OPINION OF THE COMMISSION pursuant to Article 251 (2) (c) of the EC Treaty, on the European Parliament's amendments to the Council's common position regarding the proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on combating late payment in commercial transactions AMENDING THE PROPOSAL OF THE COMMISSION pursuant to Article 250 (2) of the EC Treaty

EXPLANATORY MEMORANDUM

According to letter c) of the second paragraph of Article 251 of the EC-Treaty, the Commission delivers an opinion on the amendments proposed by the European Parliament at second reading.

Hereafter, the Commission sets out its opinion on the 25 amendments proposed by the Parliament. In conformity with the second paragraph of Article 250, the Commission also attaches an amended proposal, which integrates the 23 amendments that the Commission has fully or partly accepted.

1. The Background

Date of transmission of the proposal to the European Parliament and Council: 23 April 1998

Date of the opinion of the Economic and Social Committee: 10 September 1998

Date of European Parliament opinion, adopted at first reading: 17 September 1998

Date of transmission of the amended proposal: 30 October 1998

Date of adoption of the common position: 29 July 1999

Date of European Parliament position, adopted at second reading: 16 December 1999

2. Subject of the Commission proposal

Late payments have serious consequences for all European firms whose cash flow, profitability and competitiveness are undermined. It has been estimated that one out of four insolvencies is due to late payment.

Late payment is also hindering the smooth functioning of the Single Market. It has been reported that more than 20 % of European businesses would export more if they could obtain shorter payment delays from their foreign customers.

The Commission's proposal for a Directive contains a package of measures to combat late payment in commercial transactions in the European Community. The Directive is meant to apply to late payment between all enterprises including the public sector. It provides a legal framework to deter late payers from paying late or from imposing unduly long payment periods on their partners. Moreover, it renders the procedures for recovering debts faster and more efficient.

3. Opinion of the Commission on the European Parliament's Amendments

3.1. General remarks

The Common Position agreed by the Council in July of last year cut the six operational articles of the Commission's proposal down to two. In its opinion on the Common Position [1], the Commission indicated that it would like to see a more ambitious approach to late payment. The European Parliament shares this view and has reinstated three of the four articles that the Council had eliminated.

[1] Document SEC(1999)1398 final.

3.2. The proposed amendments

3.2.1. Amendments accepted by the Commission and included in the consolidated text presented hereafter

The Commission accepts most of the proposed amendments as they revive a substantial part of its original proposals and correct deficiencies in the Common Position (Amendments 1, 3 to 17, 19, 21, 22, 24 and 26).

In particular, the Parliament rightly requests that the rate of interest be raised by two percentage points (Amendment 16, Article 3 (1) d)). In fact, small and medium-sized enterprises (SMEs) are being charged very high levels of interest by their banks (between 15 and 20 %) whenever they need overdraft credit due to the late payment of their customers. The level of interest set by the Council did not adequately compensate them for that.

The European Parliament's amendment relating to compensation (Amendment 17, Article 3 (1) e)) is justified. In particular, the recovery of small claims can be very costly and the amount of interest due on such small amounts will typically be insufficient to cover the cost incurred. The debtor should therefore be obliged to compensate the creditor for the losses caused by the late payment.

The proposed reinforcement of the anti-abuse clause (Amendment 19, Article 3 (3) to (6)) renders this provision more operational. It provides for procedural safeguards similar to those foreseen in Article 7 of Directive 93/13/EEC on Unfair Contract Terms [2]. The result will be a better protection of creditors against powerful buyers who try to impose long contractual payment periods on them.

[2] OJ L 95 of 21.4.1993, p. 29.

There are some amendments, which the Commission accepts in principle, but prefers to reformulate (Amendments 20 and 25).

In particular, the Commission welcomes the reintroduction of a set of rules on the Community-wide recognition of the retention of title (Amendment 20, Article 4). It believes, however, that Article 4 should not be limited to certain groups of goods. Moreover, the Commission would like to reduce the number of reports that it is being asked to produce (Amendment 25, Article 8 (5)).

3.2.2. Amendments, which the Commission cannot accept

There are only two amendments, which the Commission cannot accept (Amendments 2 and 23).

In particular, a new recital on perishable foodstuffs would introduce a sectoral approach that should be avoided (Amendment 2).

Moreover, the Commission does not support the amendment to reduce the duration of recovery procedures from 90 to 60 days (Amendment 23, Article 7). While it is true that the Commission had proposed 60 days, it should be borne in mind that the Commission's original proposal excluded the period needed by the debtor for his defence. This period is now included in the 90 day period. While a reduction to 60 days would seem overly ambitious, the Commission could imagine a compromise figure somewhere between the 60 and 90 days in question.

