On 1 July, 2005, the provisions of Directive 2000/35/EC to combat late payments in commercial transactions came into effect in Malta by way of Legal Notice No 233 of 2005.

The EU Directive was published in the Official Journal in August 2000 and Member States had until August 2002 to transpose it into national legislation.

As a new Member State, Malta was also bound to transpose this Directive into Maltese legislation. The European Commission had proposed this Directive way back in March 1998. According to the Commission 450,000 jobs and some ?23.6 billion are lost annually due to late payments.

The Directive and hence the Maltese Legal Notice No 233, applies to “payments made as remuneration for commercial transactions, irrespective of whether they are carried out between private bodies, public authorities or both, including commercial transactions to which members of the liberal professions are a party”. Public authorities include local councils.

The Directive introduces the right to interest on late payments, with such interest becoming payable from the day following the date or the end of the period for payment fixed in the contract of sale. If there is no date or period fixed in the contract, then interest of late payments shall become payable automatically without the necessity of a reminder, 30 days following the date of receipt of the invoice by the debtor. If the date of the receipt of invoice is not clear, the 30 days will start after the date of receipt of the goods or services. In cases where the debtor and creditor have agreed a procedure for acceptance or verification of the goods, it starts after this process has been completed.

The law establishes the rate of interest for late payments. After 30 days, the debtor would be obliged to pay an interest at the rate of seven per cent. The law says that unless the debtor is not responsible for the delay in honouring payment for goods or services received, “the creditor shall be entitled to claim reasonable compensation from the debtor for all relevant recovery costs incurred through the debtor’s late payment”.

The law allows the seller to retain title to the goods until payment is completed, if that is explicitly agreed before delivery.

Legal Notice 233 of 2005 does not apply to debts that are subject to insolvency proceedings instituted against the debtor. It also does not apply to contracts that were concluded prior to May 1, 2004 and to interest payments of less than Lm2.