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The Final Payment Term Act for large companies

  • Netherlands

    05-09-2017

    The Final payment term of 60 days for large companies Act (the Act) entered into force on 1 July 2017. The Act protects SMEs and self-employment persons against large companies that impose longer payment terms than 60 days by prohibiting payment terms in excess thereof. This newsletter outlines (i) the consequences of, and exemptions to deviate from, the final payment term of 60 days under the Act and (ii) the transitional law in respect of the Act.

    The consequences of the Act
    On 1 July 2017 the Act entered into force by an amendment to article 6:119a of the Dutch Civil Code (Burgerlijk Wetboek, DCC). As a consequence paragraph 6 of article 6:119a DCC is included which reads as follows:

    “Notwithstanding paragraph 5, parties are not allowed to agree on a final payment term of more than sixty days if the debtor is a legal entity that has not fulfilled at least two of the requirements as described in article 2:397 paragraph 1 and 2 DCC on two sequential balance sheet dates, without interrupting the two sequential balance sheet dates, and the creditor is a natural person who acts in the conduct of a profession or business or a legal entity, that fulfils at least two of the requirements during that period. A clause in an agreement, contrary to the previous sentence, is void.”  

    The requirements as described in article 2:397 paragraph 1 DCC are:

    1. the value of the assets according to the balance sheet and notes, on the basis of the cost of acquisition and production cost, amounts to no more than € 20,000,000;
    2. the net turnover for the financial year amounts to no more than € 40,000,000; and
    3. the average number of employees during the financial year is less than 250.

    For the application of article 2:397 paragraph 1 DCC, the value of the assets and the legal person’s net turnover shall be aggregated according to the consolidation method. In addition, the number of employees of group companies, which must be included in the consolidation, shall be added to that of the legal person, if the legal person would need to prepare consolidated accounts, unless the legal person applies article 2:408 DCC (article 2:397 paragraph 2 DCC).  

    Article 2:397 paragraph 1 DCC determines in Dutch accounting law the distinction between on the one hand large companies and on the other hand smaller companies and legal entities that are not large companies. Pursuant to article 6:119a paragraph 6 DCC it is not allowed to agree on longer payment terms than 60 days when firstly the debtor does not fulfill at least 2 of the 3 requirements as mentioned above; this is a large company. Secondly, the creditor is only protected against longer payment terms than 60 days when it does fulfill at least 2 of the 3 requirements as described above; this is not a large company. Article 6:119a paragraph 6 DCC is not applicable when the creditor as well as the debtor, that agree to a final payment term in a contract of more than 60 days, are both considered large companies pursuant to article 2:397 paragraph 1 and 2 DCC.

    Should a large company agree to a final payment term of more than 60 days with a smaller company (as described in article 6:119a paragraph 6 DCC), such agreement is void and the final payment term will convert into 30 days by operation of law. In addition, the statutory interest rate, which is due in case of default of the debtor, is due and payable after 30 days instead of the agreed final payment term of more than 60 days. On the basis of current Dutch legislation, no other penalties can be imposed on any debtor for acting in breach of article 6:119a paragraph 6 DCC than described in this newsletter.

    Transitional law
    Pursuant to the transitional law to the Act, the Act does not apply to agreements that have been concluded before the entering into force of the Act (1 July 2017). Please note that the maximum payment terms of these agreements should be 60 days one year after the entering into force of the Act (1 July 2018). In case the payment terms have not been revised in accordance with the Act by 1 July 2018, these payment terms will be void and will convert into the regular 30 days.

    Eversheds Sutherland is of course able to assist in amending (existing) payment terms in contracts in accordance with the Act. 

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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