On 1 October 2017, the Pre-Action Protocol for Debt Claims (“the Protocol”) came into force.
This is essentially a set of rules which need to be adhered to before Court proceedings will be issued for debt claims.
A brief overview of the Protocol is set out below.
Who does it apply to?
The Protocol applies to business creditors seeking to recover debt from an individual or sole trader.
Why was the Protocol introduced?
The purpose of the new Protocol is to encourage parties to communicate and exchange information at an early stage to try and resolve matters without the need for Court proceedings.
Letter of Claim
A Letter of Claim must be sent to the debtor before any legal proceedings are commenced. This was the case before the introduction of the Protocol, however, the new rules dictate what should be included in this letter, including the following:
1. The amount of the debt.2. Whether interest and any charges apply.3. Full details of the written or oral agreement between the parties.4. If regular instalments are currently being offered by the debtor (or are being paid), an explanation of why the offer is not acceptable and why a court claim is still being considered.5. Details of how the debt can be paid and details of how to proceed if the debtor wishes to discuss payment options.6. Information Sheet, Reply Form and Financial Statement Form.
Responding to the Letter of Claim
Before the Protocol was introduced, Letters of Claim would typically provide a period of 14-21 days to provide payment.
Under the Protocol, the Debtor has 30 days to respond, and this response should be set out in accordance with the Reply Form received with the Letter of Claim.
If no response is received
If no response is received, Court proceedings can be issued once 30 days have passed from the date of the Letter of Claim being sent.
If a response is received
The Protocol states that a creditor must not commence legal proceedings within 30 days following receipt of the Reply Form.
Where the debtor admits the debt but requires time to pay, the parties should attempt to reach an agreement about this. If the creditor refuses a debtor’s proposals, then they must provide a reason for this.
Where parties have been unable to reach an agreement, 14 days notice should be given to the creditor of an intention to issue court proceedings.
What if the Protocol is not complied with?
If Court proceedings are issued, and the Protocol has not been complied with, the Court can take this into account when considering what directions to make, including pausing the Court proceedings to allow for parties to enter into communications.
The Court may also impose cost sanctions against non-complying parties.
What if I am owed money or have received a Letter of Claim?
Given the importance of adhering to the Protocol, you should seek legal advice as a matter of urgency to discuss the claim. This will ensure that there are no breaches of the Protocol and avoid any potentially costly sanctions being made against you by the Court.
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Butcher & Barlow directly.
Published on 23rd November 2017
(Last updated 21st March 2018)