4. Conclusions

The Commission expects this Directive to bring significant benefits to businesses, in particular to SMEs. Reducing late payment will improve businesses' cash flow. It will also reduce their financing costs and the heavy administrative burden of pursuing debts.

Finally, the Directive will have a positive impact on employment by making firms financially more stable and reducing the number of jobs lost through insolvencies in Europe.

1998/0099 (COD)

Amended proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on combating late payment in commercial transactions

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

having regard to the Treaty establishing the European Community, and in particular Article 95 thereof,

having regard to the proposal from the Commission [3],

[3] OJ C 168, 3.6.1998, p. 13 and OJ C 374, 3.12.1998, p. 4.

having regard to the Opinion of the Economic and Social Committee [4],

[4] OJ C 407, 28.12.1998, p. 50.

acting in accordance with the procedure laid down in Article 251 of the Treaty [5],

[5] Opinion of the European Parliament of 17 September 1998 (OJ C 313, 12.10.1998, p. 142), Council Common Position of 29 July 1999 (OJ C 284, 6.10.1999, p. 1) and Position of the European Parliament of 16 December 1999.

whereas:

(1) In its Resolution on the Integrated Programme in favour of SMEs and the craft sector [6], the European Parliament urged the Commission to submit proposals to deal with the problem of late payment.

[6] OJ C 323, 21.11.1994, p. 19.

(2) On 12 May 1995 the Commission adopted a Recommendation on payment periods in commercial transactions [7].

[7] OJ L 127, 10.6.1995, p. 19.

(3) In its Resolution on the Commission Recommendation on payment periods in commercial transactions [8], the European Parliament called on the Commission to consider transforming its recommendation into a proposal for a Council Directive to be submitted as soon as possible.

[8] OJ C 211, 22.7.1996, p. 43.

(4) On 29 May 1997 the Economic and Social Committee adopted an opinion on the Commission's Green Paper on Public Procurement in the European Union: Exploring the Way Forward [9], recommending maximum payment periods and interest on late payments by public authorities.

[9] OJ C 287, 22.9.1997, p. 92.

(5) On 4 June 1997 the Commission published an Action Plan for the Single Market, which underlined that late payment represents an increasingly serious obstacle for the success of the Single Market.

(6) On 17 July 1997 the Commission published a Report on late payments in commercial transactions [10], summarising the results of an evaluation of the effects of the Commission's Recommendation of 12 May 1995.

[10] OJ C 216, 17.7.1997, p. 10.

(7) Heavy administrative and financial burdens are placed on businesses, particularly small and medium-sized ones, as a result of excessive payment periods and late payment; moreover, these problems are a major cause of insolvencies threatening the survival of businesses and result in numerous job losses.

(8) In some Member States contractual payment periods differ significantly from the Community average.

(9) The differences between payment rules and practices in the Member States constitute an obstacle to the proper functioning of the internal market.

(10) This has the effect of considerably limiting commercial transactions between Member States; this is in contradiction with Article 14 of the Treaty as entrepreneurs should be able to trade throughout the internal market under conditions which ensure that transborder operations do not entail greater risks than domestic sales; distortions of competition would ensue if substantially different rules applied to domestic and transborder operations.

(11) The most recent statistics indicate that there has been, at best, no improvement in late payments in many Member States since the adoption of the Recommendation of 12 May 1995.

(12) The objective of combating late payments in the internal market cannot be sufficiently achieved by the Member States acting individually and can, therefore, be better achieved by the Community; this Directive does not go beyond what is necessary to achieve that objective; this Directive complies therefore, in its entirety, with the requirements of the principles of subsidiarity and proportionality as laid down in Article 5 of the Treaty.

(13) This Directive should be limited to payments made as remuneration for commercial transactions and does not regulate transactions with consumers, interest in connection with other payments, e.g. payments under the laws on cheques and bills of exchange, or payments made as compensation for damages.

(14) The fact that the liberal professions are covered by this Directive does not mean that Member States have to treat them as undertakings or merchants for purposes not covered by this Directive.

(15) This Directive only defines the term "enforceable title" but does not regulate the various procedures of forced execution of such a title and the conditions under which forced execution of such a title can be stopped or suspended.

(16) Late payment constitutes a breach of contract which has been made financially attractive to debtors in most Member States by low interest rates on late payments and/or slow procedures for redress; a decisive shift is necessary to reverse this trend and to ensure that the consequences of late payments are such as both to discourage late payments and to compensate creditors for the costs incurred.

