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The new pre-action protocol for debt claims


New rules for claiming payment of debt from an individual come into force this autumn. Solicitor Laura Hallett Lea explains what you need to know.

What’s happening?

The Pre-Action Protocol for Debt Claims (“the Protocol”) comes into force on 1 October 2017 and will apply to any business (including sole traders and public bodies) claiming payment of a debt from an individual. An individual includes sole traders. The Protocol will therefore not apply to business-to-business debts, unless the debtor is a sole trader.

What are the aims of the Protocol?

The aim of the Protocol is to encourage early communication, including the exchange of information, between the parties to clarify what, if any, issues may be in dispute, without the need to commence court proceedings.

What should a creditor do before proceedings are issued?

A detailed letter of claim must be sent to the debtor before any legal proceedings are commenced. The Protocol prescribes what information should be included within the letter of claim, as follows: 

  1. The amount of the debt – and if relevant a statement of account showing interest.
  2. How the debt has arisen (from a written contract or an oral agreement) – and not simply just sending a copy of the invoice.
  3. How the debt can be paid and where the reply should be sent to you.

The aim of the letter of claim is to provide as much information to the debtor as possible to clarify or resolve any issues which may be in dispute. This goes over and above a simple ‘pay or we will sue’ type of demand.

What happens after a letter of claims is served?

Once the letter of claim has been served upon the debtor, they have 30 days in which to respond using the Protocol’s prescribed reply form. The peply form must be sent to the debtor with the letter of claim. If the debtor fails to respond within that timeframe, the creditor may commence court proceedings to recover the debt.

Where the debtor responds within the timeframe and indicates that he is obtaining debt advice, the creditor must firstly afford them a reasonable period of time to obtain that advice and, secondly, cannot commence court proceedings less than 30 days from receipt of the completed reply form.

Where the debtor has requested copies of documents, court proceedings cannot be commenced less than 30 days from the creditor providing copies of the requested documents. This affords the debtor breathing space and ability to ‘buy time’.

Disclosure of documents

The Protocol confirms that where the debtor requests information from the creditor, that information must be provided within 30 days, or an explanation of why the information is not available.

Compliance with the Protocol

In the event the dispute cannot be resolved and court proceedings are commenced, the court will expect the parties to have complied “in substance” with the Protocol. The court will take into account non-compliance when giving directions for the management of the case.

Where, in the court’s opinion there has been non-compliance, the court may impose sanctions on the offending party, such as staying proceedings until the steps which should have been taken have been complied with.

The court may also impose costs sanctions against the offending party (i.e. order that they pay the other party’s costs or part of the costs). Where the offending party is the creditor, the court may make an order which deprives them of all or part of any interest which may have been awarded and / or that interest is awarded at a lower rate. Conversely where the offending party is the debtor, the Court may award that they pay interest on all or part of the debt at a higher rate than would otherwise have been awarded.

What does this mean for creditors?

The implementation of the Protocol means that creditors will require a considerable degree of patience when seeking to collect outstanding debts – and a much more pro-active approach. Further, there is an onus on the creditor to provide sufficient information to the debtor from the outset in order that they can fully understand the creditor’s position and vice versa.

Ultimately, failure to comply with the Protocol may result in the court imposing significant financial sanctions.

For more information on this issue, please contact Laura Hallett Lea on 01772 258321.

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