Payment backlogs – increasing number of proceedings and higher penalties

The President of the Office of Competition and Consumer Protection (UOKiK) more frequently imposes surprisingly high fines for excessive delays in payments. Last year, a record fine of PLN 4 million was imposed in one of the proceedings.

The so-called payment backlog, or excessive delay in performing monetary obligations, occurs when a business entity allows delays in payment of due liabilities and this situation persists for a certain period of time and exceeds a certain threshold. This phenomenon has a negative impact both on business entities and the whole economy and usually affects micro, small and medium-sized enterprises.

A payment backlog occurs when the due and not fulfilled or fulfilled late payments amount to at least PLN 2 million during the course of three consecutive months. Such practice is prohibited under Polish law.

Amendment in favour of creditors – Act Combating Excessive Delays in Commercial Transactions

Despite the fact that the Act on Combating Excessive Delays in Commercial Transactions entered into force on 1 January 2020 (“Act”; we wrote about it here), many companies still repeatedly pay late their contractors. The Act defines the rights of creditors, the obligations of debtors and the consequences of non-performance of those obligations, as well as the rules of procedure with respect to excessive delays in the performance of monetary obligations. The act also conferred a number of inspection powers on the President of UOKiK. The legislator justified the changes in regulations in favour of creditors on the grounds of the scale of this phenomenon – the percentage of companies struggling with late payments in Poland ranged between 80 and 90%.

From 8 December 2022, the amendment to the Act is in force, which aimed at increasing the efficiency of proceedings resulting in faster elimination of payment backlogs. We wrote about this amendment  here. The increase in the number of backlogs-combating proceedings initiated by UOKiK is noticeable. Entrepreneurs more frequently report to the authority the contractors who are late with payments.

Backlog-combating proceedings

If the President of UOKiK has information that points to excessive delay in performing monetary obligations, he is obliged to initiate administrative proceedings ex officio. Before initiating the proceedings, the President of UOKiK is obliged to perform an analysis of the likelihood of excessive delay in performing monetary obligations, which includes identification of areas in which the risk of such delays is the highest. In particular, this analysis should take into account the estimated value of monetary obligations not fulfilled or fulfilled late by the entity concerned and the number of creditors who did not receive such payments from this entity or received them late. In order to perform the analysis, the President of UOKiK may request the Head of the National Revenue Administration (KAS) to provide information contained in VAT records and JPK files. It is worth noting that the President of UOKiK may also, without initiating proceedings, extend a soft summons to the entity regarding excessive delay in performing monetary obligations. Then, this entity may submit its position on the matter within the time limit set by the President of the UOKiK, not shorter than 14 days.

Who can file a notification of a suspected payment backlog?

Anyone may submit a notification of suspected excessive delay in the performance of monetary obligations. The notification should contain:

1. identification of the suspect

2. statement of facts on which the notification is based

3. demonstrate the probability of excessive delay in performing monetary obligations

4. particulars identifying the notifier

It is important that the notifier’s identification data and the content of notification are not subject to disclosure in the course of the proceedings.

Inspection powers of the President of UOKiK and inspecting officers

In the course of the proceedings, the President of UOKiK and officers conducting the inspection are entitled to:

• access the seat or other premises occupied by the inspectee, as well as means of transport,
• request information, including oral explanations regarding the subject matter of the inspection,
• check tax books and accounting documents, and request access to files, records, all kinds of letters, documents and their copies and extracts, e-mail correspondence and IT data carriers related to the subject of the inspection
• request the access to IT systems, including those owned by third parties to which the inspectee has access
• take notes from the materials and correspondence provided and request copies and printouts
• request access to and obtain items that may constitute evidence in the case

Entities that are not parties to a commercial transaction subject to the proceeding may also be subject to inspection.

If the controlling entity have a reasonable suspicion that in the course of control activities there is resistance hindering or preventing them to perform the inspection, they may ask the Police Commander for assistance.

Sanctions for late payments

The President of UOKiK is entitled to impose an administrative financial penalty if he finds a violation of the prohibition of excessive delay in the performance of monetary obligations. The penalty constitutes the sum of individual penalties for each case of non-fulfilment or late payment of the monetary obligation. It is calculated on the basis of the formula contained in the Act.

In addition, a penalty may also be imposed on an entity that is not a party to a commercial transaction if such entity:

1. did not provide the information requested by the President of UOKiK or provided false or misleading information;
2. prevents or hinders the initiation or performance of the inspection.

In this case, the penalty is up to 5% of the revenue earned in the previous tax year, but not more than the equivalent of EUR 50,000,000.

Waiver of the penalty

The President of UOKiK may waive the imposition of an administrative penalty for excessive delays in performing monetary obligations if:

1. the delay was caused by force majeure;
2. a business entity that committed excessive delay in performing monetary obligations did not itself receive receivables from its debtors on time, if the value of unreceived receivables was higher than the sum of unpaid liabilities in the period covered by the proceedings (applies to proceedings initiated before 8 December 2022).

We wrote about the circumstances in which the President of UOKiK may reduce or increase the amount of the fine here.

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