Potential sanctions for late payment of commercial debts

The first law that established specific measures to fight late payment in commercial transactions was approved 14 years ago, but its effectiveness remains questionable given the absence of effective coercive measures to force compliance.

Nevertheless, this legal gap could be solved after the long congressional process that began early in 2017: the content of the Legislative Proposal (Proposición de Ley) to amend Law 3/2004, of 29 December, establishing measures to fight late payment in commercial transactions (hereinafter, "Law 3/2004"), which aims to regulate a regime of infringements and sanctions for companies that default invoices to their suppliers, has the support of all political parties within the Congress of Deputies.

Although the premature end of the current legislature could postpone its approval (which was expected by the end of this first quarter of 2019), given that Spain has delayed the transposition of the European Union regulations on this subject and how advanced its status is in the congressional process, it cannot be ruled out that it will be approved before the end of this legislature.

Main reform objectives and novelties

As we have already covered in our previous newsletter on this subject, the main objectives of this reform are to:

• define, more precisely, the scope of Law 3/2004 and the events of nullity of contractual clauses;

• establish a Late Payment Arbitration System (Sistema Arbitral de Morosidad) (to be regulatory developed) to which disputes relating to compliance of the legal obligations under Law 3/2004 can be submitted in an agile and free manner;

• create a State Observatory on Late Payment (Observatorio Estatal de la Morosidad), as an official entity attached to the Ministry of Finance, whose role would consist of preparing periodic reports on the evolution of payment terms between companies and initiatives to fight late payments; and

• force the companies and the public authorities to make publicly available the payment terms with their suppliers, in order to encourage transparency and reinforce fulfilment of the legal payment terms with suppliers.

Yet, undoubtedly, one of the pivotal novelties of the new regulation is to establish an express, clear and concise regime of infringements and sanctions for late payments.

Regime of infringements and sanctions

Infringements are classified as minor, serious and very serious and, according to texts submitted through the congressional process, will be sanctioned with fines that could exceed the 800,000 euros, depending on the severity of the infringement:

• Among those cases that are considered minor infringements are to convene payment periods that exclude holidays or to breach the payment obligations stemming from the Law 3/2004 when the relevant infringement is not classified as serious or very serious. In this case, the sanctions would range between 60 to 2,000 euros.

• The cases considered serious infringements, include, among others, exceeding the legal payment period for more than 20 days; agreeing, to the disadvantage of the creditor, to clauses regarding the start date for payment or the late payment consequences that differ from the payment term and the legal interest rate for default established in Law 3/2004; agreeing to waive the right to compensation for recovery costs established in Law 3/2004; or lacking the documentary evidence for the delivery date of the goods or services. Serious sanctions would result in fines that could reach the amount of 41,000 euros.

• The most controversial chapter of the regulation covers the most serious sanctions for those companies that exceed the legal payment period for more than 60 days; that falsify invoices, delivery notes or any other document pertaining to the commercial transaction that enables the verification of compliance with the payment terms; or that falsify in their annual accounts the information required in accordance to the third additional provision of Law 15/2010, of 5 July, amending Law 3/2004. In these cases, the sanctions could exceed 800,000 euros and, in the event of reoccurrence, could jeopardise the possibility to contract with the public authorities, to access ICO credits or to receive grants and tax deductions.

It is important to keep in mind that, in addition to paying the corresponding sanction, the responsible for the infringement must pay the creditor the outstanding debts, including the legal interest for late payment, and the relevant compensation for recovery costs.

In order to ease the sanctioning process for the infringements made (which will be the responsibility of those administrative bodies assigned by the Autonomous Regions), an online mailbox will be activated to anonymously inform the competent sanctioning bodies of supposed irregularities in compliance with the legal obligations established in Law 3/2004.

Pending issues

Despite the urgent need to adapt the Spanish regulations to the guidelines of the European Union on the subject (who has warned and formally required Spain thereto) and the approach of the political parties' positions, there are still issues to be defined.

Among others, the issue of the destination for the amounts collected by the sanctions (one of the proposals that is on the table would be to reinforce the Late Payment Arbitration System or the State Observatory on Late Payment) and which entity will have the sanctioning power when the infringing company operates in more than one Autonomous Region (whether state or autonomous region bodies).

And, above all, the issue regarding the controversial proposal presented by the Socialist Party to reintroduce among certain collectives, the possibility of approving payment terms of 120 days, subject to recovery guarantees and compensation.