IP/98/291 Brussels, 26 March 1998 A Directive to tackle late payments in commercial transactions The European Commission adopted, on the initiative of Commissioner Christos Papoutsis, responsible for Enterprise Policy, a proposal for a European Parliament and Council of Ministers Directive combating late payments in commercial transactions between enterprises of the private sector and between enterprises and the public sector. The general aim of the proposed Directive is to encourage respect of payment periods and the proposed measures respect the principle of contractual freedom in the private sector. To this effect, the Directive proposes a compensation for late payment, including an interest on any outstanding amount as well as for any further damage caused by late payment, the retention of title by the seller until the buyer has made the payment, accelerated recovery procedures not exceeding 60 days for undisputed debts, simplified legal procedures for small debts, a date limit for the payment of debts not exceeding 21 days unless otherwise specified in the contract, and the prompt and automatic payment by the public sector. The European Commission in adopting this proposal for Directive has taken into account the very serious consequences for all European enterprises, and in particular Small and Medium-sized Enterprises (SMEs), whose cash-flow, profitability and competitiveness are undermined by the practice of late payments. One out of four insolvencies are due to late payment. This situation is also hindering the development of trade between Member States as well as the smooth functioning of the Internal Market. Commissioner Papoutsis said: "I am satisfied with the adoption of this proposal for Directive. It is designed to solve the big problems European enterprises and in particular SMEs are facing with the continuation of the phenomenon of late payment. It is a measure which has also been requested by the enterprises themselves. Late payment is an unacceptable situation especially when we are trying to help our SMEs to maximise their potential to create jobs, which are badly needed in Europe. I was shocked by the indifference shown by most of the Member States to our Recommendation of 1995 on this problem. Now, I urge them to adopt without any delay this Directive. I call upon them to prove their sensitivity and political will not only to help our SMEs, but also to help create employment". The main elements of the proposed Directive are: 1. Compensation for late payment • The level of interest for late payment (statutory rate) should be at least the sum of the tender (repo) rate of the European Central Bank, which will be the reference rate, plus a margin of at least 8 percentage points. Member States will have the possibility to fix a higher margin. For Member States not participating in the third phase of the Economic and Monetary Union, the reference rate should be the equivalent rate set by their Central Banks. • The statutory rate will be applied when there is no contract signed between the parties, or the existing contract is silent on this matter. • The statutory rate should change automatically if the reference rate has been changed. The margin may be reviewed and if necessary modified by a Commission decision. • Respecting the principle of contractual freedom, the statutory rate will not be applied if another rate is specified in the contract. • The creditor should be entitled to claim not only the interest, but also full compensation from the debtor for any further damage caused by late payment. • The seller (creditor) should be entitled to claim interest from the buyer (debtor) on any outstanding amount when the due date has been exceeded. • The due date for payment of debts, unless otherwise specified in the contract, or if the contract is silent on this subject or there is no contract, should not exceed 21 calendar days from the date of the invoice. 2. Retention of title Member states shall take the appropriate steps to ensure that their legislation contains provisions according to which the seller (creditor) shall retain title to the goods sold until the buyer (debtor) has made the payment. As long as the buyer has not paid, the seller should have the possibility to claim that the goods sold be returned to him. 3. Accelerated recovery procedures for undisputed debts Member States shall ensure that there is an accelerated debt recover procedure for undisputed debts. The whole procedure before the court should not exceed 60 calendar days from the date of the creditor's request until the writ of execution or equivalent document becomes enforceable. The procedure shall be available to creditors from all Member States, irrespective of their place of residence. 4. Simplified legal procedures for small debts Member States should ensure that simplified procedures are available for small debts up to ECU 20,000. These procedures should provide for simple low-cost methods for taking legal action and should be applied on a non-discriminatory basis to creditors of any Member State. 2 5. Public Sector • Member States should take the appropriate measures to ensure that their legislation contains provisions to which public procurement contracts and tender specifications include precise details of the payment periods and deadlines practised. • The due date for the payment of contractual debts by the public authorities should not exceed 60 calendar days, without prejudice to any shorter times currently in effect. · The contract should in no circumstances override this maximum payment period. • If the contract is silent or there is no contract, the due date for the payment should not exceed 21 calendar days as is the case in the private sector. • A creditor should be entitled to interest from the public sector on any outstanding amount when the due date has been exceeded, the interest being paid automatically without the necessity of a claim. • The interest rate applied to the public sector should be the same as for the private sector. • The public authorities should not be permitted to request or require that the creditor does not use any of his rights. 3.