David Lindsay

Government is seen to be disregarding its own legal notice on late payments by stipulating, in new calls for tenders being issued, its own credit limits and interest rates – both of which fall well short of the terms established in Legal Notice 233/2005.

The legal notice, introduced in July of this year, clearly states that all late payments are to be subject to interest rates of no less than seven per cent, plus the Central Intervention Rate established by the Central Bank of Malta for the preceding six-month period. Given today’s intervention rate, the new legislation requires a late payment interest rate of 10.25 per cent.

Tender documents being issued by Government Pharmaceutical Services, however, stipulate their own credit terms of just two per cent over the central intervention rate – equivalent to a total of just 5.25 per cent interest applicable to late payments.

The same tender documents also dictate a 150-day credit limit, after which interest would become payable. The legal notice, however, clearly defines that interest becomes payable after a period of 30 days from the date of the invoice or the date of delivery of goods has elapsed, unless another agreement on terms is reached between the parties involved.

Interestingly, the same legal notice puts the government on a level playing field with all other commercial entities in terms of its transactions with third parties and is now, therefore, liable, as are all other commercial entities, to pay the seven per cent plus the base interest rate.

Government, however, appears to have either failed to come to grips with its new role as a commercial entity, or it is simply using its position as the undisputed dominant market player and dictating its own conditions and terms, both of which run against the EU directive and its transposition into Maltese legislation.

Government’s apparent failure to abide by its own legislation has raised the ire of pharmaceutical importers, which count government as their main purchaser and debtor. Many such companies are awaiting payment from government for goods supplied over a year ago, a situation that has led to repercussions on the businesses’ cash flow since the amounts due, across the board, are believed to run well into the seven figure region.

The sector has, in fact, filed a judicial protest against the government after meetings with Finance Ministry Parliamentary Secretary Tonio Fenech to resolve the issue failed to yield results. Pharmaceutical importers have proposed the imposition of a 90-day credit limit and a “reasonable” interest rate for late payments. Government, however, is said to be adopting a hard-line stance and is pushing for a 180-day credit limit, which would later be lowered to 150 days in what has been described as a “take-it-or-leave-it proposal”.

The legal notice came about as a result of the EU’s directive on late payments, drawn up by the EU in light of the fact that late payments account for some 25 per cent of all company insolvencies in the EU. Establishing a set time frame after which interest becomes payable, and a set interest rate as a form of deterrent against late payments, was high on the EU’s agenda.

The EU requested Malta to transpose the directive into Maltese legislation back in 2002, a request that had reportedly been met with some resistance from the Maltese authorities, but was eventually legislated on 1 July.

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Speaking to this newspaper recently, Malta Association for Credit Management director-general Josef Busuttil explained: “MACM is never in favour of any debtor who imposes credit terms and or conditions of payment on the supplier. Credit is not a ‘divine right’ of the debtor. It is, and should always be, at the discretion of the supplier to grant credit in the first place and to specify or negotiate the credit terms and conditions with the debtor.

“By giving credit, the supplier would be investing its money in the business or operations of the debtor and this is at a cost. The trade creditor is paying bank interests to provide goods or services on credit and is employing more people to manage credit.

“As regards interest in the case of late payment, the directive only defines a fixed reference period of 30 days commencing from the date of receipt of the invoice or from the date of receipt of the goods if the agreement does not specify any credit terms, or when payments are not honoured as specified in the credit agreement. Therefore, the local pharmaceutical suppliers are free to negotiate credit terms and conditions with the government.

“The problem lies when the buyer, whoever it may be, uses its monopoly or the intense competitive scenario and dictates the credit terms.”