The New Pre-Action Protocol for Debt Claims Explained

In this article our debt recovery solicitors explain what the new Pre-Action Debt Protocol is and who it applies to. The new Pre-Action Protocol for debt claims was introduced on 1st October 2017. All creditors now need to comply with this protocol. The Protocol applies to:

“individuals and sole traders (and public bodies) claiming payment of a debt from an individual (including a sole trader)”.

It does not apply to business-to-business debts, so will not apply where a creditor is seeking to recover liabilities from a Company or LLP. (Please take a look at this article about recovering a trade debt).

What are the Aims of the Pre-Action Protocol for Debt Claims?

  • To encourage early engagement between the parties
  • To enable the parties to resolve the matter without the need to start court proceedings
  • To encourage parties to act in a reasonable and proportionate manner
  • To support efficient case management.

What are the Key Changes?

There are a number of key changes to be aware of:

  1. Content of the Letter of Claim

Full details of what should be included can be found at paragraph 3.1 of the Protocol. This will include:

  • Details of the debt, to include the amount, any interest or charges and how the debt has arisen
  • If repayment by instalments are being offered/paid by the debtor, an explanation of why the payments are not acceptable and why proceedings are being considered
  • Details of how the debt can be paid
  • The address to which the completed Reply Form should be sent.
  1. New forms

When sending out the Letter of Claim, creditors will be expected to include:

  • An Information Sheet and Reply Form. It is expected that debtors will use the Reply Form to respond to the Letter of Claim
  • A Financial Statement.
  • Provision of documents

The Protocol encourages early disclosure of documents before issuing proceedings.

If a debtor asks for a document, the creditor should, within 30 days of such a request, either provide the document, or explain why it is unavailable.

  1. Timescales

Under the new Pre-Action Protocol, a creditor should not issue proceedings until 30 days after the date:

  • Of the Letter of Claim
  • Of receipt of the Reply Form from the debtor. This includes the return of a partially completed Reply Form; or
  • On which the creditor provides documents requested by the debtor (or an explanation as to why they are not available).

A creditor must also allow a reasonable period of time for a debtor to seek legal advice.

If, following discussions, no agreement is reached, the creditor may give the debtor at least 14 days’ notice of their intention to start proceedings, unless there are exceptional circumstances (such as the expiry of a limitation period) which means the creditor cannot wait.

The Importance of Compliance and the Effect of the Protocol

Since the Protocol came into force on 1 October 2017, all parties need to ensure that they are compliant. Failure to comply may well have cost consequences if proceedings are later issued.

The Protocol emphasises the need for parties to make every effort to resolve cases without the need for proceedings.

The effect of the Pre-Action Protocol for Debt Claims has been that we have seen an increase in timescales before the issuing of proceedings.  There is a risk that debtors will use these extended timescales to delay, meaning creditors could need to wait more than 30 days from the date of the Letter of Claim before proceedings are issued.

Where time is of the essence, for example when the creditor is seeking to secure the debt before an insolvency situation arises, the creditor will need to bear in mind the impact of the new Pre-Action Protocol and weigh up the risks of not complying with it.

Our commercial debt recovery solicitors are fully aware of and compliant with the new protocol. Please contact us or call us on 01922 700 730 for more information, especially if you are an individual or sole trader with debts that need recovering.

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