Both public bodies and private companies will soon be obliged to honour deadlines when paying their creditors in order to be spared high interest rates on the amount of their debt. Concerted efforts between the EU institutions seeking to iron out a number of controversial issues seem to be bearing the desired fruit and an agreement on a substantial number of amendments to the current late payments directive appears to be drawing to a close.
The current late payments directive hails back to the year 2000. Upon the insistent lobbying of small and medium sized enterprises to review the current law and provide them with more guarantees against late debtors, the Commission came up with a recast law intended precisely to enhance the rights of small and medium sized enterprises vis-a-vis their debtors.
During a recent meeting held between representatives of the European Parliament, the European Commission and the Council of Ministers, the EU institutions arrived at a draft deal whereby business-to-business payments will also be covered by the new directive. The scope of the original proposal put forward by the European Commission was limited to payments made by public bodies.
Both EU member states and the European Parliament had already arrived at a not yet definitive agreement to set a 60-day deadline on business-to-business payments. In case of delays, an interest rate should be charged to the defaulter. However, member states had also insisted on the introduction of an exemption to this 60-day deadline to the effect that debtor and creditor are left free to agree otherwise. The main criticism geared towards the introduction of such an exemption relates to the fact that, in this way, small companies could run the risk of being forced by larger contracting enterprises to do away with the deadline, hence overriding the objective of the proposed rules.
In the course of the said meeting, agreement was also reached to eliminate an initial proposal to impose sanctions other than interest rates on the sums to be paid. The parties involved agreed instead to impose a minimum of €40 compensation in addition to the interest rates in case of delays.
A number of controversial issues remain outstanding. Thus, for example, while the European Parliament is pushing to maintain unchanged the original 30 day deadline proposed by the Commission for payments by public bodies, with a possible extension to 60 days for specific sectors such as healthcare, the Council of Ministers begs to differ. The parties are also still debating the interest rates to be paid should the deadline be breached. The Commission and the Council have agreed on seven per cent, while Parliament is insisting on nine per cent.
The final vote by the European Parliament on this contentious piece of legislation is set for mid-October.
Should the proposed amendments ever see the light of day, both small and medium sized enterprises as well as the EU economy stand to benefit. Indeed, recent studies show that European businesses, especially smaller ones, have written off debts totalling €300 billion in the last year and this as a result of late payments. The future for these companies does not promise to be any rosier. Such figures surely do not augur well for an economy which is still struggling to find its feet and ought to give the relevant EU institutions the necessary drive to find a compromise on the text of the new late payments directive as soon as possible.
mariosa@vellacardona.com
Dr Vella Cardona is a practicing lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.