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LATE PAYMENT: WHAT TO DO? |
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In Romania’s current economic environment, many businesses close simply because
they are unable to deal with the crisis. Often, the cause for this failure is
linked to late payments from customers. This is particularly applicable to small
and medium size enterprises that do not have the resources to handle constant
late payments from their customers. A delay in the fulfillment of commercial
obligations generates growing consequences and collateral damages which
initiates a detrimental chain of events; the failure of a customer leads to the
failure of the distributor which leads to the failure of the manufacturer which
leads to the failure of the raw material producer, and so on. Thus, a delay can
affect the entire economic environment of the nation. Since this has become a
real issue across the European Union (“EU”) leading to many bankruptcies, the EU
has decided to take action and create the tools necessary to considerably
diminish late payment practices. In particular, they are seeking to aid foreign
companies that wish to enforce their rights against companies established in
other member states because businesses that sell across borders are especially
vulnerable.
In Romania, the late payment issue goes even deeper. A tendency is developing
among business owners to delay their payment obligations by finding legal
solutions to suspend them or even to write them off through insolvency and
reorganization. This late payment culture needs to end so that the economy can
flourish again. The new pieces of legislation enacted by the EU and the action
plans dedicated to disseminating the new provisions are aimed precisely at
achieving this goal.
This article purports to show the general legal means that commercial companies
have at their disposal against late payments under Romanian law. The article
will only touch on the general legal regimen of obligations between commercial
undertakings and not the relationship between commercial undertakings and
contracting authorities.
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The Current Situation In Romania |
 Immediately
after the start of the 2008 economic crises, certain Romanian
businesses, regardless of whether or not they encountered financial
difficulties, started to use the crisis as an excuse to justify late
payments. More recently, insolvency procedures have become a “safe
haven” for business owners seeking to suspend or even discard their
obligations. Under Romanian law, businesses are under an obligation to
petition for their own insolvency in court if they know that they are
unable to timely pay their debts with the funds available to them and
this situation is likely to continue for longer than thirty days. If
their financial situation exceeds six months, not petitioning for
insolvency becomes a criminal offence. Therefore, if a company is unable
to pay its debts, not only is there a possibility for it to petition for
its insolvency, but there is a legal obligation to do so.
Additionally, creditors can ask for the insolvency of their debtors if
they hold a liquid, certified receivable exceeding 45,000 lei that has
been due for more than ninety days.
While the insolvency procedure of a company is underway, all claims and
enforcement procedures are suspended by law. In addition, if the debtor
considers reorganization and is entitled to it, in the reorganization
plan, the amount of the receivables of certain categories of creditors
can be diminished down to the value they would receive in case of
bankruptcy and liquidation. Because of these the legal provisions,
insolvency procedures are being used as a safe haven for debtors, in
addition to its intended purpose: the successful reorganization or
bankruptcy of failing businesses.
Other common late-payment commercial transaction practices in Romania
include offering creditors payment instruments such as checks,
promissory notes or bills of exchange. These practices prolong the due
dates and are advantageous because they are in themselves enforcement
titles. The debtor would not have to be taken to court in order for
enforcement procedures to be possible. But, in the event that they are
not paid on the due date, there are no consequences for their issuers.
The Romanian Criminal Code provides for a criminal offence only when
companies/individuals knowingly issue checks with insufficient funds for
the check to be cashed. Thus, checks are not issued often and the most
common instrument is the promissory note.
However, with the new more burdensome rules regarding late payment for
commercial obligations, the practices described above might change and
debtors will be less inclined to allow late payments. |
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The New Procedures for Late Payments In
Commercial Transactions |
Under Romanian law, the interest rates and late payment interest rates
for payment obligations are provided by Government Ordinance no. 13/2011
(“GO 13”). These provisions have been recently amended by Law 72/2013
enacted for the implementation into the Romanian legislation of the
Directive 2011/7/EU on combating late payments in commercial
transactions, adopted on February 16th, 2011.
 GO
13 provides that the parties are free to contractually establish the
interest rates applicable for the repayment of a loan, as well as for
the delay in the fulfillment of a payment obligation. The “regular
interest” is the interest owed by the debtor calculated for the period
up to the due date. The “late payment interest” is the interest owed by
the debtor for the non-payment at the due date. In case the parties do
not contractually establish the bi-level interest rates (the “regular
interest” and the “late payment interest”) the legal interest rates will
apply. The “legal regular interest” has the same level as the reference
interest rate established by the National Bank of Romania. The “legal
late payment interest” is the regular legal interest plus 4%. The
“regular legal interest” and the “legal late payment interest”
applicable to legal relationships that do not derive from the
exploitation of an undertaking for the purposes of achieving a profit is
to be reduced by 20% from the general legal rates mentioned above.
However, in agreements between commercial undertakings and between
commercial undertakings and contracting authorities, the “legal late
payment interest” is the regular legal interest plus 8%. This difference
between the two types of legal late payment interest rates was
established by Directive 2011/7/EU. In cases of legal relationships with
a foreign element (of extraneity) governed by Romanian law and when the
debt is in a foreign currency, the “legal regular interest” is 6% per
year. Thus, the applicable “late payment interest” in the commercial
relationship between a foreign company and a Romanian company, if not
provided by the agreement and if subject to Romanian law would be 14%
per year.
