|Iñigo de Luisa|
From 2012 until 2014, the Spanish Ministry of the Economy set out a plan to pay suppliers any unsettled invoices from the municipalities and the regions. The aim was to reactivate the Spanish economy, maintain the good order of public services, and avoid the affected companies encountering financial difficulties. The payment amounted to almost €41 billion (approximately $47 billion), dealt with more than €8 million of unpaid invoices and benefited more than 190,000 suppliers. However, this payment was conditional, among other things, on the suppliers renouncing the right to any interest on the default, to which they were legally entitled.
Although the plan was successful, many suppliers initiated civil proceedings against the Spanish administration, claiming that being made to renounce the right to their default interest contravened Directive 7/2011/UE of February 16, on measures against payment delinquency. The Spanish courts raised a prejudicial issue at EU level and the dispute has been before the EU Supreme Court of Justice, which, at the time of writing, was due to deliver a judgment shortly. In case the Supreme Court declares that the non-payment of default interest under these suppliers' payment plans was abusive and illegal, Spanish courts will have to conclude that the framework is against the EU regulation and will apply the EU rules rather than the local regulation. This will allow all affected suppliers to start proceedings against the Spanish administration to claim for the reimbursement of the default interest.
Eventually if this outcome is finally confirmed, the Spanish government will return almost €3 billion to these suppliers, since default interest is calculated at approximately eight percent for an average period of more than 320 days. As a result, these suppliers will be entitled to claim for this interest from the Spanish administration in a similar way as the recent reimbursement of the percent of euro which levied every litre of petrol purchased by any entity or consumer. (This tax was originally created to support healthcare programmes).
This situation may open up an attractive and straight-forward finance opportunity for the suppliers. Investors will be interested in acquiring the credit rights against the Spanish administration deriving from the claims. Suppliers can therefore monetise their credit rights for a reasonable discount. Investors can also efficiently structure their own funding through securitisation and issuing bonds.
The key suppliers with large amounts of interest to be reimbursed are the construction companies which worked for public administrations, concessionaires and service suppliers. It is therefore time to dust off old invoices against the public administration and cash in any credit rights deriving from this default interest. Suppliers are advised not to wait until the EU judgment is confirmed to raise a claim: the statute of limitations sets up a four-year prescription period. It is already counting down for 2012.
Iñigo de Luisa
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