The new directive on combating late payments in commercial
transactions (the "Directive") was published on 16
February 2011. It is due to be transposed into Irish law
prior to 16 March 2013. The Directive was adopted in an
effort to develop a business environment supportive of timely
payments in commercial transactions and to improve the liquidity of
small and medium enterprises in the European
Union.
The Directive will replace the existing Late Payments Directive
which is implemented in Ireland by way of the European Communities
(Late Payments in Commercial Transactions) Regulations 2002 (the
"2002 Regulations").
Provisions of the New Directive
1. Payment Periods
Where the contract does not specify a payment period, the
debtor must make payment within 30 calendar days, following the
date of receipt of the invoice or, if the date of the receipt of
the invoice is uncertain, 30 days after the date of receipt of the
goods or services (the "Overdue Date"). The
Directive provides that Member States shall ensure that the period
for payment fixed in the contract does not exceed 60 days, unless
otherwise expressly agreed in the contract.
In the case of commercial transactions between private
undertakings and public authorities, the Directive provides that
where goods or services are supplied to a e the payment period
should not normally exceed 30 calendar days of the Overdue
Date. However, a longer payment period is allowed where it is
it is objectively justified and expressly agreed in the contract,
or where the public authority provides healthcare services or
services of an industrial or commercial nature. In any event,
the longer payment period referred to above cannot exceed 60
calendar days.
2. Interest
The interest rate to be applied in respect of late payments will
be the European Central Bank (the "ECB")
main refinancing rate, plus 8%, unless otherwise agreed.
Creditors will be entitled to interest from the day following the
date for payment as fixed in the contract or where the date is not
specified in the contract, from the Overdue Date. The
Directive does not require a creditor to give the debtor any prior
notice or reminder of his obligation to pay before imposing
interest for late payment.
3. Recovery Costs
The Directive introduces a new concept of compensation
for recovery costs. Where interest for payment becomes
payable, creditors will be entitled to obtain a minimum fixed sum
of €40.00 from the debtor. In addition, the creditor
will be entitled to obtain reasonable compensation from the debtor
(which may include legal costs) for any recovery costs exceeding
the fixed sum.
4. Terms presumed "Grossly
Unfair"
The Directive provides that certain terms such as a term which
excludes interest for late payment or excludes compensation for
recovery costs are presumed grossly unfair. In such a case,
Member States have a discretion when implementing the Directive to
provide that such a term is either unenforceable or gives rise to a
claim for damages.
In determining whether a payment / interest-related term is
grossly unfair, it is necessary to consider:
- any gross deviation from good commercial practice;
- the nature of the product or the service; and
- whether the debtor has any objective reason to justify the deviation.
Comment
While this is a move in the right direction, in practice it is
very difficult to enforce these late payment provisions for
relationship reasons and therefore it would be preferable if
interest was deemed to apply so that that the debtor was obliged to
add the interest for late payment thereby ensuring compliance or
compensation.
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.