On 1 January 2020, new legislation on payment bottlenecks came into force in Poland. The amendment to the Act on Counteracting Excessive Delays in Commercial Transactions of 8 March 2013 has, among other things, given the Polish Office of Competition and Consumer Protection the right to levy fines for excessive payment delays.
The Polish regulations on payment bottlenecks apply to all commercial transactions involving Polish entrepreneurs and those from the EEA and Switzerland as parties. As a result, foreign entrepreneurs who sell or buy goods or services in Poland must comply with the regulations, regardless of where they have their registered office or manufacturing facilities.
To give some background: regulations related to payments in commercial transactions are nothing new. The payment bottleneck prevention regime has been in force in Poland since 2013 as a result of the implementation of Directive 2011/7/EU of the European Parliament and of the Council (EU) on combating late payment in commercial transactions. However, the Polish government found the European regime insufficient. The newly introduced amendments, modelled among others on French solutions, are to increase the effectiveness of the regulations by the use of additional instruments, such as administrative penalties issued by the President of the Office of Competition and Consumer Protection.
Fines from the Office of Competition and Consumer Protection (UOKiK)
Starting from this year, the Polish competition authority has the power to charge administrative fines for “excessive delay in the performance of a monetary benefit”. The new regulations provide that an excessive delay arises when the level of debt and payment arrears exceeds PLN 2 million in 3 consecutive months. In the first two years, 2020 and 2021, this threshold will rise to PLN 5 million. The transition period is to allow entrepreneurs to adapt to the changes.
There are two exceptions to the regime. Firstly, these fines may only be levied on private entrepreneurs. Public entities (such as government ministries, local governments, etc.) do not fall under UOKiK’s scrutiny. Moreover, a special relief is granted to victims of bottlenecks, i.e. to entrepreneurs that suffer losses as a result of their clients not paying their debts on time or being in arrears with payments. If the value of payments that the entrepreneur did not receive from his clients is equal to or greater than the value of payments not effected towards his business partners, then the entrepreneur may count on a waiver of the penalty.
In remaining cases, the level of the penalty from UOKiK will depend mainly on the value of the unfulfilled cash performance and when the due date expired. The amount of the penalty is calculated applying a special statutory algorithm. A settlement of all arrears and the associated interest will not result in UOKiK discontinuing proceedings, but only in a reduction of the fine.
In order to obtain the necessary information, UOKiK may conduct an inspection, with the support of the police, of the registered office of the enterprise. Appeals of the UOKiK decision will not be considered by a court specialising in antitrust cases, as in the case of UOKiK’s decisions on restrictive practices. Excessive delay cases will take the administrative-court path (a complaint to an administrative court), which will result, in practice, in a faster processing of appeals.
Payment deadlines in B2B relations
Payment deadlines in commercial transactions depend on the status of the counterparties. In symmetrical transactions where the parties are enterprises with the same status (between large companies or between SME firms), and in asymmetrical transactions where the creditor is a large company and the debtor is an SME, a longer payment deadline may be agreed in the contract, provided that this arrangement is not grossly unfair to the creditor.
Yet, payment deadlines in asymmetrical transactions where the creditor is an SME and the debtor a large enterprise are rigid and may not exceed 60 days. A contractual reservation to the contrary will be invalid by force of law, and the 60 day deadline will replace the invalid contractual provisions.
Payment deadlines have also been shortened for contracts where the debtor is a public entity. In such situations, a rigid 30 day deadline applies with no option of an extension.
Obligations of large debtor enterprises
As to the status of the enterprise and its counterparties (SME or large enterprise), the Polish regulations refer to the EU state aid provisions, namely Annex I to Commission Regulation (EC) No. 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Article 107 and Article 108 of the Treaty (“Annex I”).
The SME category includes enterprises that employ fewer than 250 employees and whose annual turnover does not exceed EUR 50 million or whose annual balance sheet total does not exceed EUR 43 million. When determining the size of a particular enterprise, one should add to its figures those of its related or partner enterprises so that the overall enterprise status truly reflects the economic power stemming from being a part of a larger organisational structure. . If an enterprise is part of a capital group that is made up of partner or related enterprises, it may, despite its small individual size, qualify as a large enterprise.
If a company classifies itself as a large enterprise, then it has additional obligations under Polish law. Above all, as a large debtor it must submit a declaration that it holds large enterprise status to its creditor. It must do so at the latest when it is entering into an agreement.
It also has an indirect obligation to exercise due diligence in verifying the other party’s declaration. A large enterprise cannot rely on a counterparty’s declaration that it is also a large enterprise. It should take at least basic steps to verify this status, such as ask for the number of employees, or the turnover, collect available information from the Internet, etc.
New right of creditors
In order to strengthen the position of the creditor, the legislator has introduced the right to withdraw from or to terminate a contract if the contractual payment deadline should exceed 120 days and be grossly unfair to the creditor. As noted above, the possibility of applying such a long payment period pertains to symmetric transactions (large-to-large or SME-SME) and asymmetric transactions (large-SME) where the large entrepreneur is the creditor. This right may also be exercised by any creditor regardless of status (SME or large). Foreign entrepreneurs operating in Poland or concluding a contract with Polish contractors should remember this right and the associated risk of potential frustration of the contract.
Wardyński & Partners