United States: Trade Relationships After The "Sapin II Law"

One year after the "Macron Law", the Law for transparency, prevention of corruption and modernisation of the economy adopted on 8 November 2016 and currently under scrutiny by the Constitutional Council following referral on 15 November 2016, once again amends the rules applicable to trade relationships as regards payment terms and commercial negociations.

Commercial negotiations: what changes

  • Duration of the single written agreement: it may be multiannual, but the price will be revisable

The new law preserves the obligation for suppliers and distributors under Article L. 441-7 of the Commercial Code to sign a single agreement or a framework agreement setting out the obligations the parties undertake to perform at the end of the negotiation (particular terms and conditions of sale, commercial cooperation obligations, and other obligations facilitating the commercial relationship). A similar framework, although less restrictive, is set out for the relationship between supplier and wholesaler (Article L. 441-7-1 of the Commercial Code).

The single agreement or framework agreement had to be concluded every year before the 1st of March or within two months of the beginning of the marketing period for goods and services subject to a specific sales cycle.

This will no longer necessarily be the case after the entry into force of the Sapin II Law, which grants suppliers, distributors and wholesalers the possibility to conclude multiannual agreements and framework agreements. As amended by the Sapin II Law, Articles L. 441-7 and L. 441-7-1 of the Commercial Code now provide that: "the written agreement is concluded for a duration of one year, two years or three years, at latest on 1 March of the year during which it takes effect or within the two months following the beginning of the marketing period of products or services subject to a specific sales cycle. When it is concluded for a duration of two or three years, it specifies the terms under which the agreed price is revised. Such  erms may take into consideration one or several public indexes reflecting the evolution of the price of production factors".

The new provisions are applicable to agreements concluded as of 1st of January 2017, and therefore apply to the annual negotiation cycle beginning on 1st of December 2016.

The opportunity to conclude single agreements or framework agreements of a duration reaching up to three years will have the benefit of no longer constraining companies who choose this option to undergo annual negotiations, which will facilitate the setting up of stable business and investment plans within suitable timeframes adapted to their activities and which will reduce negotiation costs. The risk deriving from the possible fluctuation of production costs, which weighs both on the supplier and on the distributor/wholesaler, will have to be managed by fixing the appropriate price revision terms to react to an increase or decrease of production costs during the contract.

For contracts of a duration superior to three months covering the sale of certain goods, the obligation to renegotiate the price set out under Article L. 441-8 of the Commercial Code in the event of a fluctuation in the price of agricultural and foodstuff raw materials will apply, as the case may be, in conjunction with the price revision clause included in the single agreement. The law introduces several other measures in the food processing sector concerning prices of agricultural products.

  • New penalties for restrictive practices

The very strict framework for sanctions in case of non- compliance with the rules and formalism governing commercial negotiations remains unchanged: the violation of Articles L. 441-7, L. 441-7-1 and L. 441-8 of the Commercial Code is punishable by administrative fines reaching up to 375,000 euros for legal persons, and double this amount in case of repeated violation.

However, the Sapin II Law modifies the long list of restrictive practices prohibited under Article L. 442-6 of the Commercial Code by introducing two new forbidden practices:

  • Subjecting or seeking to subject a trading partner to late delivery penalties in case of force majeure;
  • Imposing a price revision clause as provided for under Articles L. 441-7 and L. 441-7-1 of the Commercial Code or a price renegotiation clause under Article L. 441-8 of the same code by reference to one or several public indexes with no direct link to the contractual goods or services.

The practices prohibited under Article L. 442-6, I, 1° of the Commercial Code, consisting in obtaining from a trading partner any advantage unrelated to a commercial service effectively rendered or which is clearly disproportionate to the value of the service rendered, are extended to the participation in the financing of promotional activities and the remuneration of services rendered by an international central facility grouping distributors.

The civil fine incurred in case of a violation of Article L. 442-6 of the Commercial Code is increased from 2 to 5 million euros and this fine may also be increased to the triple of the sums unduly paid or to 5 % of turnover generated in France.

Adjustment Of Payment Terms

  • Goods delivered outside the European Union

The Sapin II Law introduces a new derogation from the 60-day cap from the date of the invoice, provided for under Article L. 441-6, I, ninth indent of the Commercial Code for payment terms agreed between professionals. The new maximum term comes in addition to the optional cap of 45 days end of month from the date of issue of the invoice for the term which can be agreed by the parties on condition that it is not grossly unfair to the creditor, and in addition to the maximum 45 days from the date of issue of the invoice provided for summary invoices, i.e. for invoices issued monthly for several separate deliveries of goods or services provided to the same person during a calendar month.

For the payment of VAT-free purchases of goods that are to be delivered outside the European Union, without being processed or transformed, the maximum term that can be agreed between professionals is now set at 90 days from the date of issue of the invoice. Late payment penalties apply if

the goods are not actually exported in the end.

The new measure aims to support small and medium firms exporting outside the EU and therefore the 90- day cap does not apply to purchases made by "large companies", a concept which is not clearly defined.

  • Reinforcement of penalties

The Sapin II Law significantly reinforces the sanctions incurred for violations of the rules applicable to payment terms: the maximum administrative fine provided for under Article L. 441-6, VI of the Commercial Code is increased from 375,000 euros to 2 million euros for legal persons.

Sanction decisions adopted by the DGCCRF (the governmental agency for competition policy, consumer affairs and fraud control) for violations of the rules applicable to payment terms will systematically be published (Article L. 465-2, V of the Commercial Code).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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