Covid-19 and credit management (part 2): the risk of non-payment of invoices not issued yet or not expired when the health emergency was declared

In a previous article on this blog we analyzed the case of non-payment of already issued (and expired) invoices when the health emergency was declared, which is a hypothesis that lets the creditors start legal proceedings in order to obtain the commercial credit collection. This is possible once all necessary evaluations on the necessity to safeguard the commercial relationship are made, and once all the attemps to solve the dispute amicably are tested.

More uncertainty would arise, in the writer’s view, if we consider the case of debtors who anticipate the intention to suspend or not to pay the invoices that are not issued yet or that, if already issued, are not expired.

Indeed, the debtor, considering the measures adopted by the Government, could invoke the supervening excessive onerousness (“hardship”) with reference to, for example, the original terms and deadlines agreed inside the contract or inside the order acknowledgement.

If this case could not affect the companies whose activities are not limited by governmental provisions, instead the companies whose activity is limited to forced opening or closure (cf. art. 1 of the President of the Council of Ministers’ decree, dated 11/03/2020) could complain for an economic unbalance that can determine a situation of hardship, considering the changed economic context due to unpredictable extraordinary events.

From an objective view point, indeed, the Covid-19 emergency (and consequent provisions) caused such an impact on the market that the forecasts on both treasury and finance and cash flows are no longer feasible, lacking the prices and terms of payment used in business practice between parties.

Essentially, the relationship between the creditor’s performance and the debtor’s consideration has become unbalanced – much more than the normal contractual risk – due to the coronavirus emergency and due to consequent Authority’s measures, and to an extent which both the contract’s termination or the request to renegotiate the terms can be justified.

It will be necessary to handle the suspension of payments or payments terms renegotiations requests with a negotiating view. These requests are, indeed, justified if we consider the emergency and/or the governmental provisions, considering also that the debtor could invoke:

– the supervening temporary impossibility to pay, by asking to pay only when the impossibility will end, without any default interests, penalties or claims for compensation (following art. 91, Decree Law no. 81, dated 17/03/2020);

– the supervening excessive onerousness of payment performance, and so the debtor can ask to terminate the contract or to renegotiate its terms in order to find a new balance for the performance.

In conclusion, lacking any specific ad hoc legislative measures which introduce extensions or suspensions of payment terms, the advice for creditors is to start – with debtors who wish to suspend and/or defer payments – an extrajudicial negotiation with the aim to solve amicably the dispute.

This advice has the aim to avoid the risk for the creditor to waive its claims for a non-definable period of time, or to avoid the risk of a request to terminate the contract, with a consequent expiration of the creditor’s right (or the obligation to renegotiate the clauses with the aim to find a new balance) and to avoid the risk to face legal proceedings with unsure outcome and timing.

Moreover, with a specific refence to international contracts, it is necessary to consider – in situations like the one we are living – the concept of good faith in contract execution, which obliges parties to renegotiate the terms when the original obligations have become excessively unbalanced or when the clauses have become unfair due to extraordinary and unpredictable events.

Luca Davini
Avvocato in Milan and Turin

#internationalcontracts #internationaldisputes #creditmanagement #forcemajeure #hardship #goodfaith #covid19 #coronavirus

Condividi su:

Leave a Reply

Your email address will not be published.

*