innovative growth companies often rely on venture capital and loans rather than traditional equity. The current definition only considers equity, excluding subordinated loans and venture capital – even when structured as quasi-equity. As a result, startups and scale-ups frequently fail to meet the UID criteria, despite being financially stable and viable. The eleven countries therefore propose recognizing these financing instruments as quasi-equity within the definition.