News September 2019: Beware of increasing fines for non-compliance with maximum payment terms!
Quick reminder: Pursuant to article L.441-10-I of the French commercial code:
- the parties may not agree to payment terms exceeding 60 days as from the invoice issuance date.
- by derogation of the above, the parties can provide for a maximum payment term of 45 days end of month after the invoice issuance date, subject to the fact that this derogatory payment term is expressly provided for under the applicable contract and is not to be regarded as grossly unfair to the creditor.
- if nothing is specifically agreed upon between the parties re. the payment terms, the settlement date may, in no case, exceed 30 days further to the receipt of the goods and/or the performance of the requested services.
- besides, the maximum payment term applicable to periodical invoices may not exceed 45 days as from the invoice issuance date.
Pursuant to article L.441-16 of the French commercial code, is subject to a fine no greater than 75,000 € for an individual and 2 million € for a legal entity:
- any infringement to payment terms such as provided under article L.441-10-I of the French commercial code
- any non-compliance with the compulsory mentions provided for in article L.441-10-II of the French commercial code
- any non-compliance with the required late payment rate or late penalties as prescribed under article L.441-10-II of the French commercial code.
The incurred fine may be increased to a maximum of 150,000 € for an individual and 4 million € for a legal entity, in case of a repeated infringement within the two following years as from the moment the first fine decision has become definite.
It is quite obvious that French rules related to payment terms are applicable to contracts entered into between French parties but also to “international contracts” (entered into for example a French party and a foreign company) (expressly or implicitly) governed by French law.
It may also be of some interest to wonder whether French rules related to payment terms (usually regarded as “public order rules” by the French Administration) could not be regarded as applicable, even in case the contract between two legal entities is not governed by French law.
It is important to be aware of the fact that the application of fines against companies infringing maximum payment terms is not theoretical.
On last May 6, 2019 and for the first time since the increase of the upper fine limit to 2 million € (resulting from law dated 9 December 2016 - so called “loi Sapin 2”), three companies (which had all been invoiced after the entry into force of law Sapin 2) have been sentenced to fines greater than the former upper fine limit of 375,000 € (applicable until 2016).
- Ciments calcia (subsidiary of German company Heidelberg Cement) sentenced to a fine of 670,000 € (based on a panel of 20,788 controlled invoices)
- France Manche (subsidiary of Gestlink) sentenced to a fine of 501,000 € (based on a panel of more than 9,000 controlled invoices)
- MMA IARD, insurance company, sentenced to a fine of 500,000 € (based on a panel of 6,500 controlled invoices)
The French Administration also published their sentence in the so-called “name and shame” list (available at the following link, constantly updated):https://www.economie.gouv.fr/dgccrf/sanctions-delais-paiement)
On May 13, 2019, four other companies have been sentenced to substantial fines:
- Verallia France sentenced to a fine of 450,000 €
- OGF SA sentenced to a fine of 360,000 €
- Nestle Purina Petcare France sentenced to a fine of 375,000 €
Finally, on August A, 2019, ELECTRICITE DE FRANCE (EDF) has been sentenced to a record fine of 1,800,000 euros!
There is a consensus in France as to the fact that the controls should intensify and that there should be even greater fines applied in the future, since the French government considers that late payment terms deprive small and medium-sized companies of an average cash flow of 19 billion euros and is responsible for many bankruptcy situations.
In 2018, further to 2700 investigations by controllers, 377 proceedings have led to a total amount of fines of appr. 29.1 million € against 155 fine decisions in 2017 (for a total amount of 8.6 million euros).
During the first months of 2019, the French Administration has already sentenced 69 companies to a total amount of fines of more than 5 million €.
par Sarah Temple-Boyer
Avocat/Attorney at law