03rd October 2017
New Pre Action Protocol for Debt Claims
The Pre Action Protocol for Debt Claims came into force 1 October 2017 and will potentially have a severe impact on businesses trying to recover outstanding debts due from individuals.
The protocol will apply to any business to include a limited company, partnership, sole trader and public body when claiming payment of a debt from an individual (which applies to a sole trader).
The protocol does not apply to business to business debts unless the debtor is a sole trader.
The aim of the protocol is to:
- Encourage early engagement and communication between the parties to include the early exchange of sufficient information about the matter to help clarify whether there are any issues in dispute.
- Enable the parties to resolve the matter without the need to start court proceedings including agreeing a reasonable repayment plan or considering using alternative dispute resolution.
- Encourage the parties to act in a reasonable proportionate manner in dealing with one another.
- Support efficient management of proceedings that cannot be avoided.
As such, a creditor will now have to include within its letter before claim a template information sheet and reply form in all cases. The letter before claim should contain:
- (i) the amount of the debt;
- (ii) whether interest or other charges are continuing;
- (iii) where the debt arises from an oral agreement, who made the agreement, what was agreed (including as far as possible what words were used) and when and where it was agreed;
- (iv) where the debt arises from a written agreement, the date of the agreement, the parties to it and the fact that a copy of the written agreement can be requested from the creditor;
- (v) where a debt has been assigned, the details of the original debt and creditor, when it was assigned and to whom;
- (vi) if regular instalments are currently being offered by or on behalf of the debtor or been paid, an explanation of why the offer is not acceptable and why a court claim is still being considered;
- (vii) details of how the debt can be paid, e.g. the method and address for payment and details of how to proceed if the debtor wishes to discuss payment options; and
- (viii) the address to which the completed replies should be sent.
The creditor should also:
- (i) Enclose an up to date statement of account of the debt which include any details of interest and administrative or other charges added; or
- (ii) enclose the most recent statement of account of the debt and state in the letter of the claim the amount of the interest incurred and any administrative or other charges imposed since that statement of account was issued, sufficient to bring it up to date; or
- (iii) where no other statements have been provided for the debt, state in the letter of a claim the amount of the interest incurred and any administrative or other changes imposed since the debt was incurred, enclose a copy of the information sheet and the reply form annexed to the protocol and enclose a financial statement form as annexed to the protocol.
If the debtor has not replied to the letter before the claim within 30 days the creditor may commence court proceedings. The debtor should use the reply form for its response and request copies of any documents it wishes to see and enclose copies of any documents it considers relevant.
If the debtor indicates that it is seeking debt advice, the creditor has to allow the debtor a reasonable period for the advice to be obtained and should not commence court proceedings less than 30 days from receipt of the completed reply form or 30 days from the creditor providing documents requested by the debtor, whichever is the latter.
The creditor should also allow reasonable extra time for the debtor to obtain that advice where it would be reasonable to do so in the circumstances. If the debtor requires time to pay the protocol requires the creditor and debtor to try an agreement for the debt to be paid by instalments, based on the debtor’s income and expenditure. If the creditor does not agree to a proposal or a payment of the debt, it should say why in writing.
Should the debtor fail to fully complete a reply form, the onus is on the creditor to contact the debtor to discuss and obtain any further information needed to properly understand the debtor’s position.
If the debt is disputed, the parties should exchange information and disclose documents sufficient to enable them to understand each other’s position. The creditor must provide any document or information requested or explain why the document or information is unavailable within 30 days of receipt of that request.
If a settlement still cannot be reached the parties are advised to take appropriate steps to resolve the dispute without commencing court proceedings and, in particular, should consider the use of alternative dispute resolution.
If an agreement still cannot be reached, the creditor should give the debtor a minimum of 14 days notice of its intention to commence court proceedings.
What does this mean for you?
Creditors are going to be required to provide more documentation to debtors in specific formats and debtors will have the possibility to potentially delay repayment by up to 90 days. Creditors will need to be more proactive when engaging with debtors to ensure information is properly exchanged and time periods met.
Failure to comply with the protocol may result in further delay in the collection of debt and possible costs sanctions.
What to do now?
The Protocol will greatly affect how the collection of debt is dealt with and we can guide you through the process. Should you have any debts you wish to recover from an individual or sole trader, please contact James Simnett on 0207 400 5045 or email firstname.lastname@example.org who will be able to advise you accordingly.