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New Late Payments Directive
Despite the implementation of Directive 2000/35/EC on combating late payment in commercial transactions in 2002, the European Commission (the “Commission”) concluded in 2008 that late payments were still widespread in the EU. It also turned out that public authorities in certain Member States were stipulating unjustifiably long contractual payment periods for transactions.
For these reasons the Commission prepared a proposal to tighten Directive 2000/35/EC in 2009. This proposal is the basis for new European regulations on combating late payments in commercial transactions: Directive 2011/7/EU (the “Late Payments Directive”). The old directive (Directive 2000/35/EC) will be repealed on 16 March 2013. Until that date the Member States have time to implement the new directive. The European legislator uses the principle of minimum harmonization as a starting point; this means that the Member States are allowed to take stricter measures, such as imposing a higher commercial interest.
In this article I will discuss the new Late Payments Directive. First, I will explain the objective and the scope of application of the Late Payments Directive, followed by a discussion of the most important changes. I will complete this article by giving my conclusion.
Late Payments Directive: Objective and Scope of Application
One of the objectives of the new Late Payments Directive is to improve the cash flow of European undertakings and to give them better access to financing. Besides, the new regulations aim to remove the obstacles for cross-border commercial transactions. In order to achieve these objectives, creditors are granted the right, just like under the former Directive, to charge commercial interest on the amount payable. This right is granted to the creditor on the condition that he has fulfilled his contractual and statutory obligations, and on the condition that the debtor is responsible for the delay in payment.
The Late Payments Directive applies to commercial transactions between businesses, or between businesses and public authorities. A broad definition of the concept of a 'business' has been chosen, namely "any organization acting in the course of its independent economic or professional activity". This may be a sole proprietorship, foundation, association, or a large public limited company. A commercial transaction is a transaction that leads to the delivery of goods or the provision of services for remuneration. The definition of ‘delivery of goods’ includes not only the sale of goods, but also other transactions combining the enjoyment or use of goods (e.g. lease or ground lease). There is no distinction as to the kind of goods. As a result, the Late Payments Directive relates also to the delivery of immaterial goods, like intellectual property rights.
Transactions with consumers, payments under the laws on checks and bills of exchange, and payments made as compensation for damages, do not fall under the scope of the Late Payments Directive.
Important Changes Compared to the Previous Directive
Below, I will discuss the following important changes:
- increase of statutory commercial interest;
- commercial interest due without reminder;
- statutory limitation of the payment term;
- stricter rules for commercial transactions between undertakings and public authorities;
- fixed compensation of recovery costs;
- unfair stipulations and practices.
Re a) The Late Payments Directive puts commercial interest on a par with the most recent marginal interest rate for main refinancing operations used by the European Central Bank, increased by at least eight percentage points. This is an increase of one percentage point compared to the former Directive (see Section 6:120 (2) in conjunction with 6:119a of the Dutch Civil Code).
Re b) A creditor may charge interest on the amount due directly from the first day after the term of payment has expired. The debtor no longer needs to be in default, which means that he need not be reminded of his payment obligation, for example by sending him a reminder.
Re c) The Late Payments Directive mentions four different times when the term of payment starts running: it is either the day of receipt of the invoice, or the day of receipt of the goods that is decisive. In principle, in all cases a term of payment of 30 calendar days applies. A longer term of payment is permitted, but the Member States must ensure that it will not exceed 60 calendar days, unless:
- the agreement expressly indicates otherwise, and
- it is not grossly unfair to the creditor.
Re d) For commercial transactions between undertakings and public authorities, the same rules apply in principle as explained under b. and c. Remarkably, however, Member States are offered the option of extending the term of 30 calendar days up to 60 calendar days. This may be so in the case of commercial transactions involving public authorities that practice economic activities of an industrial or commercial nature, or that provide health care.
Re e) When the term of payment has expired, and interest may be calculated, the creditor may claim a standard fee of recovery costs from his debtor amounting to 40 Euros. Recovery costs that are higher than this sum will be eligible for compensation under the Late Payments Directive as long as they are reasonable costs.
Re f) The Member States must allow creditors the option of taking action against unfair stipulations and practices. For example, provisions that exclude interest for late payment shall be considered as grossly unfair. Provisions that exclude compensation for recovery costs shall be presumed to be grossly unfair. In the Netherlands, this will probably lead to an extension of the grey and/or the black list (Section 6:236 and 6:237 of the Dutch Civil Code, respectively) in the near future.
The tightening of the former Directive 2000/35/EC has resulted in a new Late Payments Directive. With the stricter rules, the European legislator hopes to combat the lax payment culture that reigns in Europe. However, in my opinion a stricter term of payment than the one in the new Directive should have been used for government agencies, in order to achieve this purpose. Besides, it remains to be seen whether creditors will indeed fall back on the stricter rules, since in practice preserving a business relationship will often be considered more important than claiming interest on late payments. Whether the intended objective is reached, remains to be seen.
By now implementation of the Late Payments Directive has been set in motion. The Dutch cabinet has adopted a legislative proposal by the Minister of Security and Justice. Recently this legislative proposal has been submitted to the Council of State for its opinion.
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