Pre-action Protocol for Debt Claims

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

Aims of the Protocol  

  • Encourage early communication between parties, including exchanging information/documentation to identify issues in dispute.
  • Enable parties to resolve matters without the need for Court proceedings being issued by entering into a repayment plan or using an Alternative Dispute Resolution (ADR) procedure.   
  • Encourage parties to act in a reasonable and proportionate manner to avoiding incurring costs which are not proportionate to the value of the debt.

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

The Protocol will not apply where the debt is covered by another Pre-Action Protocol, where Mortgage Arrears are being claimed or to claims issued by HMRC for recovery of Taxes and Duties.

The Protocol is designed to complement any regulatory regime to which the Creditor is subject such as the Financial Conduct Authority which will take precedence over the Protocol.

Initial Procedure

The initial procedure remains the same in that a Letter of Claim must be sent to the Debtor before Court proceedings can be commenced, however the Letter will now need to contain more detailed information about the debt and documentary evidence to support the claim.  If a written Contract/Agreement exists this must be sent with the letter or be available if the Debtor requests a copy.  In respect of invoices, purchase orders/delivery notes etc should again either be supplied or be available.

The Letter must also enclose standard forms of reply for the Debtor to complete including a Financial Statement.  These will be useful to the Creditor to find out whether the Debtor is employed and/or owns any property against which enforcement action could be taken if Court proceedings prove necessary.

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

  • Instead of seven days to respond, the Debtor will have 30 days to respond before proceedings can be issued in the County Court.  For debts over £5,000.00 the Bankruptcy procedure can still be followed by way of a Statutory Demand. 
  • If the Debtor requests documentation, this must be provided within 30 days and Court proceedings cannot be issued until 30 days after this documentation has been supplied. 
  • If the Debtor responds to the Letter and it is clear the matter is not going to be resolved, the Debtor must be given 14 days notice in writing before Court proceedings can be issued.  The only exception to this is where a limitation period is about to expire.

The Protocol is designed to take pressure away from the Court system and protect Debtors from Creditors issuing Court proceedings without Debtors having sufficient time and evidence to respond.  This will however cause delay for Creditors and increase the time and costs incurred at the initial stage.  It will also give Debtors a chance to deliberately delay matters by not responding to the Letter until the end of the response period and requesting documentation which could increase the response time to 60 days.  Creditors will therefore need to act fast once a debt becomes overdue.

Posted on: 10/07/2017

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.

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