September 18th 2017

The new Pre-action Protocol for debt claims

A new Pre-action Protocol for debt claims comes into force on 1 October 2017, providing for the first time a code of conduct specific to debt actions. Those who will find themselves affected include ‘any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader)’. The new Pre-action Protocol doesn’t apply to debts between businesses – only to a situation where a business is looking to recover a debt from an individual.

What is the intention behind it?

The new Pre-Action Protocol draws on the principles behind the Practice Direction for Pre-Action Conduct. So, it is designed to encourage matters involving debts to be settled out of court and for those involved to engage with each other from an early stage. Efficient case management and reasonable and proportionate behaviour on the part of those involved are also key aims. If the matter is covered by another pre-action protocol (for example mortgage arrears) then the new Pre-action Protocol for debt claims will not apply.

What does the new Pre-Action Protocol require?

There are some key requirements that relate to:

  1. Timing
  2. The Letter of Claim
  3. Supporting documents
  4. Disclosure

 

  1. Timing

A creditor should wait at least 30 days before issuing proceedings. The moment from which that period starts to run could be:

  • The date on the Letter of Claim
  • The date of receipt of the Reply Form in response to the Letter of Claim
  • The date on which documents requested by the debtor are delivered by the creditor. If those documents requested aren’t delivered then the relevant date is the day on which an explanation is given as to why the documents won’t be provided.

Creditors are required to allow a debtor reasonable time to take legal advice and can provide 14 days notice of the intention to start legal proceedings. All of this is designed to try and bring the parties to a point of agreement before proceedings go ahead.

  1. The Letter of Claim

Under the new Pre-action Protocol for debt claims a Letter of Claim must be pretty comprehensive, including details of interest and charges, as well as any documents that explain how totals have been reached. It should also make clear that a debtor can request a copy of any relevant debt agreement. Specific details are necessary, including:

  • The debt, how it was incurred and what the total owed is made up of
  • An explanation of why any repayment proposal put forward by the debtor has been rejected (the Protocol requires debtor and creditor to try and come to an agreement for repayment by instalments)
  • An explanation as to how the debt could be repaid
  • An address for the Reply Form to be sent to
  1. Supporting documents

Both the Information Sheet and Reply Form that are annexed to the Protocol should be provided with a Letter of Claim, as well as a Financial Statement.

  1. Disclosure

In keeping with the general tone of the new Pre-action Protocol, which is to encourage early engagement and quick resolution, disclosure of documents is encouraged as soon as possible. Any documents requested by a debtor should be provided within 30 days – or an explanation given as to why the document can’t be handed over.

The new Pre-action Protocol does present something of a problem for creditors. It extends the timescales before action can be taken, which could be problematic if debt insolvency is on the horizon. In each case creditors will need to asses whether the risk of not securing the debt is greater than the risk of breaching the new Pre-action Protocol.

To arrange a free initial consultation call John Sim on 01539 723 757.