New Pre-Action Protocol for Debt Claims

Author: Stephen Fitzgerald

Date: 05 February 2018

Introduction

The New Pre-Action Protocol for Debt Claims came into force on 1st October 2017. Briefly, the Letter of Claim needs to be sent as a preliminary step to the issue of county court proceedings, it must be more detailed and additional documents need to be provided to the Debtor for them to complete and return within 30 days.

This will apply to businesses and public bodies claiming payment of a debt from an individual debtor (‘customer’). It will not apply to business-to-business debts, unless the customer is a sole trader, or where another protocol applies (e.g. in respect of mortgage arrears). The Protocol is intended to complement the Financial Conduct Authority or other regulatory regime to which creditors may be subject.

The introduction of the new Protocol is controversial because creditors, used to sending a 7-day Letter Before Action followed by court action, believe opportunities exist for customers to deploy the Protocol effectively to delay payment.

You will note that this has increased significantly from the previous 14 day timeframe to respond in accordance with the Practice Direction – Pre-Action Conduct (“PDPAC”) contained within the Civil Procedure Rules (CPR). 

Aims of the Protocol

The new Pre-Action Protocol has been introduced with the aim of: - 

  1. encouraging early engagement and communication between the parties, including exchanging information to clarify issues in dispute; 
  2. settling claims without recourse to the Court, including setting repayment plans and alternative methods of resolving the dispute;
  3. encouraging parties to act in a reasonable and proportionate manner; and
  4. supporting efficient management of proceedings that cannot be avoided. 

The above are all aims to be lauded and are entirely in accordance with the Overriding Objective of the Civil Procedure Rules, to deal with cases justly and at proportionate cost. 

The Letter of Claim

The creditor should send a Letter of Claim to the debtor before proceedings are issued and should contain the following information: 

  • the amount of the debt; 
  • whether interest or other charges are continuing; 
  • where the debt arises from an oral agreement, who made the agreement, what was agreed (including, as far as possible, what words were used) and when and where it was agreed; 
  • where the debt arises from a written agreement, the date of the agreement, the parties to it and the fact that a copy of the written agreement can be requested from the Creditor; 
  • where the debt has been assigned, the details of the original debt and Creditor, when it was assigned and to whom; 
  • if regular instalments are currently being offered by or on behalf of the Debtor/s, or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered; 
  • details of how the debt can be paid (for example, the method of and address for payment) and details of how to proceed if the Debtor/s wish/es to discuss payment options; and 
  • the address to which the completed reply form should be sent. 

The Creditor should also: 

  • enclose an up-to-date statement of account for the debt, which should include details of any interest and administrative or other charges added; or 
  • enclose the most recent statement of account for the debt and state in the letter of claim the amount of interest incurred and any administrative or other charges imposed since that statement of account was issued, sufficient to bring it up to date; 
  • where no statements have been provided for the debt, state in the Letter of Claim the amount of interest incurred and any administrative or other charges imposed since the debt was incurred; 
  • enclose a copy of the Information Sheet and the Reply Form; and 
  • enclose a Financial Statement Form.

The Debtor must now be provided with 30 days to respond to the Letter of Claim and are also sent an Information Sheet, Reply Form and Financial Statement to complete and return to the address provided by the Creditor and/or its appointed Solicitor, pursuant to the Protocol. Any reasonable proposal put forward by the Debtor, must be considered by the Creditor.

If the Debtor does not reply to the Letter Before Claim within 30 days, the Creditor may commence court proceedings.

Disclosure of Documents

If the debt is disputed the parties should exchange information and disclose documents sufficient to enable them to understand each other’s position. The Creditor must provide any document or information requested or explain why the document or information is unavailable within 30 days of receipt of the request.  

Taking steps to settle the matter and Alternative Dispute Resolution (ADR)

If settlement still cannot be reached the parties are obliged to take appropriate steps to resolve the dispute without commencing court proceedings and, should consider the use of alternative dispute resolution (ADR).  

If an agreement still cannot be reached, the Creditor should give the Debtor a minimum of 14 days’ notice of its intention to commence court proceedings.

What does all this mean for creditors?

Without doubt, the process of recovery of debts will be more cumbersome for Creditors: 

  • Creditors are required to provide more documentation to Debtor/s in specific formats; 
  • There is increased scope for delaying collection by intransigent Debtor/s who can delay payment by up to 90 days; 
  • Creditors will need to be more pro-active when engaging with Debtor/s to ensure information is properly exchanged and time periods met; 
  • Additional costs and delays could be incurred particularly if ADR is triggered; and 
  • A review of existing recovery processes and changes may be necessary.

Comments

Debt claims against individuals constitute a large proportion of civil claims issued in the County Court each year and almost 95% of claims are not defended. Many businesses of all sizes will remain strongly opposed to the introduction of the Protocol, just as they were during the consultation stages, because they believe that opportunities exist for customers to delay payment by deploying the Protocol effectively.

At Swansea’s Douglas-Jones Mercer our Debt recovery specialist, Stephen Fitzgerald deals with Debt Recovery Claims. If you have any issues regarding the above, you should contact Stephen with any queries.

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