(17) There may exist certain categories of contracts where a longer payment period in combination with a restriction of freedom of contract or a higher interest rate can be justified.

(18) It is necessary that this Directive address the problem of long contractual payment periods.

(19) This Directive should prohibit abuse of freedom of contract to the disadvantage of the creditor; this Directive does not affect national provisions relating to the way contracts are concluded or regulating the validity of contractual terms which are unfair to the debtor.

(20) The use of retention of title clauses as a means of speeding up payment is at present constrained by a number of differences in national law; it is necessary to ensure that creditors are in a position to exercise the retention of title throughout the Community, using a single clause recognised by all Member States, and that excessive payment periods and late payments do not distort commercial transactions in the internal market.

(21) Public authorities handle a considerable volume of payments to businesses; strict payment discipline on the part of these authorities would have a beneficial trickle-down effect on the economy as a whole; with regard to public contracts, contracting enterprises in turn likewise delay payments to their suppliers and subcontractors, habitually imposing excessive payment periods - practices which seriously damage the interests of many businesses, especially SMEs; for payments executed by the Commission it has already been decided to give certain creditors the right to receive default interest on late payments.

(22) The term 'contracting authorities' should correspond to the definition laid down in Directive 92/50/EEC [11] and Directive 93/37/EEC [12] and should include, for the purposes of the present Directive, the 'contracting entities' as defined in Directive 93/38/EEC [13].

[11] OJ L 209, 24.7.1992, p. 1.

[12] OJ L 199, 9.8.1993, p. 54.

[13] OJ L 199, 9.8.1993, p. 84.

(23) The consequences of late payment can be dissuasive only if they are accompanied by procedures for redress which are rapid and effective for the creditor; in conformity with the principle of non-discrimination con tained in Article 12 of the Treaty, those procedures should be available to all creditors who are established in the Community.

(24) Article 7 of this Directive requires that the recovery procedure for unchallenged claims be completed within a short period of time in conformity with national legislation,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Scope

This Directive shall apply to all payments made as remuneration for commercial transactions.

Article 2

Definitions

For the purposes of this Directive:

1. 'commercial transactions' means transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration; 'undertaking' means any organisation acting in the course of its independent economic or professional activity, even where it is carried on by a single person;

2. 'late payment' means exceeding the contractual or statutory period of payment;

3. 'interest rate applied by the European Central Bank to its main refinancing operations' means the interest rate applied to such operations in the case of fixed rate tenders. In the event that a main refinancing operation was conducted according to a variable rate tender procedure, this interest rate refers to the marginal interest rate which resulted from that tender. This applies both in the case of single rate and variable rate auctions;

4. 'retention of title' means the agreement, irrespective of any formal requirements, that the seller remains the owner of the goods in question until the price has been paid in full; the term 'seller' shall comprise the supplier of goods which are to be produced or manufactured;

5. 'contracting authorities' corresponds to the definition laid down in Directive 92/50/EEC and Directive 93/37/EEC and includes the 'contracting entities' as defined in Directive 93/38/EEC;

6. 'public procurement contracts' means contracts for pecuniary interest concluded in writing between a contracting authority within the meaning of point 5 and an undertaking which is not a contracting authority;

7. 'enforceable title' means any decision, judgment or order for payment issued by a court or other competent authority, whether for immediate payment or payment by instalments, which permits the creditor to have his claim against the debtor collected by means of forced execution; it shall include a decision, judgment or order for payment that is provisionally enforceable and remains so even if the debtor appeals against it.

Article 3

Interest in case of late payment

1. Member States shall ensure that:

(a) interest in accordance with point (d) shall become payable from the day following the date or the end of the period for payment fixed in the contract;

(b) if the date or period for payment is not fixed in the contract, interest shall become payable automatically without the necessity of a reminder:

(i) 21 days following the date of receipt by the debtor of the invoice or an equivalent request for payment, or

(ii) if the date of the receipt of the invoice or the equivalent request for payment is uncertain, 21 days after the date of receipt of the goods or services, or

(iii) if the debtor receives the invoice or the equivalent request for payment earlier than the goods or the services, 21 days after the receipt of the goods or services, or

(iv) if a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for by statute or in the contract and if the debtor receives the invoice or the equivalent request for payment earlier or on the date on which such acceptance or verification takes place, 21 days after this latter date;

(c) the creditor shall be entitled to interest for late payment to the extent that:

