On 29 June 2000, the EU adopted Directive 2000/35/EC on combating late payment in commercial transactions (the "Directive").
The Directive entered into force on 8 August 2000 and must be implemented by the EU Member States (including Ireland) before 8 August 2002. The Department of Enterprise, Trade and Employment, which is responsible for the implementation of the Directive into Irish law, has indicated that implementation is anticipated to take place next year. No draft bill has as yet been published.
If Ireland fails to implement the Directive by 8 August 2002, the Directive will become directly effective from that date. This means that individuals and companies may rely directly on the Directive and that the terms of the Directive may be enforced by Irish courts.
In 1993, the European Commission conducted extensive consultations on the problem of late payments in commercial transactions. The consultations found that there was an increase in the number and seriousness of delays in payments which was causing considerable disquiet, particularly among SMEs. Concerns which were identified by businesses in response to the consultations included implications on cash-flow requirements and administrative costs. As a result, the Commission adopted a Recommendation in May 1995 on payment periods in commercial transactions, calling upon EU Member States to take legal action to combat late payment. The basic aim of the Recommendation was to establish common minimum guarantees for all operators in the EU to help maximize the benefits of the Single Market.
The European Parliament, in its Resolution of 4 July 1996, recommended that the Commission’s Recommendation be transformed into a Directive as soon as possible while the Economic and Social Committee, in an opinion dated May 1997, proposed maximum payment periods and interest on late payments by public authorities. On 9 July 1997, the Commission reported that action undertaken by Member States in response to its Recommendation to improve the payment situation between businesses had been very limited. In fact, statistics showed that average payment time had actually lengthened. These findings led to a further extensive consultation process undertaken by the Commission, which resulted in overwhelming support for EU legislation in this area.
The most important features of the Directive are as follows:
- maximum interest-free credit period of 30 days where no period is fixed in a contract;
- right to interest at a rate of at least 7% over the European Central Bank base rate;
- maximum interest-free credit period of up to 60 days for certain types of contract, to be defined by national law; and
- improved legal procedures for the recovery of disputed and undisputed debts.
Member States’ Discretion
Article 6(2) of the Directive provides that Member States may maintain or bring into force provisions which are more favourable to the creditor than the provisions necessary to comply with the Directive. Further, Member States may exclude from the scope of the Directive:
- debts that are subject to insolvency proceedings instituted against the debtor;
- contracts that have been concluded prior to 8 August 2002; and
- claims for interest of less than ~5.
Businesses should be aware of the provisions of the Directive as it will have important implications for their day to day operations. For further information on the Directive, please contact any member of the Commercial Department.
Given the discretion granted to the Irish Government as regards the implementation of the Directive into national law, businesses operating in Ireland may wish to make representations in relation to the implementation of the Directive into Irish law. In particular, Irish businesses may wish to make representations to the Department of Enterprise, Trade and Employment. If you would like to use the services of A&L Goodbody Consulting, the firm’s new consultancy division, in making such representations, please contact Peter Brennan, Managing Director of A&L Goodbody Consulting (IBEC’s former Director of European Affairs and Strategic Policy), on 649 2203.
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.