A company can be commercially viable, backed by investors and still look distressed under an EU state-aid test because much of its funding is recorded as debt rather than equity. The Netherlands and ten other member states want that test changed.Their proposal asks the European Commission to count subordinated loans and other quasi-equity as full equity when applying the definition of an undertaking in difficulty. The coalition includes Belgium, Germany, France, Italy, Latvia, Luxembourg, Austria, Poland, Slovakia and Czechia.
A solvency safeguard is colliding with venture-finance practice
The rule is designed to stop subsidies, guarantees and public loans from sustaining businesses that are not viable. In its current form, the Dutch government argues, it considers registered equity but not venture debt or subordinated instruments that absorb risk in an equity-like way.That can exclude a young company from public programmes even when its investors have deliberately chosen quasi-equity to finance rapid research and expansion. The eleven-country statement was placed before the EU Competitiveness Council on 24 September.
Better classification is not weaker discipline
Counting every loan as equity would invite abuse. The useful reform is narrower: recognise instruments that are genuinely subordinated, long-dated and loss-absorbing, then examine liquidity and business viability separately.That distinction matters for Dutch technology companies whose research costs depress book equity before revenue matures. A rule built for conventional industrial balance sheets can incorrectly classify the capital structure of a venture-backed scale-up.Dutch Business Review's conclusion is that the coalition has identified a real design fault, but the remedy needs enforceable definitions. Europe can remove a financing anomaly without converting state aid into a rescue route for companies whose investors will not supply further risk capital.
The Commission's drafting will decide who benefits
Watch the precise eligibility of convertible loans, shareholder loans and venture debt, including maturity, subordination and conversion conditions.The policy result should be measured in additional viable companies reaching programmes, alongside default and recovery data. More approvals alone would not prove that the test improved.
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The reporting base for this article is Government of the Netherlands: European approach to growth-company finance rule is insufficient. The link is provided to the source page or release so readers can check the reporting period, definitions and later revisions. Figures are not extended beyond the source's geographic or institutional scope, and forecasts remain labelled as expectations until an official release records the outcome.