(i) he has fulfilled his contractual and legal obligations, and

(ii) he has not received the amount due on time, unless the debtor is not responsible for the delay;

(d) the level of interest for late payment ('the statutory rate'), which the debtor is obliged to pay, shall be the sum of the interest rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question ('the reference rate'), plus at least 8 percentage points ('the margin'), unless otherwise specified in the contract. For a Member State which is not participating in the third stage of Economic and Monetary Union, the reference rate referred to above shall be the equivalent rate set by its national central bank. In both cases, the reference rate in force on the first calendar day of the half-year in question shall apply for the following 6 months;

(e) in addition to the right to interest, the creditor shall be entitled to claim compensation from the debtor for the losses incurred through the latter's late payment, including the following costs:

(i) the cost of the creditor's bank loans or overdraft, to the extent that this is not already fully compensated by the right to interest;

(ii) the administrative costs of recovery within the creditor's business;

(iii) the costs of recovery through debt recovery agencies, and

(iv) the costs of recovery through court proceedings.

Member States may act to ensure that any claims for compensation under items (ii), (iii) and (iv) above are in reasonable proportion to the debt in question.

2. For certain categories of contracts to be defined by national law, Member States may fix the period after which interest becomes payable to a maximum of 60 days provided that they either restrain the parties to the contract from exceeding this period or fix a mandatory interest rate that substantially exceeds the statutory rate.

3. Member States shall ensure that an agreement on the date for payment or on the consequences of late payment which is not in line with the provisions of paragraphs 1(b) to (d) and 2 either shall not be enforceable or shall give rise to a claim for damages if, when all circumstances of the case, including good commercial practice and the nature of the product, are considered, it is grossly unfair to the creditor. In determining whether an agreement is grossly unfair to the creditor, it will be taken into account whether the debtor has any objective reason to deviate from the provisions of paragraphs 1 (b) to (d) and 2 or whether the agreement mainly serves the purpose of procuring the debtor additional liquidity at the expense of the creditor. If such an agreement is determined to be grossly unfair, the statutory terms will apply, unless the national courts determine different conditions which are fair.

4. Member States shall ensure that, in the interests of creditors and of competitors, adequate and effective means exist to prevent the continued use of terms which are grossly unfair within the meaning of paragraph 3.

5. The means referred to in paragraph 4 shall include provisions whereby persons or organisations representing the interests of small and medium-sized enterprises, as defined in Commission Recommendation 96/280/EC [14], may take action according to the national law concerned before the courts or before competent administrative bodies for a decision as to whether contractual terms drawn up for general use are grossly unfair within the meaning of paragraph 3, so that they can apply appropriate and effective means to prevent the continued use of such terms.

[14] OJ L 107, 30.4.1996, p. 4.

6. With due regard for national laws, the legal remedies referred to in paragraph 5 may be directed separately or jointly against a number of buyers from the same economic sector or their associations who use or recommend the use of the same general contractual terms or similar terms.

Article 4

Retention of title

1. Member States shall ensure that the seller retains title if a retention of title clause has been agreed. Apart from an individual contract, such an agreement shall be considered valid if the retention of title clause is contained in the seller's standard contract, to which the buyer has not objected. No other formality shall be required.

2. Member States shall recognise the validity of the clauses in the Annex, or of clauses having equivalent effect.

3. Once the period for payment has passed without the buyer having paid, the seller may demand that the goods in question be returned to him. Member States shall provide for retention of title to be enforceable against third parties, even in the case of bankruptcy of the debtor or in the case of any other procedure recognised as being similar under the legislation of the Member States. No later than when the buyer takes possession of the goods, he becomes responsible for any damage to or loss of the goods.

4. Member States may adopt provisions dealing with down-payments already made by the debtor. They may limit or exclude recourse to retention of title in the following cases:

(a) where a third party has acquired the goods in question in good faith;

(b) where the goods in question have been incorporated into or mixed with other goods, unless the process can be reversed without causing significant damage to the other goods.

Article 5

Transparency of public procurement contracts

Member States shall ensure that calls for tender and public procurement contracts contain precise details of the payment periods and deadlines applied by the contracting authorities, even if these payment periods and deadlines are determined in general contract conditions laid down by law. In particular, time limits shall be set for the completion of pre-payment administrative formalities, such as public works reception procedures. A similar obligation of transparency shall apply in the relationship between a main contractor and a subcontractor carrying out public works.

