The EU Directive 2000/35/EC on combating late payment in Commercial Transactions (Late Payments Directive) was implemented in Ireland by the European Communities (Late Payment in Commercial Transactions) Regulations 2002 (SI No. 388 of 2002).
Commercial Transactions are specifically defined as “transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration”. The Regulations which therefore apply equally to both public and private sectors provided a statutory entitlement to interest in respect of commercial transaction contracts made after 7 August 2002 where payments were not make within 30 days after the date of invoice (in the absence of an alternative agreed payment period being incorporated by contract).
Unless otherwise specified the current late payment interest rate applicable is the European Central Bank main refinancing rate (the “ECB rate”) plus 7 percentage points. The ECB rates in force on 1 January and 1 July are applied for the following six months of each year. Only one interest rate applies to a late payment, namely, the rate in force on the payment date. The current late payment interest rate, since 1 July 2010, is 8% p.a. (i.e. the ECB rate of 1% plus the margin of 7%). This rate equates to a daily rate of 0.22%.
A pan-European survey conducted by the Swedish Credit Management Services company Intrum Justitia recorded that in 2009, governments took on average 67 days to pay their debts, compared with 57 days for companies and 41 days for consumers. Arising from the fact that late payments continued to be a problem almost a decade after the Late Payment Directive was enacted, in April 2009 the European Commission published a proposal for a Directive repealing and replacing the Late Payments Directive and a draft (recast) directive was forwarded to the European Parliament and the Council of Europe for consideration.
On 20 October 2010 the European Parliament approved the final text of a recast of the Late Payments Directive. The aim of the recast Directive 2000/35/EC is “to combat late payment in commercial transactions, in order to ensure proper functioning of the internal market, thereby fostering the competitiveness of businesses and in particular of SME’s”.
A summary of the agreed amendments are set out below:
(i) the standard deadline for payment for goods or services in both the public and private sectors will be 30 days across all EU Member States. Previously, public authorities were not permitted to agree payment periods of more than 30 days with their suppliers (unless a longer payment period could be objectively justified) whereas private sector companies remained free to negotiate and agree whatever payment deadlines they desired.
(ii) a proposed statutory interest rate of 8% over the ECB rate;
(iii) a proposed minimum fixed sum of €40 as compensation for recovery costs;
(iv) a proposed clear cut verification period of 30 days to verify that the goods or services comply with the contract terms, during which interest will not be incurred. This period may be extended, if expressly agreed “between the debtor and creditor, and provided it is not grossly unfair to the creditor”.
(v) public authorities and their suppliers are to be permitted to agree a payment period of more than 30 days where circumstances objectively justify it. Public authorities are however not permitted to delay payment beyond 60 days;
(vi) for public entities providing healthcare payment deadlines of up to 60 days are permitted;
(vii) the ability to agree to payment by instalments is preserved with the likelihood being that in reality parties may well continue to agree longer deadlines where it can be objectively justified in light of the particular nature or features of the contract;
(viii) it is specifically stipulated that Member States waiving their interest obligations are committing unfair practices;
(ix) Member States are entitled to exclude debts that are subject to insolvency proceedings instituted against a debtor, “including proceedings aimed at debt restructuring”.
The new rules are intended to represent minimum requirements and are required to be implemented into national law within two years following the adoption of the Directive. Member States therefore remain at liberty to maintain or bring into force laws and regulations which are more favourable to the creditor that those provided for in the proposed recast of the Late Payments Directive.
An implementation date continues to remain unclear but it is anticipated that the recast of the Late Payments Directive is likely to be published in the Office Journal of the EU by the year end which will mean that it will have to be transposed into national law by early 2013.
