Amendments to the Commerce Act (“CA”) have introduced new rules on late payment in commercial transactions to implement the requirements of the European Commission Directive 2011/7/EU of 16 February 2011 (“Directive”).
These new rules apply to contracts made on or after 16 March 2013.
The payment period for a commercial transaction cannot exceed 60 calendar days. Exceptions to this time limit can be expressly agreed in the contract if:
- it is objectively justified in light of the particular nature or feature of the goods/services; and
- it is not grossly unfair to the creditor and contrary to good faith.
For commercial transactions where the debtor is a public authority, the parties can agree on a payment period of up to 30 calendar days. This time limit can be extended up to 60 calendar days on the same grounds as mentioned above.
The CA refers to Article 7 of the Public Procurement Act for the definition of a “public authority: bodies of State power, bodies governed by public law, and public undertakings and private companies carrying out activities related to natural gas, heat or electricity, drinking water, transport services, general postal service, exploitation of a geographical area etc.
If the creditor has fulfilled its obligations under the contract but has not received the amount due within the above periods, the creditor is entitled to statutory interest for late payment, with no obligation to send a reminder to the debtor.
Where the date or period for payment is not fixed in the contract, the creditor is entitled to interest for late payment, with no obligation to send a reminder to the debtor, upon expiry of the following time limits:
- 14 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment;
- where the date of receipt of the invoice is uncertain, 14 calendar days after the receipt of the goods/services;
- where the debtor receives the invoice earlier than the goods/services, 14 calendar days after the receipt of the goods/services; or
- where the goods/services are to be accepted or verified by the debtor and the debtor receives the invoice before such acceptance/verification takes place, 14 calendar days after the date of verification/acceptance.
The time limit for verification or acceptance is now 14 calendar days from receipt of the goods or services.
In all of the above scenarios, where interest for late payment becomes payable, the creditor is entitled to obtain a sum not exceeding BGN 80 (approximately EUR 40) from the debtor as compensation for their costs. If the costs and damages incurred exceed the statutory minimum, the creditor can claim the higher amount from the debtor.
Liability for late payment interest and recovery of costs can only be excluded if it is not grossly unfair to the creditor. However, liability cannot be excluded if the debtor is a public authority.
The CA does not give a definition for the term “grossly unfair to the creditor”. However, the Directive suggests that all circumstances should be considered to determine whether a contractual term is grossly unfair to the creditor, including:
- any gross deviation from good commercial practice, contrary to good faith and fair dealing;
- the nature of the product/service; and
- whether the debtor has any objective reason to deviate from the statutory rate of interest for late payment, the payment period or the fixed sum for recovery of costs.
The above rules also apply to commercial transactions where a party is exercising a liberal profession or providing services through their own labour.
The new late payment rules do not apply to payments under bills of exchange or payments made for compensation of damages, including payments from insurance companies or debts that are subject to insolvency proceedings.
Law: Bulgarian Commerce Act; European Commission Directive 2011/7/EU of 16 February 2011