Pre-action Protocol for Debt Claims

On 1 October 2017 Pre-action Protocol will beintroduced in relation to debt recovery.

Aims of the Protocol

• Encourage early communication between parties, includingexchanging information/documentation to identify issues indispute.
• Enable parties to resolve matters without the need for Courtproceedings being issued by entering into a repayment plan or usingan Alternative Dispute Resolution (ADR)procedure.
• Encourage parties to act in a reasonable and proportionatemanner to avoiding incurring costs which are not proportionate tothe value of the debt.

The Protocol will apply to businesses (includinglimited companies, sole traders and public bodies) claiming paymentof debts from individuals and sole traders only, it will not applyto debts owed by limited companies.

The Protocol will not apply where the debt iscovered by another Pre-Action Protocol, where Mortgage Arrears arebeing claimed or to claims issued by HMRC for recovery of Taxes andDuties.

The Protocol is designed to complement anyregulatory regime to which the Creditor is subject such as theFinancial Conduct Authority which will take precedence over theProtocol.

Initial Procedure

The initial procedure remains the same in that aLetter of Claim must be sent to the Debtor before Court proceedingscan be commenced, however the Letter will now need to contain moredetailed information about the debt and documentary evidence tosupport the claim. If a written Contract/Agreement existsthis must be sent with the letter or be available if the Debtorrequests a copy. In respect of invoices, purchaseorders/delivery notes etc should again either be supplied or beavailable.

The Letter must also enclose standard forms ofreply for the Debtor to complete including a FinancialStatement. These will be useful to the Creditor to find outwhether the Debtor is employed and/or owns any property againstwhich enforcement action could be taken if Court proceedings provenecessary.

The major change in the procedure is the timegiven to the Debtor to respond to the Letter as follows:

• Instead of seven days to respond, the Debtor will have 30 daysto respond before proceedings can be issued in the CountyCourt. For debts over £5,000.00 the Bankruptcy procedure canstill be followed by way of a Statutory Demand.
• If the Debtor requests documentation, this must be providedwithin 30 days and Court proceedings cannot be issued until 30 daysafter this documentation has been supplied.
• If the Debtor responds to the Letter and it is clear the matteris not going to be resolved, the Debtor must be given 14 daysnotice in writing before Court proceedings can be issued. Theonly exception to this is where a limitation period is about toexpire.

The Protocol is designed to take pressure awayfrom the Court system and protect Debtors from Creditors issuingCourt proceedings without Debtors having sufficient time andevidence to respond. This will however cause delay forCreditors and increase the time and costs incurred at the initialstage. It will also give Debtors a chance to deliberatelydelay matters by not responding to the Letter until the end of theresponse period and requesting documentation which could increasethe response time to 60 days. Creditors will therefore needto act fast once a debt becomes overdue.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.