Pre-Action Protocol

Debt Recovery Actions against individuals and sole traders are changing.

Instruct us now to avoid extra delays and higher fees

The Pre-Action Protocol for Debt Claims comes into force on 1 October 2017 which introduces a new regime for parties involved in debt recovery claims prior to the commencement of proceedings.

The Protocol will apply to any business seeking to bring a claim against a debtor who is either an individual or a sole trader. The significant problem with the Protocol is that it assumes that there is dispute between the parties capable of resolution, it does not take into account the many cases where debtors are buying time or simply ignoring the situation.

Stated Aims of the Protocol

The Protocol has four aims:

  1. to encourage early communication between the parties;
  2. to enable the parties to achieve settlement without the need for Court proceedings;
  3. to encourage the parties to act in a reasonable and proportionate manner, having regard to the size of the debt; and
  4. where Court proceedings cannot be avoided, to support the efficient management of those proceedings.

Information to be provided by the Creditor

Part 3 of the Protocol requires that a Creditor must send the Debtor a Letter Before Action, prior to issuing a claim, which should include:-

  1. details of the debt,  to include the amount and when and how the debt arose as well as interest accruing;
  2. if regular instalments are being made towards the debt, or the debtor has offered to make such payments, why the offer is unacceptable;
  3. details of how the debt can be paid; and
  4. an address to which the completed Reply Form can be sent.

The Protocol further requires that the Letter of Claim should enclose a number of documents including an Information Sheet and Reply Form, Means Form and an up-to-date statement of account.

The Debtor then has 30 days from the date of the Letter of Claim to respond. If the Debtor fails to respond within this time frame, the Creditor can only then issue proceedings but only after having given some further time to account for the possibility that the letter was sent close to the expiry of the initial 30 day period.

Response by the Debtor

Part 4 of the Protocol requires that the Debtor should respond to the Letter of Claim using the Reply Form provided by the Creditor. Within his reply, the Debtor may request copies of any documents from the Creditor.

On receipt of the completed Reply Form, the Creditor must wait a further 30 days before commencing Court proceedings, or 30 days from when the Creditor provided any requested documents to the Debtor, whichever is later. If the Debtor has indicated that they are seeking legal or debt advice or needs additional time to pay, then the Creditor must allow them reasonable time to do so.

Alternative Dispute Resolution (“ADR”)

If there are still issues in dispute after disclosure, the parties should consider ADR before issuing proceedings. Please see our website for more details on the forms of ADR available and their respective pros and cons.

Compliance

Failure to comply with the Protocol will be taken into consideration by the Court when giving case management directions. It is unclear at this stage what sanction might apply for failure to comply with the Protocol but it is anticipated that such failure will be met with a reduction in costs awarded or even payment of the debtor’s costs

Review

Part 8 of the Protocol encourages parties to review their positions again before commencing proceedings even where, despite compliance with the Protocol, they have still been unable to settle the claim. 14 days’ notice of your intention to start proceedings should thereafter be given to the debtor

Conclusion

T G Baynes recognises the intention of the Protocol in disputed cases and, by and large, our clients are already encouraged to comply with the spirit of the Protocol in terms of information sharing and reasonable behaviour. However, the Protocol adopts an incredibly long timescale for pre-action correspondence in cases of business debt which is being classified and dealt with the same as consumer debt. The Protocol also requires the production of a number of additional documents most of which the debtor already has in their possession. It therefore follows that pre-action correspondence is going to be delayed and more expensive, consequently our fees will likely rise in October to compensate for the extra work that will go in to the matter at an early stage.

If you have debts owed by consumers or sole traders, instruct us before 1 October 2017