French Law 2016-1691 on Transparency, Fight Against Corruption And Modernization Of Economic Life (known as the “Sapin II” Law)[1] entered into force on 11 December 2016. It provides for significant changes with an impact on trade relationships between suppliers, distributors and wholesalers.

Single agreements may now be multiannual

The Sapin II Law maintains the obligation to enter into a written comprehensive agreement, setting out the obligations for the distribution of products at wholesale or retail level, before 1st March every year or within two months of the beginning of the marketing period for goods and services subject to specific sales cycle (also called “single agreement”).[2] Single agreements may now be concluded for a term of one, two or three years, whereas the former legal provisions were imposing a one-year term.

However, single agreements with a two- or three-year term must set out the terms and conditions for price revisions with reference to one or several public indexes reflecting the evolution of the production cost factors. The provision of a price review clause by reference to one or several public indexes with no direct connection to the products or services concerned, will be considered as a civil offense prohibited under Article L. 442-6 of the French Commercial Code (hereafter “FCC”) (see below). This new provision applies to all types of single agreements executed as from 1st January 2017.

Maximum payment term of 90 days for export of goods outside the EU

The Sapin II Law has increased the maximum payment term applicable to certain export transactions. The new Article L. 441-6, I, 15° FCC provides for a maximum payment term of up to 90 days as from the date of issue of the invoice for purchases of products exempted from value added tax and intended to be delivered outside of the European Union without any further transformation.

This 90-day cap is an exception to the maximum regular payment term of 60 days from the date of issue of the invoice. [3] This exception will have to be expressly agreed by the parties and shall not constitute a manifest abuse against the creditor. The measure is intended to support small and medium-sized firms exporting outside of the European Union. The new 90 days cap does not apply to purchases made by large companies for export transactions. Although the Sapin II Law does not define “large companies”, they can be construed as companies with (i) at least 5,000 employees and/or (ii) a turnover of more than EUR 1.5 billion turnover or a total balance sheet of more than EUR 2 billion.

Introduction of new civil offenses

The Sapin II Law introduced two new civil offenses now prohibited under Article L. 442-6 FCC:

  • providing for a price revision clause or a price re-negotiation clause by reference to one or several public indexes with no direct connection with the contractual products or services[4];
  • imposing or attempting to impose late delivery penalties in case of force majeure[5], which is a ground for exemption from contractual liability under French law.

The Sapin II Law also extends the scope of the so-called restrictive practices consisting in “obtaining, or seeking to obtain, from a business partner any advantage unrelated to a commercial service effectively rendered or which is clearly disproportionate as compared to the value of the service rendered” to commercial promotion operations and to the remuneration of services rendered by an international central entity set up for distributors.[6]

Finally, the Sapin II Law introduces various other measures regarding prices of agricultural products.[7]

Increase of applicable fines

First, the fines which may be imposed by commercial courts further to an action initiated by the French Minister of Economy have been increased from EUR 2 million to EUR 5 million in cases involving restrictive practices[8]. The FCC already provides for significant fines as the fine may also be increased to triple of the sums unduly paid if relevant or to 5% of the pre-tax turnover generated by the business concerned in France. Victims may also seek for damages before commercial courts. These new maximum fines should only apply to offences having occurred after 11 December 2016, date of entry into force of the Sapin II Law.

Second, the maximum administrative fines that the French Minister of Economy (DGGCRF) may impose has been increased from EUR 375,000 to EUR 2 million in case of infringements of French regulations governing the communication of general terms and conditions, the establishment of payment terms as well as penalties for late payment.[9] The Sapin II Law also removed the legal cap in the event of administrative sanctions ordered against the same perpetrator.[10] Therefore, in theory, several administrative fines of EUR 2 million may be applied to the same company in case of multiple breaches of French rules e.g. on maximum payment terms.

Third, decisions imposing fines for violation of rules on payment terms and for restrictive practices will systematically be published (“name and shame”)[11], whereas it was still optional until now.

Comment

The Sapin II Law introduces several welcomed evolutions for the regulation of trade relationships between suppliers, distributors and wholesalers. The possibility to conclude multiannual single agreements is expected to introduce more flexibility in the business relationships, in particular for the distribution of products.

Besides, the 90-day payment term applicable to exports of products outside of the European Union had long been advocated by exporting companies. Indeed, these companies were facing cash flows issues due to the discrepancy between the payment terms in which they have to pay their suppliers and the deadlines by which they are paid by their own clients located outside of the European Union.

This increased flexibility is accompanied by a drastic increase of the maximum fines, in particular in case of violation of French rules on maximum payment terms. This increase seems to confirm the willingness of the French authorities to fight long payment terms imposed to French companies.

In order to manage these risks, companies should be particularly careful in the drafting of their business agreements and advice should be sought at an early stage of commercial negotiations to ensure full compliance with these rules before signing their distribution agreements as legal constraints are becoming more and more burdensome.