Extrajudicial debt collection costs

By June 1, 2012, a legislation came into force, expanding Article 6:96 of the Civil Code. The new act revises the current system regarding the calculation of debt collection costs.

Graduated calculation of debt collection costs

One of the new provisions under the act means that in future the Minister may issue a decree containing rules for the reimbursement of extrajudicial costs. The Minister immediately exercised this authority and has provided that extrajudicial costs may be calculated as follows:

• 15% of the first €2,500, with a minimum of €40;
• 10% of the next €2,500;
• 5% of the next €5,000;
• 1% of the next €190,000;
• 0.5% of the remaining principal amount in excess of €200,000, up to a maximum of €6,775.

When making this calculation, the basic principle is that the calculation should be based on the principal amount of costs only. When determining the amount of extrajudicial debt collection costs no interest should be taken into consideration unless the debt collection costs remain unpaid after one year. In that case, this interest may be added to the principal amount and the debt collection costs recalculated.

If a creditor is owed several sums by the same debtor, the debt claims must be added together for the calculation of the extrajudicial debt collection costs. If the creditor is unable to deduct the VAT payable from VAT he is required to account for, he is permitted to increase the extrajudicial debt collection costs by the VAT payable. If he is able to deduct the VAT, this is not allowed. If the debtor is a consumer or a small business comparable to a

consumer, then these rules are compulsory. This means that it is not possible to deviate from the rule to the disadvantage of the consumer. For businesses it is possible to deviate from the statutory rules by agreement.

Demand and advance warning are required

To claim payment, the amount claimed must have become payable on demand. In general, this means that the period for payment must have expired. If the debtor is a consumer, then it is not the case that extrajudicial debt collection costs can be claimed as soon as the debt has become payable on demand. To be able to claim such costs the debtor must first be sent a further demand. This demand must also state that debt collection costs will be charged if payment is not made within 14 days and state the amount of such costs. Only when this 14 day period has expired can the debt collection costs be charged.

Conclusion

This legislation and this Minister’s decree improve the statutory basis for extrajudicial costs. It is to be hoped that this will encourage courts to award extrajudicial costs more often. Although even then there will undoubtedly be some legal costs that are not covered, hopefully this will limit the frequency and amount of the losses suffered by businesses in this area, ensuring that they are able to retain a higher proportion of the debt collected (their own outstanding invoice) themselves.

These rules are compulsory when dealing with consumers and small businesses comparable to consumers. It is not possible to deviate from them. If your standard terms and conditions do not correspond to the rules, the court will ignore the provision as being invalid.

Ignoring this provision may mean that the court also has to ignore other provisions in your standard terms and conditions that are not, in themselves, invalid. To prevent this occurring, or exclude the possibility at any rate, it would be advisable to have your standard terms and conditions reviewed and if necessary revised. At the same time you can have a specific provision drafted for businesses that fail to make payment of your invoices. When dealing with businesses you are permitted to agree provisions deviating from the statutory arrangements. It’s certainly worth considering a revision of your standard terms and conditions to take account of this.