Article 6

Prompt payment, default date and automatic interest

Member States shall ensure that:

1. the period for payment of contractual debts by the contracting authorities as determined under Article 3(1)(a) to (c) is not more than 45 calendar days except where the value of the contract exceeds EUR 100 000, in which case the maximum period for payment shall be 60 calendar days; the contract may under no circumstances override these time limits; in a public contract, the main contractor shall grant conditions to the suppliers and subcontractors which are at least as favourable as those granted to the main contractor by the contracting authority; in order to guarantee these conditions to suppliers and subcontractors, the main contractor shall be required to provide a guarantee made out to the supplier or subcontractor covering payment of all the amounts owed. This guarantee shall be executable upon expiry of 60 calendar days from the date of submission of the invoice to the main contractor by the supplier or subcontractor. The same conditions shall apply between the main contractor and the contracting authority;

2. a creditor is entitled to interest from the contracting authority on any amount outstanding when the default date has passed; the interest shall be calculated as set out in Article 3(1)(d), and shall be paid automatically by the contracting authority without the necessity of a claim;

3. the contracting authority is not permitted to request or require that the creditor waive any of the rights referred to in this Article, nor may the creditor request or require that his suppliers or subcontractors waive those rights.

Article 7

Recovery procedures for unchallenged claims

1. Member States shall ensure that an enforceable title can be obtained, irrespective of the amount of the debt, normally within 90 calendar days of the lodging of the creditor's action or application at the court or other competent authority, provided that the debt or aspects of the procedure are not disputed. This duty shall be carried out by Member States in conformity with their respective national legislation, regulations and administrative provisions.

2. The respective national legislation, regulations and administrative provisions shall apply the same conditions for all creditors who are established in the European Community.

3. The 90-calendar-day period referred to in paragraph 1 shall not include the following:

(a) periods for service of documents,

(b) any delays caused by the creditor, such as periods devoted to correcting applications.

4. This Article shall be without prejudice to the provisions of the Brussels Convention on jurisdiction and enforcement of judgements in civil and commercial matters [15].

[15] Consolidated version in OJ C 27, 26.1.1998, p. 3.

Article 8

Transposition

1. Member States shall bring into force the laws, regulations and administra tive provisions necessary to comply with this Directive before ................................... [16]. They shall forthwith inform the Com mission thereof.

[16] 24 months after this Directive enters into force.

When Member States adopt these measures, they shall contain a refer ence to this Directive or shall be accompanied by such reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States.

2. Member States may maintain or bring into force provisions which are more favourable to the creditor than the provisions necessary to comply with this Directive.

3. In transposing this Directive Member States may exclude:

(a) debts that are subject to insolvency proceedings instituted against the debtor,(b) contracts that have been concluded prior to ......................... [17], and

[17] 24 months after this Directive enters into force.

(c) claims for interest of less than EUR 5.

4. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive.

5. The Commission shall undertake three years after ................. [18] a review of, inter alia, the statutory rate, contractual payment periods and late payments, to assess the impact on commercial transactions and the operation of the legislation in practice. The results of this review and of other reviews will be made known to the European Parliament and the Council, accompanied where appropriate by proposals for improvement of this Directive.

[18] 24 months after this Directive enters into force.

Article 9

Entry into force

This Directive shall enter into force on the day of its publication in the Official Journal of the European Communities.

Article 10

Addressees

This Directive is addressed to the Member States.

Done at

For the European Parliament, For the Council,

The President The President

ANNEX

List of clauses to be recognised by Member States for the purposes of Article 4

ES: // 'El vendedor conservará la propiedad de los bienes hasta el pago final.'

DA: // 'Varen forbliver sælgerens ejendom, indtil den er fuldstændig betalt.'

DE: // 'Die Ware bleibt bis zur vollständigen Bezahlung im Eigentum des Verkäufers.'

EL: // 'Ï ðùëçôÞò ðáñáêñáôåß ôçí êõñéüôçôá ôùí áãáèþí ìÝ÷ñé ôçí ðëÞñç åîüöëçóç ôïõ ôéìÞìáôïò.'

EN: // 'The goods remain the property of the seller until fully paid.'

FR: // 'Les marchandises restent la propriété du vendeur jusqu'au paiement complet.'

IT: // 'Le merci restano di proprietà del venditore fino al pieno pagamento.'

NL: // 'De waren blijven tot de volledige betaling eigendom van de verkoper.'

PT: // 'O vendedor conservará a propriedade dos bens até ao momento do pagamento final.'

FI: // 'Tavara on myyjän omaisuutta, kunnes kauppahinta on kokonaisuudessaan maksettu.'

SV: // 'Varorna förblir säljarens egendom tills de betalats helt och hållet.'