A new Pre-Action Protocol for Debt Claims comes into force on 1 October 2017. It sets out the steps creditors should take to recover debts including the use of template forms.
The Protocol applies to any business (including sole traders and public authorities) claiming payment of debts from individuals. Business to business debts are excluded unless the debtor is a sole trader.
Aims of the Protocol
The aims are to encourage early engagement and communication between the parties so that they can resolve the matter without the need to start court proceedings, including agreeing a reasonable repayment plan or using Alternative Dispute Resolution (ADR). Parties are encouraged to act in a reasonable and proportionate manner in their dealings with one another.
Letter of Claim
A Letter of Claim must be sent before proceedings are started together with:
- An Information Sheet and Reply Form (found at Annex 1 of the Protocol); and
- A Financial Statement (an example is at Annex 2 of the Protocol).
The Letter should contain specific details, for example:
- The amount of the debt and whether interest or other charges are continuing;
- The nature of the oral or written agreement or assignment if relevant;
- The fact that a copy of the written agreement can be requested;
- Details of how the debt can be paid;
- The address to which the completed Reply Form should be sent;
- Details about the interest incurred and any administrative or other charges imposed since the debt was incurred either in a separate statement of account or in the Letter.
Sending the Letter of Claim
The Letter must be clearly dated and then posted on the same date or if that is not reasonably possible, the following day. It is worth noting the requirement that the letter is sent by post. Email can be used but not as the primary method of communication unless the debtor has made an explicit request for correspondence not to be sent by post. A condition in the creditor’s standard terms does not constitute explicit request.
If the debtor does not reply within 30 days, the creditor may start court proceedings.
The debtor should reply using the Reply Form.
If the debtor requests copies of documents or information, the creditor must respond within 30 days. The creditor must also allow a reasonable period for the debtor to seek debt advice, if they have indicated that they are doing so. If the debtor requires time to pay, the parties should try to agree instalment payments based on the debtor’s income and expenditure.
If there is an area of dispute, the parties are encouraged to exchange information and disclose documents so that they can understand each other’s position.
Taking steps to settle
If there is no agreement, the parties are expected to take appropriate steps to resolve the dispute without starting court proceedings. Steps can include discussion and negotiation or a formal ADR process. For large debts mediation may be appropriate.
If that still does not resolve the matter, the parties should take stock.
The creditor may then commence proceedings but only after giving the debtor at least 14 days’ notice, unless there are exceptional circumstances requiring urgent action.
If proceedings are started, the court will expect the parties to have complied with the Protocol. When considering the management of the proceedings, the court may take into account any failure to comply in substance with the Protocol’s terms.
Businesses should familiarise themselves with the new requirements and review their debt recovery procedures.
This post was written by Anjali Chadda. For further information, please contact:
Anjali Chadda, legal director PSL, Commercial Dispute Resolution
T: 0161 836 7892