Ongoing commercial transactions entered into before 1 July 2017 now subject to new 60 day payment term limit

1. Background: Statutory commercial interest

Sixteen years ago, a provision on statutory interest in commercial agreements was introduced in article 6:119a Dutch Civil Code (DCC) to first implement Directive 2000/35/EC and subsequently Directive 2011/7/EU.

These Directives were introduced to ensure compliance and prevent payment delays in commercial transactions. If a party to a commercial transaction exceeds a payment term, it can be held liable for statutory commercial interest. In accordance with Directive 2011/7/EU, article 6:119a DCC limits the payment term in commercial transactions to a maximum of 60 days, unless the parties explicitly agreed a longer term that could not be considered 'grossly unfair'.

This criterion did not offer small companies (SMEs) protection from long payment terms though. Instead, large companies tended to use their negotiating power to convince SMEs to agree to longer payment terms. This was considered undesirable because long payment terms may cause liquidity problems and sometimes even bankruptcy.

2. Legislation against unreasonably long payment terms

In light of the undesirable effects outlined above, new legislation against unreasonably long payment terms was introduced. As a result, the vague criterion of 'grossly unfair' in paragraph 5 in article 6:119a  DCC has been replaced by paragraph 5, which contains an absolute criterion for a particular group of commercial transactions (see our previous blog "Act against unreasonably long payment effective as of 1 July 2017").

For a particular group of commercial transactions, instead of the vague criterion of 'grossly unfair' in article 6:119a paragraph 6 DCC, the Act introduces an absolute criterion.

A large company that enters into a commercial transaction with an SME and acts as a creditor is not entitled to stipulate a payment term that exceeds 60 days. In addition, any payment term imposed by a large company that exceeds 60 days will be considered void. In such circumstances, the statutory term in article 6:119a paragraph 2 DCC will apply as follows:

1. the large company is automatically obliged to pay within 30 days; and
2. if the large company does not pay within this 30 days term, the SME can claim statutory commercial interest. This interest will start to accrue after these 30 days have elapsed.

This legislative change was implemented on 1 July 2017. All commercial transactions concluded on or after that date had to comply with the new rule and could therefore no longer include a payment term exceeding 60 days.

3. Transitional arrangement ended 1 July 2018

The new legislation includes a transitional arrangement for commercial transactions already in place on 1 July 2017, such as continuing performance contracts [duurovereenkomsten]. These commercial transactions are subject to the new 60 day limit from 1 July 2018 onwards.

Large companies with commercial transactions already in place on 1 July 2017 that include payment terms exceeding 60 days should therefore be aware that these payment terms are void as of 1 July 2018. By operation of law, a payment term of 30 days will apply instead.

4. Qualification as commercial transaction

If a contract qualifies as a commercial transaction, there are other factors to consider besides the duration of the payment term. For example, the difference between statutory commercial interest at 8% and regular statutory interest at 2% will also have a significant impact.

Consequently, there are more and more cases in which the debtor disputes the qualification of a contract as a commercial transaction. For instance, an appeal has recently been lodged at the Supreme Court on whether a loan agreement qualifies as commercial transaction.

In his conclusion of 18 May 2018 ECLI:NL:PHR:2018:513, which precedes the decision of the Supreme Court, the Advocate General Hartlief agreed with the Court of Appeal that a loan agreement qualified as a commercial transaction and therefore commercial interest applied to overdue interest payments. The Supreme Court is expected to render its decision soon.