New Pre-Action Protocol for Debt Claims

New pre-action protocol for debt claims

Pre-Action Protocols supplement the Civil Procedure Rules and exist to promote the resolution of civil disputes without the need for court proceedings. There are specific protocols that apply to certain types of civil dispute, as well as a general catch-all protocol for civil disputes that are not subject to a specific protocol.

On 1 October 2017, The Pre-Action Protocol for Debt Claims came into force. The Protocol contains specific guidelines for the pre-action conduct of businesses seeking payment of a debt from an individual, including where the debt is a business to business debt (although the debtor must be a sole trader).

The new Pre-Action Protocol for Debt Claims will therefore be relevant for any type of business – be it a sole trader, limited company, partnership or other entity – seeking to recover a debt from an individual person. Businesses operating in industries where separate regimes regulate their debt recovery conduct, such as consumer credit businesses, should take note that their existing regimes will take precedence over the new Protocol. So to the extent an existing regime is inconsistent with The Pre-Action Protocol for Debt Claims, the existing regime should be followed.

Letter of Claim

Before any debt recovery court proceedings are started, the first practical step under the new Protocol is for the creditor to write to the debtor with a Letter of Claim. The debt recovery Letter of Claim should include sufficient information for the debtor to understand the nature of the creditor’s claim.

This information should include (but is not limited to):

  • the amount of the debt;
  • details of continuing interest or other charges;
  • the terms and nature of any agreement underlying the debt, that is whether the agreement was written or oral, what was agreed and when and where it was agreed;
  • if the debt has been assigned, details of the original creditor, when it was assigned and to whom; and
  • details of how payment can be made.

The Letter of Claim should be dated, sent by post (or other contact details explicitly provided by the debtor) and enclose with it an Information Sheet and Reply Form (in the form of Annex 1 of the Protocol) and a Financial Statement for the debtor to complete (in the form of Annex 2 of the Protocol).

Debtor’s response to Letter of Claim 

Following the creditor’s Letter of Claim the debtor should respond using the Annex 1 Reply Form provided with the letter. The debtor can request further relevant documents from the creditor and where the debtor does so, the creditor must either provide those documents, or explain why they are unavailable, within 30 days of receiving the document request.

Debtors can indicate in their Reply Form that they are seeking debt advice and where they do so, the creditor must allow them a reasonable period in which to obtain that advice.

Where a Reply Form is received form the debtor, the creditor should not start court proceedings for at least a further 30 days. Where the creditor has provided documents to the debtor following a debtor’s request for documents, the creditor should similarly wait at least 30 days before starting debt recovery court proceedings.

However In the absence of a reply by the debtor to the Letter of Claim after 30 days, the creditor can commence legal proceedings.

Alternative Dispute Resolution (ADR) 

Litigation should always be a last resort. Accordingly, if the parties cannot reach agreement they should, before legal proceedings are commenced, consider a method of ADR such as mediation or arbitration. If an agreement to settle the debt claim is reached following ADR and is subsequently breached by the debtor, then another Letter of Claim must be sent and the Protocol steps should be restarted.

Failure to comply with the Protocol

Courts take the Pre-Action Protocols very seriously. Courts expect the parties’ compliance with them.    Non-compliance can put a party on the back foot when the court is giving case management directions, or could lead to costs sanctions against the party at fault.

South Bank Legal is a commercial law firm in Central London. Its solicitors have years or experience and expertise in conducting debt recovery claims on behalf of businesses, as well as defending individuals and consumers against unjustified civil claims. Please get in touch with us today for a confidential discussion.