News January 2017: Infringing the legal cap on payment terms is now punishable by a fine of 2 million euros.

 

 

 

 

In our article published in September 2016, we announced that the fines applicable in case of non-compliance with the legal French cap on payment terms would probably be increased.

This has finally been implemented by Article 123 of law n°2016-1691 dated 9 December 2016 relating to transparency, fight against corruption and modernization of the economy, which has notably amended article L.441-6-I para. 9 of the French commercial code[1].

The main modifications related to the maximum payment terms – which have been validated by the French Constitutional Council, are as follows:  

• Legal entities which would not comply with the terms of article L.441-6-I para.9 (providing for a maximum payment term of 60 days or 45 days end of month, as from the invoice date) shall incur an administrative fine of up to 2 million euros (instead of the former fine of 375,000 euros) without prejudice to the publication, now systematic, of such a sentence through various media (DGCCRF – French administration website, corporate website of the concerned entity, press media etc…)

• In case of various infringements, applicable fines may be cumulated: for instance, operators in the transportation sector which would not comply with both regulated payment terms (as per article L.441-6-I para.11) and agreed payment terms (as per article L.441-6-I para.9) could incur accumulated fines up to an aggregate amount of 4 million euros.

• The relapse within two years as from the first decision became final is punishable by a fine amounting to max. 4 million euros.

• A derogation to the legal cap of 60 days has been introduced by law n°2016-1691 for purchases VAT-free from other states (as per article 275 of the French Tax Code) of goods meant to be delivered (“as is”) outside the European Union territory. Provided that it (i) is expressly addressed in a contract and (ii) is not to be regarded as « a manifest abuse towards the creditor », such derogatory payment term between the contracting parties shall not exceed 90 days as from the invoice date.

Such derogation should probably improve the cash flow situation, subject to a scissor effect, of French companies turned to long-distance export which are expected to pay, pursuant to article L.441-6-I para. 9 of the French commercial code and/or the Directive 2001/7/UE[2], their French and/or European suppliers within a maximum term of 60 days whereas they are themselves paid by their own non-European customers within longer terms.

Does it mean that, by such derogation, the French legislator would implicitly admit that article L.441-6-I para.9 of the French Commercial code should not apply to an international contract involving a French supplier?

This interpretation would somehow contradict the position, expressed at several times, according to which the French Administration does not exclude – for purposes of protecting a “branch” depending on a French supplier subject to payment terms beyond 60 days – to sue any operator (being French or not) infringing the legal cap on payment terms (as a reminder of the administrative doctrine in this respect, please refer to our article « the legal cap on payment terms in international contracts: the French example”).   

In any case, the scope of this derogation may be put into perspective since it is time- limited to 30 additional days and it is excluded to the benefit of “big companies”, which notion should be construed, according to Decree 2008-1354 dated 18 December 2008, as companies hiring, on the one hand, more than 5,000 employees and, on the second hand, achieving a turnover of at least 1.5 billion euros or total gross assets reflected in the balance sheets of at least 2 billion euros.

In case of any doubt and given the importance of the fines which can be now at stake in case of breach of article L.441-6-I para.9, companies should remain very careful and take drafting precautions in their international contracts.

 

                                                                           Sarah Temple-Boyer

                                                                           Attorney

 

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[1] As a reminder, article L.441-6-I par. 9 of the French commercial code provides that: ‘‘the payment term agreed upon between the parties shall not exceed 60 days as from the invoice issuance date. By way of derogation, a maximum payment term of 45 days end of month as from the invoice issuance date can be agreed between the parties, provided that such payment term is expressly stated in the contract and that it cannot be regarded as a manifest abuse towards the creditor.’’

 

[2] Directive 20011/7/UE of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions