The European Union has recently passed legislation affecting terms of payment in commercial transactions governed by the law of a member state of the EU. For New York lawyers advising clients domiciled in the EU, clients doing business within the EU, or clients doing business with counterparties domiciled in the EU, the legislation is highly relevant as its mandatory regulation is a departure from the principle of freedom of contract and can impact the cash-flow of the parties it affects.
The financial implosion and subsequent credit crisis have taken their clear toll on markets and enterprises worldwide. This effect is also widespread across the EU and has given rise to discussion on and contemplation of the causes and mitigation of the significant financial hardship. The immense increase of bankruptcies and companies facing insolvency has been dissected and long payment periods in particular, exposing the creditor to a credit risk for which the liquidity of many creditors is insufficient, have been identified as one of the main contributing factors.
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