Additionally, GO 13 also contains provisions against loansharking. It
provides that agreed regular interest applicable to legal relationships
not derived from the exploitation of an undertaking for the purposes of
achieving a profit cannot exceed the legal interest by more than 50% per
year. Any provision to the contrary is automatically null and void and
the creditor cannot even claim legal interest.
Law 72/2013 was enacted for the implementation into the Romanian
legislation of Directive 2011/7/EU on combating late payments in
commercial transactions adopted on February 16th, 2011 and enacted into
law on April 5th, 2013 (“Law 72”). Law 72 provides specific measures for
combating the late fulfillment of payment obligations of receivables
that are certified, liquid and due, derived from contracts between
commercial undertakings and between commercial undertakings and
contracting authorities. Law 72 does not apply to the treatment of
receivables in an insolvency procedure that is the object of
extrajudicial negotiations or agreed payment schedules, or to the
agreements between commercial undertakings and consumers. Law 72
provides for measures that include how the applicable interest rate is
determined, the legal late payments interest rate, payment terms, both
concerning regular agreements between commercial undertakings and
agreements between commercial undertakings and contracting authorities ,
the costs for recuperating receivables, contractual provisions and
abusive practices, and certain procedural aspects of late payments.
Any payment term provision or custom, late payment interest rate
provision or custom, or supplementary damages provision or custom which
is clearly inequitable for the creditor is considered an abusive
provision or custom. The abusive character is determined by the courts
which take into account: (1) material deviations from the established
practices between the parties or from the customs that accord with
public order and decency, (2) not abiding by the good faith principle
and by the principle of diligence in the fulfillment of obligations, (3)
the nature of the goods or services, (4) lack of objective reasons for
establishing other terms than the ones provided by the law, and (5) a
dominant position of the contracting party in regard to a small or
medium size enterprise. In addition to these criteria, Law 72 provides
that the following provisions are considered abusive by way of law: (1)
clauses that exclude the possibility of applying late payment interest
or establish late payment interests that are lower than the legal rate,
(2) clauses that establish an obligation to notify the debtor so that
the late payment interest accrues, (3) clauses that establish a longer
term for the moment when interest starts to accrue for the receivable,
(4) clauses that eliminate the possibility to claim supplementary
damages, and (5) clauses that set a term for the receipt or issuance of
the invoice. Abusive clauses are automatically null and void.
“Late payment interest” is applicable when the creditor has fulfilled
his contractual obligations and the debtor is in payment default. The
interest is applicable starting from the due date up to the moment
payment is effectuated. If the due date is not provided by the
agreement, “late payment interest” starts to accrue after thirty
calendar days from the date the invoice was received by the debtor or if
any similar payment request was received. If applicable, “late payment
interest” can also begin to accrue after thirty days from the delivery
of the sold goods or the date the services were performed. Furthermore,
if some sort of reception or verification procedure is provided, the
thirty days shall be calculated from the date of the completion of this
procedure, provided it takes place within thirty days from the delivery
of the sold goods or the date the services were performed. In the latter
situation, the parties may establish a longer term as long as such
provision is not abusive.
Contractual payment terms cannot exceed sixty calendar days. The parties
may establish a longer term as long as it is not abusive. Additionally,
they can agree to installment payments. However, the parties are not
permitted to set any term for the issuance or receipt of the invoice.
Any such provision is automatically null and void.
When recuperating receivables, the creditor can claim damages for the
expenses it incurred. The creditor can also claim supplementary damages
with a minimum value of forty euros (provided by law) for delays in
payment which are in addition to the damages for the enforcement
expenses. This amount is due starting with the date late payment
interest is due.
In the event of any payment delays, the creditor can obtain an
enforcement title by way of a payment ordinance, which is provided by
the Civil Procedure Code. All creditors established in any member state
of the European Union can make use of this procedure.
Law 72 provides an organizational framework for business owners
associations and for their rights. One of the most important rights
granted by Law 72 to business owners associations is that they have
court standing to defend the rights and legitimate expectations of their
members, especially in regard to claims for the cancellation of abusive
clauses or ascertaining abusive practices. |
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Conclusion |
 Because
late payments under the new regimen have immediate and serious
consequences, debtors will be less inclined to allow for them or will
try to seek, immediately, a renegotiation of the due dates with the
respective creditor in a mutually beneficial manner. Even if a debtor
were to consider insolvency, until it is able to do so, late payment
penalties will accrue and the debt will increase considerably. Even if a
debtor manages to file for insolvency, its debts will be much greater. A
similar situation occurs with payment instruments because as long as the
debts remain unpaid, “late payment interest” will accrue. Indeed, the
provisions regarding abusive practices and contractual provisions are
most welcome so that the contractual balance between commercial partners
is properly established and maintained. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2013 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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RUBIN MEYER DORU & TRANDAFIR
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