Germany's Draft Bill on Combating Late Payment in Commercial Transactions: Potential Consequences for Businesses on Both the Legal and Operational Level

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On April 1, 2014, the German cabinet (Bundeskabinett) agreed upon a draft bill on combating late payment in commercial transactions in order to transform certain articles of the Directive 2011/7/EU1 into German law.2 The legislators seek to spark a culture of prompt payment in B2B situations in order to protect the liquidity and to ease the financial management of undertakings.3

Amendments to the German Civil Code
If the draft bill is adopted as proposed, one of the consequences4 will be that businesses will face restrictions when agreeing upon payment terms and the duration of a procedure of acceptance (Abnahme). The draft bill proposes respective new provisions to be added to the German Civil Code (BGB).

Pursuant to the proposed sec. 271a para. 1 BGB, contractual clauses in B2B transactions between private entities that stipulate a period for payment in excess of 60 calendar days are legally invalid unless otherwise expressly agreed in the contract and provided it is not grossly unfair (grob unbillig) to the creditor. The consequences of late payment (Zahlungsverzug) like interest for late payment (Verzugszinsen) and damages5 shall generally apply after 60 calendar days. Sec. 271a para. 3 BGB introduces a supplemental, yet separate restraint: The parties of a B2B transaction are precluded from stipulating, as a condition for the due-date of a remuneration to occur, a duration of a procedure of acceptance (Abnahme) of more than 30 calendar days from the date the relevant goods or services are delivered for acceptance. Again, it is possible to expressly agree otherwise in the contract as long as this is not grossly unfair (grob unbillig) to the creditor. Sec. 271a para. 3 BGB shall prevent a circumvention of the regulations seeking to spark prompt payment. This is necessary because sec. 641 para. 1 BGB, for example, sets forth that in a contract to produce a work (Werkvertrag) the customer must pay the remuneration upon acceptance (Abnahme) of the work. Sec. 641 para. 1 BGB itself does not set forth any non-dispositive timeframes, i.e. the parties would, in absence of sec. 271a para. 3 BGB, be entirely free to contractually agree upon a longer duration of such procedure. This freedom will, at least to a certain extent, be confined once the draft bill becomes effective. The restraints set forth in sec. 271a para. 1 and para. 3 BGB, however, do not apply to agreed staggered payments (depending on the progress of activities) or instalments (sec. 271a para. 5 BGB).

In general terms and conditions (Allgemeine Geschäftsbedingungen), the possibility to stipulate extensive payment terms to the benefit of the user of the general terms and conditions (Verwender) will become even more restricted. Sec. 308 No. 1 lit. (a) BGB sets forth that unreasonably long payment periods are legally invalid, it being presumed that a period that exceeds 30 days after the date of receipt of the goods or services or the invoice (whatever occurs later) is unreasonable. The same concept applies to the duration of a procedure of acceptance (Abnahme): Pursuant to sec. 308 No. 1 lit. (b) BGB, the duration of such procedure must not be unreasonably long, it being presumed that a period that exceeds 15 days after the date of receipt of the goods or services is unreasonable. Businesses being active throughout the EU have to be aware that the periods set forth in sec. 308 No. 1 lit. (a) and lit. (b) BGB might be shorter than in other EU jurisdictions. The draft bill does not simply transform the Directive into national law, but goes beyond the Directive’s minimum requirements in this respect.

Consequences for businesses
Upon the draft bill becoming legally effective as currently proposed, buyers of goods and services will, for future B2B transactions, be well advised to take the amendments to the BGB into account. The customer must, in the event of a dispute, prove that the agreed payment period and/or duration of a procedure of acceptance (Abnahme) as a condition for the due-date of a remuneration claim is/are not grossly unfair to the creditor even though it/they exceed(s) the statutory limit(s), which may prove difficult in practice. During contract negotiations, a customer should hence ensure sufficient documentation as regards the reasons for respective clauses. Not only the customer’s legitimate interests in, for example, a longer payment period should be documented but also the reasons based on which the counterparty accepts the inherent disadvantages as not grossly unfair. For example, if the pricing of the supplier has expressly factored in a longer payment term, such longer payment term might not be grossly unfair. In the absence of those reasons, a customer may have to either adapt its operational processes regarding acceptance (Abnahme) so that these can be completed within the newly introduced timeframes or accept that the completion of the acceptance procedure (Abnahme) will no longer be the trigger for the remuneration to be payable.

The proposed amendments to the BGB also have an impact on existing long-term contractual relationships (Dauerschuldverhältnisse). Pursuant to the proposed amendment to Article 229 Introductory Act to the German Civil Code (EGBGB), the amendments to the BGB shall also apply to those long-term contractual relationships (Dauerschuldverhältnisse) where the performance that triggers a remuneration claim occurs after June 30, 2015. Hence, not only the customer’s general terms and conditions (Allgemeine Geschäftsbedingungen) intended for use after the draft bill’s effective date may need to be revised, but also individually agreed clauses on payment periods and acceptance procedures (Abnahmen) in existing contracts.


[1] - Directive 2011/7/EU of the European Parliament and the Council of February 16, 2011 on combating late payment in commercial transactions, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:048:0001:0010:en:PDF (last accessed April 11, 2014).
[2] - See press release of the German Federal Ministry of Justice and Consumer Protection of April 1, 2014, available at 
http://www.bmjv.de/SharedDocs/Kurzmeldungen/DE/2014/20140402_Zahlungsverzug_im_Geschaeftsverkehr.html?nn=3433226 (last accessed April 11, 2014). The draft bill is available at the same web address.
[3] - Cf. reason No. 3 of Directive 2011/7/EU and sec. A, sub-sec. I, No. 2 lit. (a) of the draft bill's explanation.
[4] - Other regulations of the draft bill include amendments to sec. 288 BGB. The interest rate for late payment will be increased from 8 percentage points to 9 percentage points above the base rate, sec. 288 para. 2 BGB. Sec. 288 para. 5 BGB introduces a claim for liquidated damages in the amount of EUR 40 so that the creditor receives compensation for its costs for recovery. Additional damages may be claimed on the basis of a contractual damage claim provided that the creditor can prove their incurrence.
[5] - See Footnote 4.

Topics:  B2B Organizations, Commercial Contracts, Late Payments, Penalties

Published In: General Business Updates, Elections & Politics Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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