The Late Payment Loophole

Mon, 03 Jun 2019

Late payment is a subject close to the heart of anyone practising at the self-employed bar.  Only barristers, so the talk of the robing room goes, would operate in such a way that completion of the required work is no guarantee of prompt payment.

However, it would seem that late payment is something of an epidemic among businesses in the UK. Statistics compiled by the Department for Business, Energy & Industrial Strategy in 2017 found that an eye-watering £26.3 billion in overdue payments were owed to small and medium-sized businesses. Those of us undertaking insolvency work will be only too familiar with the potentially devastating impact of such late payment on SMEs. Directors of companies facing winding up will routinely seek further time from the court pointing to payments due from other companies with which they intend to settle outstanding debts.

In an effort to bring greater transparency to the payment behaviours of larger companies, the Government issued The Reporting on Payment Practices and Performance Regulations 2017 (‘the Regulations’). The Regulations mean that qualifying companies must publish a report detailing, amongst other things, how promptly payments have been made to suppliers. The duty to report applies to companies that meet two of the following three criteria in the preceding two financial years:

  1. An annual turnover of £36m;
  2. An £18m balance sheet total;
  3. At least 250 employees.

Companies that fail to comply with the duty commit an offence punishable on summary conviction by a fine. Importantly, unless it can be shown that they took reasonable steps to comply, any director of the company in breach of the requirement also commits an offence. That the punishment for failure to report (and report accurately) bites on directors suggests an intention to create a regime with teeth.

So far so good.

However, in the last week MPs and representatives of SMEs have highlighted a loophole in the Regulations with the capacity to almost entirely undermine the Regulations and their ability to remedy the mischief of late payment. As a result of a lacuna in the drafting, subsidiaries of larger companies that do not meet the criteria above have no duty to report regardless of the size of group of companies of which they are a part. A large company may publish a spotless report detailing exemplary payment performance while its smaller subsidiaries are routinely failing to make payments in a reasonable time.

Former Conservative MP for Wolverhampton South West, Paul Uppal, is the first ever Small Business Commissioner, a position set up in part to tackle late payment. He said that it was ‘disappointing that the regulations are not proving to be as effective as I anticipated.’ Depending on the scale of the problem, this may prove to be something of an understatement.

Businesses and practitioners will be watching this space in the expectation of speedy amendment.

Related articles

Louise Corfield reviews the recent Court of Appeal Decision Cowan v Foreman [2019] EWCA Civ 1336...

Date: Wed, 07 Aug 2019
In a recent reported decision from the English High Court, the court re-examined the principles on which a Defendant can be cross-examined...

Date: Thu, 01 Aug 2019
The ability for any person to make an application to a Commons Registration Authority to register land...

Date: Mon, 22 Jul 2019