Despite the relative simplicity of such a goal, its implementation has however proved anything but easy. Concerns have been raised over the applicability of the legislation within the retail sector, among others, and in transactions involving parties outside Spain.
Although the new regulation entered into force on July 7th, 2010, to date its actual application has been highly infrequent. A huge number of companies remain unaware of the new obligations and the wording of the rules gives rise to so many possible interpretations that a loophole can be found by almost anyone to defend their procedures.
Around 6,000 companies were declared insolvent in 2009, more than twice the number in 2008. Many others simply shut down as a result of the global economic environment. Naturally, the reasons for these dramatic results were diverse, but undoubtedly, the most common cause was lack of the necessary cash to meet day-to-day needs.
It is also obvious that this situation is especially frequent among small and medium companies dealing with big customers or with public entities who are in a position to impose long payment periods.
In the face of this situation, the Spanish government has passed a relevant amendment to the relevant legislation to combat late payment in commercial transactions, with two main drivers:
– shorten payment periods: as a general rule, payment periods between private parties may not exceed 60 days after the receipt of the goods or services (30 in the case of public corporations). A provisional regime (gradual reduction of the payment periods) has been envisaged until the amendment is fully in force on January 1, 2013,
– prohibit any agreements aiming to extend the maximum periods.
At first glance, these changes could be considered simple and easy to implement. However, in practice, it is proving to be quite the opposite:
– there is widespread controversy over whether the new periods are applicable to transactions with retailers, probably the economic sector most affected by these legal changes. In this respect, relevant schools of thought consider that the specific Law governing these transactions is still in force and that it has not been amended or repealed by the recent changes;
– it is not sufficiently clear whether the new general payment period or the provisional regime should be applied to new contracts under certain conditions (renewals, pre-existing transactions, etc.);
– some schools of thought consider that the payment periods can be negotiated as long as worse payment conditions, taken into account as a whole, are not established, while others consider that such a possibility would jeopardise the whole legal reform.
Despite the above discrepancies, one of the points on which there is agreement is the enforceability of the new regulation to international transactions, to the extent that they fall under Spanish Commercial Law.
Within the European Union a transaction will be governed by Spanish Law whenever the parties expressly agree thereto or, otherwise, when the supplier or service provider is a Spanish resident.
Nevertheless, it must be borne in mind that, as the legislation in question results from a European Directive, a similar (probably not identical) law is likely to exist in the other EU member country. However, such similar legislation may or may not exist in cases where the transaction is performed with non-EU countries.
In such transactions and under the Spanish Civil Code provisions, where the parties have not expressly stipulated the applicable Law, such law will be determined on the basis of the parties’ residence or the place where the transaction is carried out.
To conclude, although the new regulation entered into force on July 7th, 2010, to date its actual application has been highly infrequent. A huge number of companies are not aware of their new obligations and, furthermore, the wording of the new rules gives rise to so many doubts and possible interpretations that a loophole can be found by almost anyone to defend their procedures. To prevent such practices the Government is preparing more detailed provisions on this matter. Meanwhile, the success of the reform will be determined by the players involved.
Carlos Uncetabarrenechea is a partner with Deloitte Abogados y Asesores Tributarios. He can be reached via firstname.lastname@example.org