Directive 200035EC: combating late payment in commercial transactions General principles

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Directive 2000/35/EC combating late payment
in commercial transactionsGeneral principles
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Combating late payment in commercial transactions

• 8 August 2000, Directive 2000/35/EC of the
  European Parliament and of the Council on
  combating late payment in commercial transactions
  was published in the Official Journal.
• 8 August 2002, the Directive entered into force
• (EU EEA members Iceland, Norway
  Liechtenstein).
• 1st May 2004, the Directive entered into force in
  the ten new Member States. 1st January 2007, also
  in Romania and Bulgaria.

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Why a Directive? One out of four insolvencies
is due to late payment

• And this means
• 450 000 jobs lost each year,
• outstanding debts worth EUR 23.6 billion lost
  every year through insolvencies.

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Why a Directive? Need to act

• The SME dimension
• - SMEs are compelled to grant long-lasting
  supplier credit,
• - late payment leads to unfair results for small
  and medium-sized economic agents.

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Why a Directive? Need to act

• The Internal Market dimension
• Average statistics 21 of all undertakings would
  export more if their foreign customers were to
  pay more quickly (Netherlands 37, Ireland 48)
• Late payment is an obstacle to the proper
  functioning of the Internal Market (Art. 14 EC).

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Features of Directive 2000/35/EC

• Scope
• It applies to all payments made as remuneration
  for commercial transactions
• those taking place just only in one country as
  well as intra-community transactions
• transactions between undertakings or
• between undertakings and public authorities.

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Features of Directive 2000/35/EC

• Scope
• Undertaking means any organisation acting in
  the course of its independent economic or
  professional activity, even where it is carried
  on by a single person.

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Features of Directive 2000/35/EC

• When a payment becomes a late payment
• If the date or period for payment is not fixed
  in the contract, interest automatically becomes
  payable 30 days following the date of receipt of
  the invoice or the date of receipt of the goods
  or services.

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Features of Directive 2000/35/EC

• Statutory interest interest rate
• Unless otherwise specified in an agreed
  contract, the penalty interest rate is the one
  set up by the European Central Bank plus, at
  least, 7 percentage points.

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Features of Directive 2000/35/EC

• Statutory interest interest rate
• Penalty interest due for late payments is
  calculated on a daily basis (simple interest).

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Features of Directive 2000/35/EC

• Reminder
• Directive 2000/35/EC harmonises neither the
• payment period at 30 days, nor the statutory
  interest.
• The contracting parties can actually agree
  contractually to
• conditions below the minimum requirements set
  out in the
• Directive or more stringent delays.

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Features of Directive 2000/35/EC

• Such an agreement would only be unacceptable if
  it is
• determined to be grossly unfair by a national
  court.

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Features of Directive 2000/35/EC

• Legitimate interest
• Organisations officially recognised as, or having
  a legitimate
• interest in, representing small and medium-sized
  enterprises
• may take action according to the national law
  concerned
• before the courts or before competent
  administrative bodies
• on the grounds that contractual terms drawn up
  for general
• use are grossly unfair.

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Features of Directive 2000/35/EC

• Interest rate out of the Euro Zone
• The rate is set by the national central bank.
• F.i. In the UK, the rate is set at the official
  dealing rate of the Bank of England.

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Features of Directive 2000/35/EC

• Other rights
• Creditors can also claim full compensation for
  all relevant recovery costs incurred when trying
  to obtain payment from their customers.
• These recovery costs are, for example,
  administrative costs, procedural costs and
  third-party costs.

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Features of Directive 2000/35/EC

• Other rights
• The Directive allows the seller to retain title
  to the goods
• until payment is completed, if that is
  explicitly agreed before delivery.

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Features of Directive 2000/35/EC

• Recovery procedures
• Member States must ensure that an enforceable
  title can be obtained within 90 calendar days of
  the lodging of the creditors action, provided
  that the debt or aspects of the procedure are not
  disputed.
• National legislation, regulations and
  administrative provisions have to apply the same
  conditions for all creditors who are established
  in the European Community.

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European institutions

• The European Commission has undertaken to apply
  the terms
• of Directive 2000/35/EC to its own contracting
  procedures.

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Review on the effectiveness of European Community
legislation on combating late payments

• Article 6.5 of Directive 2000/35/EC stipulates
  that
• The Commission shall undertake two years after
  8 August 2002 a review of, inter alia, the
  statutory rate, contractual payment periods and
  late payments, to assess the impact on commercial
  transactions and the operation of the legislation
  in practice. The results of this review and of
  other reviews will be made known to the European
  Parliament and the Council, accompanied where
  appropriate by proposals for improvement of this
  Directive.

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Review on the effectiveness of European Community
legislation on combating late payments (1)

• This study started on January 2006 and was
  finished on December 2006.
• In this review, data from the ten new Member
  States have also been taken into account, after
  two years of having put into force this
  legislation to fight late payment.
• It can be found online at
• http//ec.europa.eu/enterprise/regulation/late_pay
  ments/further_reading.htm

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Review on the effectiveness of European Community
legislation on combating late payments (1)

• Overall conclusions of the report
• All of the tools provided by the Directive except
  possibly the retention of title clause are
  relevant and useful.
• The Directive as a whole could benefit from
  greater coherence and this is one of the reasons
  for limited impact expectations and
  effectiveness.

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Review on the effectiveness of European Community
legislation on combating late payments (2)

• An Impact Assessment study on the recommendations
  presented in the 2006 study has been started in
  September 2007.
• It will be finished by June 2008 and will lead,
  if necessary, to a consultative procedure aiming
  at the amendment of this piece of legislation.

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Related legislation (1)

• The European enforcement order for uncontested
  claims
• Regulation (EC) No 805/2004. Thanks to the
  introduction of minimum standards, the instrument
  allows the free movement of decisions,
  out-of-court settlements or authentic instruments
  concerning uncontested claims in all the Member
  States. It is no longer necessary to use an
  intermediate procedure in the Member State of
  enforcement prior to recognition and enforcement.
• The Regulation is applicable from 21 October
  2005.

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Related legislation (2)

• The European order for payment procedure
• Regulation (EC) No 1896/2006 sets up a simplified
  system for collecting uncontested debts between
  member States.
• Regulation 1896/2006 will apply from December
  12th, 2008.

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Related legislation (3)

• Proposal of 15 March 2005 for a Regulation of the
  European Parliament and of the Council
  establishing a European Small Claims Procedure
  COM(2005) 87 final.
• This Regulation will apply in civil and
  commercial matters, whatever the nature of the
  court or tribunal, where the total value of a
  monetary or non-monetary claim excluding
  interest, expenses and outlays does not exceed
  EUR 2 000 at the time the procedure is commenced.