The SME Regulations were amended by SI 280/2016 on 27 May 2016. The most notable changes relate to the conditions that must be met for an enterprise to be a micro and small enterprise or a medium-sized enterprise.
Our February 2016 Client Briefing summarised the new SME Regulations and their potential impact.1 These new SME Regulations govern dealings between regulated entities and SMEs, were signed on 17 December 2015 and will apply to regulated entities (other than credit unions) from 1 July 2016 and to credit unions from 1 January 2017.
Micro and small enterprises who is in scope?
Part 2 of the SME Regulations applies detailed protections to micro and small enterprises. The original version of the SME Regulations defined a micro and small enterprise as an enterprise which:
- has less than 50 employees AND
- has an annual turnover of 10,000,000 AND
- has an annual balance sheet total of 10,000,000.
This has been amended so that, to qualify as a micro and small enterprise from 1 July 2016 onwards under the SME Regulations, an enterprise which has less than 50 employees need only have a turnover OR balance sheet total below the relevant thresholds, rather than both.
Medium-sized enterprises - who is in scope?
Part 3 of the SME Regulations applies high-level (less granular) protections to medium-sized enterprises. The original version of the SME Regulations defined a medium-sized enterprise as an enterprise which is not a micro and small enterprise and which:
- has less than 250 employees AND
- has an annual turnover of 50,000,000 AND
- has an annual balance sheet total of 43,000,000.
This has been amended so that, to qualify as a medium-sized enterprise, an enterprise that is not a micro and small enterprise and has less than 250 employees need only have a turnover OR balance sheet total below the relevant thresholds, rather than both.
The changes align the new tests with the test set out in the existing SME Code. To qualify as an SME under the existing SME Code, an entity needs to meet the `less than 250 employees' test, and then at least one (but not necessarily both) of the 50million annual turnover test and the 43million annual balance sheet total test.
- Warnings to guarantors of mediumsized enterprises
The SME Regulations have been amended to provide that the warning statements given to guarantors of medium-sized enterprises must also be presented:
- in a prominent manner;
- in a box;
- in bold type; and
- using a font size that is at least equal to the predominant font size used throughout the document or advertisement.
These requirements originally applied only to warnings given to guarantors of micro and small enterprises.
Originally, regulated entities were to be obliged to keep all documents relating to credit applications by medium-sized enterprises that they refuse:
- for at least 12 months; or
- if the decision to refuse was appealed under Regulation 42, for at least 12 months after the conclusion of the appeal.
The second limb of that requirement has now been removed, most likely because the SME Regulations do not oblige regulated entities to allow medium-sized enterprises appeal refusals. It remains in place for micro and small enterprises as regulated entities must allow micro and small enterprises appeal refusals to grant credit.
While these changes are welcome, there are further aspects of the new SME Regulations in respect of which clarity would be helpful. These include the role (if any) played by the European definition of "SME" and related guidance, which contains helpful analysis on autonomous enterprises, partner enterprises and linked enterprises.