On May 25, Bill 6437 was introduced in the Chamber of Deputies to combat late payments in commercial transactions; it transposed Directive 2011/7/UE of the European Parliament and the Council of 16 February 2011 concerning the fight against late payment in commercial transactions1 and amending the modified law of 18 April 2004 regarding payment periods and default interest.
As part of the implementation of the Small Business Act2, Directive 2011/7/UE aims to strengthen the fight against late payments in commercial transactions, to ensure the proper functioning of the internal market and, in doing so, improve business competitiveness. To accomplish this, Directive 2011/7/UE substantially alters a number of points in Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000, with regard to the fight against late payment in the commercial transactions. For the sake of clarity, the European legislator recast the provisions of Directive 200/35/CE that were included in the 2011/7/UE Directive. The aforementioned Directive 2000/35/EC was formally repealed.
The European legislator noted that late payment constitutes a breach of contract that has been financially attractive to debtors in most Member States, due to the low or lack of interest charged for late payment and/or slow procedures for redress. In order to build a culture of prompt payment, Directive 2011/7/UE provides some new measures for commercial transactions between companies or between businesses and public authorities. These measures are slated to be integrated in Luxembourg law.
The main innovative provisions of the Bill are as follows:
First, concerning commercial transactions between businesses, Directive 2011/7/UE establishes the general rule of capping payment periods set by contract at 60 days, generally. In certain circumstances, it is possible that companies may need longer payment periods, e.g. if they wish to grant trade credit to their customers. It should remain possible for the contracting parties to explicitly agree to payment terms which exceed 60 days; however, this extension should not be grossly unfair to the creditor (Article 4 of the Bill).
Secondly, for commercial transactions in which the debtor is a public authority, Directive 2011/7/UE provides payment deadlines not exceeding 30 days, unless otherwise expressly agreed by contract and provided that this exemption is objectively justified by the particular nature or contract components. This extension can not exceed 60 days in any event. (Article 5 of the Bill).
Further, it should be noted that this bill does not intend to use the option under Article 4 (4) of Directive 2011/7/UE allowing Member States to extend, under certain conditions, the legal term of payment up to 60 days for public entities 1) who engage in economic activities of an industrial or commercial nature by offering goods or services on the market as a public company or 2) who provide health care.
In any event, whether in the context of commercial transactions between companies or between companies and public authorities, the creditor company can now claim interest for late payment. This can occur without any reminder needed when the company has fulfilled its contractual and legal obligations and has not received the amount due on time, unless the debtor is not responsible for the delay (Articles 4 and 5 of the Bill). In other words, in case of late payment, this important provision would allow the creditor to charge interest for late payment without giving any prior notice of default or other similar notice to the debtor reminding him of his obligation to pay.
The bill also provides -- when interest for late payment in commercial transactions between businesses and between businesses and public authorities becomes due -- the possibility for the creditor company to request a charge of 40 Eur in compensation for recovery costs. This compensation will cover administrative and internal costs incurred as a result of any late payments.
Besides the right to payment of a lump sum to cover internal recovery costs, the creditor must also be entitled to reimbursement of other recovery costs incurred as a result of late payment by the debtor. These costs should include, in particular, any costs incurred by the creditor to a lawyer or a debt collection company (Section 6 of the Bill).
It should also be noted that Article 2 of this Bill gives a new definition of "statutory interest for late payment" that is "simple interest for late payment at the rate equal to the sum of the reference rate and eight percentage points. The applicable rate of the statutory interest for late payment is published at the beginning of each semester at the Memorial". The margin to be added to the reference rate, in accordance with Article 2, paragraph (6) of Directive 2011/7/UE, was increased by one percentage point compared to the one provided in the amended law of April 18 in 2004. This margin can be increased by a Grand Ducal regulation.
Finally, the Bill defines the concept of manifest abuse. When a contract clause or practice concerning the date or payment period, the rate of interest for late payment, or compensation for recovery costs, is grossly unfair to the creditor, the judge presiding over the chamber of the District Court dealing with commercial matters, or the judge who replaces him, may order the cessation of the use of such contractual clause or practice.
The novelty is that Directive 2011/7/UE has introduced criteria for determining whether a contractual clause or practice is grossly unfair to the creditor. To determine whether a contractual clause or practice constitutes an abuse to the creditor, "all circumstances of the case shall be considered, including:
- any gross deviation from good commercial practice, contrary to good faith and fair use;
- the nature of the product or service, and
- whether the debtor has any objective reason to deviate from the statutory rate of interest for late payment, in terms of the payment periods referred to in Article 3, paragraph (4); Article 4, paragraph (3) subparagraph 1; Article 4, paragraph (4); and Article 4, paragraph (5), or from the lump sum referred to in Article 5, paragraph (1)."
In addition, paragraph (2) of Article 6 of Directive 2011/7/UE establishes a presumption of manifest abuse when a contract clause or practice excludes the payment of interest for late payment or excludes compensation for recovery costs.
As a conclusion, it should also be noted that the European legislator calls on Member states to encourage the use of mediation and other alternative modes of conflict resolution, in order to facilitate compliance with the provisions of this Directive for combating late payment in commercial transactions.
Finally, it is hoped that these additional tools will enable creditors to enforce their rights effectively against other companies and as well as against public authorities in the event of late payment – and, thus, improve the cash position of Luxembourg companies, an especially important facet in these times of economic uncertainty.
1 According to Article 12 of the Directive, it is expected that the implementation into national law of each member state must occur no later than March 16, 2013.
2 In its communication of 25 June 2008 COM (2008) 394, entitled "Think Small First: Priority to the SMEs - A Small Business Act for Europe," the Commission stresses the importance of facilitating the access of small and medium enterprises (SMEs) to financing and developing a legal and business environment supportive to timely payments in commercial transactions. It should be noted that the public authorities have a particular responsibility in this regard.
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