Debt Collection from the Spanish Government

Debt Collection from Public Entities: Feel Free to Bargain.
Author: Antonio Illán Box

City Council of Madrid

Spanish public entities (“administraciones”) hold an important debt with private entities, whether they be professionals or corporations, Spanish or foreigners. A brief look at the figures published by the Spanish Ministry of Tax and Public Administrations in 2015,  show that local councils alone had accumulated debts to the tune of EUR 29,024,688,000, with the City Council of Madrid topping the rankings with a figure of EUR 4,767,315,000.

Debt collection from public entities

This should be no problem as long as such public entities pay on time and keep their suppliers happy that they are doing such good business. But that is not really the case. So some unhappy suppliers sell their debts to third parties who subsequently claim these from the public entities.

Late payments law

To provide relief in such a scenario, the EU Court of Justice delivered an opinion (Case C-555/14), at the request of the Spanish Court for Contentious Administrative Proceedings. The Spanish Government passed a law on urgent measures to combat late payments from public entities and to support local authorities with financial problems (RDL 8/2013).  By virtue of that law, local entities are released from their obligation to pay collection costs and interest, provided they pay their suppliers immediately. However, the late payments Law (Ley 3/2004) is deemed to transpose EU Directive 2000/35, which obliges suppliers, including public entities, to pay interest and collection costs.

Claim interest and costs

Taking the above into consideration, the following question arises: can a company which  receives immediate payment of the principal amount only, based on the RDL 8/2013 procedure,  claim interest and collection costs afterwards or not? The reply of the Court of Justice was, “No, it cannot.” However, the supplier may choose not to avail itself of procedure (RDL 8/2013), in which case the supplier would be free to claim  interest and costs from its customer after having received the principal amount.

So, there you go. If your customer is a Spanish public entity (i.e, local council, hospital, local or regional government, university, etc.) and that customer is not paying, feel free to decide whether or not to accept immediate payment as per the above-described procedure, but be aware that you may be renouncing interests and costs.