Legislative proposal on shortening statutory payment terms in trade agreements

A legislative proposal submitted by the State Secretary for Economic Affairs and Climate Policy proposes to amend section 6:119a(6) of the Dutch Civil Code (DCC), which deals with the maximum payment term that may be agreed upon in the context of trade agreements (handelsovereenkomsten) (see below) between so-called large companies, as debtor, and so-called medium-sized/small companies, as creditor. The scope of the current section 6:119a (6) of the DCC will remain unchanged.

The rationale for the bill is that the evaluation of the Large companies payment terms act (Wet betaaltermijnen grote bedrijven) (which entered into force on 1 January 2017) revealed that the maximum payment term of 60 days that applies in such situations, which was intended to accommodate incidental complex situations, has caused the standard 30-day payment term to almost disappear. Research has shown that longer payment terms than 30 days are often used, as a result of which a 30-day payment term is the exception rather than the rule. As a result, larger companies are shifting their financing costs to smaller parties. This is considered undesirable.

This article will briefly discuss the direct consequences of the legislative proposal if it is adopted, starting with the scope of the current and new section 6:119a (6) of the DCC. Furthermore, the consequences of agreeing on a longer statutory term of payment will be discussed, as well as whether it is possible to deviate from the related statutory commercial interest.

Which obligations fall within the scope of section 6:119a (6) of the DCC?

As stated above, section 6:119a of the DCC only applies to trade agreements as referred to in section 6:119a (1) of the DCC which have been concluded between large companies as debtor and medium-sized/small companies as creditor. A trade agreement is an agreement for benefit which obliges one or more of the parties to give or do something and which has been concluded between one or more natural persons acting in the exercise of a profession or business or legal persons.

A large company is a legal entity that has not met at least two of the requirements referred to in section 2:397( 1) and (2) of the DCC on two consecutive balance sheet dates without interruption thereafter on two consecutive balance sheet dates. A medium/small enterprise is a natural person acting in the exercise of a profession or business, or a legal entity, which has met at least two of those requirements during that period. The requirements referred to in section 2:397 (1) and (2) of the DCC are as follows:

1) the value of the assets according to the balance sheet (on the basis of acquisition or manufacturing price) does not exceed € 20 million;

2) the net turnover does not exceed € 40 million;

3) the average number of employees during the financial year is less than 250.

This includes the value of the assets, the net turnover and the number of employees of group companies that would have to be consolidated if the legal entity had to prepare consolidated annual accounts (unless section 2:408 of the DCC (exemption for consolidation of group companies) is applicable).

What are the consequences of this proposed legislative amendment?

Under the current law, the maximum payment term that can be agreed upon between a large company and a medium-sized / small company in the context of a trade agreement is 60 days. As a result of the proposed legislative amendment, that maximum payment period will be reduced to a maximum of 30 days.

If the proposed amendment of the law enters into force, a payment term exceeding 30 days is agreed upon in such a relationship, the relevant clause will be null and void pursuant to the last sentence of section 6:119a (6) of the DCC. This means that the payment term is deemed never to have been agreed upon. The expiry date of the payment period must be determined in accordance with the provisions of section 6:119a (2) of the DCC. As a result, a statutory payment period of 30 days will apply. If large companies pay a submitted invoice after 30 days, they will automatically be liable for statutory commercial interest over the period exceeding those 30 days.

What are the consequences of failing to pay within a statutory payment term?

If a party fails to pay within the statutory payment term, an obligation arises to pay compensation for (among other things) the damage caused by the delay. This consists of the statutory interest on the amount owed as of the day following the day agreed as the final day for payment (or as of the day following the last day of the payment term applicable by virtue of section 6:119a DCC) up to and including the day on which the debtor has paid the amount.

The applicable statutory interest rate is the statutory commercial interest rate which is currently 8.00% on an annual basis. This rate can be adjusted semi-annually. In short, this interest rate consists of the refinancing rate set by the European Central Bank plus eight percentage points.

However, parties are allowed to agree on a different interest rate, as clarified by section 6:119a (9) of the DCC. It is therefore possible for parties to agree upon a lower or higher interest rate with another party acting in the course of their profession or business. However, the maximum statutory term for payment itself is not directory law and therefore cannot be deviated from.

For further questions and advice on this issue, please do not hesitate to contact one of Ploum's Banking & Finance specialists.