The New Pre Action Protocol For Debt Claims - Are You Ready?
- AuthorAlison Leith
Is your business ready for the new Pre –Action Protocol for Debt Claims, coming into force on 1 October 2017?
If you have missed this announcement, made by the Head of Civil Justice, The Right Honourable Sir Terence Etherton, now is the time to consider the new protocol and review your Credit Control Policy to ensure your business complies with the changes and you are fully aware of what the Court expects of both parties prior to commencing legal proceedings.
So what does this mean for businesses and what steps should you be taking to ensure your Credit Control Procedures comply? Here are a few Q & A’s to help with the implementation process.
Does this Protocol apply to my business?
If you are a business, sole trader or public body and your debtor is an individual, including a sole trader and you are claiming payment of a debt, then this protocol applies to you.
What if my Debtor is another business?
The Protocol does not apply in a business to business transaction, unless the debtor is a sole trader.
Why does my business have to comply?
The aim of the protocol is to reduce the number of claims that are currently presented to the court and to encourage early engagement between both parties to help clarify if there are any disputes. It also aims to enable the parties to resolve matters fairly, including agreeing a reasonable repayment plan without the need to issue proceedings.
My debtor has ignored my reasonable requests for payment, what are the next steps?
Any credit control procedure should always incorporate sending an initial reminder letter to your debtor, followed by telephone or e mail contact. If your debtor fails to pay then prior to starting any legal proceedings and in order to comply with the new pre-action protocol, you need to send a Letter of Claim to the debtor which needs to include:
- the amount of the debt; interest, together with continuing interest and other charges
- date of the agreement
- if based on a verbal agreement, who made the agreement and what was agreed
- if based on a written agreement, the date of the agreement, the parties to it, indicating a copy can be provided upon request
- if assigned, details of the original debt and creditor and date when it was assigned
- if payment by instalments has been offered or are being paid, an explanation of why the offer is not accepted and why a claim is being considered
- details of how the debt can be paid, including methods of payment, address for payment and how to proceed if the debtor wishes to propose a payment plan
- an up to date statement or alternatively copy invoice
In addition to the above, a prescribed Reply Form, Information Sheet and Financial Statement Form must be enclosed with the Letter of Claim. The Letter of Claim must be sent by post, however should you have additional contact details, for example, an e mail address, you may also send a copy of the Letter of Claim by that method.
How long do I need to allow the debtor to respond/pay?
You will need to allow 30 days before court proceedings can be commenced. However you must account for the possibility a reply may have been posted towards the end of the 30 day period.
What if my debtor replies?
If your debtor has replied and indicates they are taking legal or debt advice then you must allow them a reasonable time in which to respond. You should not start proceedings less than 30 days from receipt of the completed Reply Form or 30 days from when you provided any documents requested by the debtor. If an offer of payment is made then you must attempt to reach agreement with the debtor to a suitable repayment plan, based on their income and expenditure. Or alternatively, should you refuse, then set out your reasons why in writing.
My debtor has not completed the reply form satisfactorily.
If the debtor has only partially completed the form, it should be considered an attempt to engage, therefore you must attempt to contact the debtor to discuss further, prior to starting any court proceedings.
The debtor has requested further documentation.
Any documentation, as requested by the debtor, must be sent within 30 days of the request.
My debtor and I are still in dispute.
If both parties cannot agree and are still in dispute regarding the sum owed then you should both take reasonable steps to engage in further discussion/negotiation, which may include mediation, commonly known as Alternative Dispute Resolution (ADR). This may also involve referral to an appropriate Ombudsman.
Agreement has been reached, however my debtor has defaulted.
If you have reached agreement and the debtor defaults you will need to issue a fresh Letter of Claim, however you do not need to send the supporting documents, if this was sent in the preceding 6 months, unless of course it requires updating.
I have replied to the Letter of Claim but agreement has not been achieved, what do I do?
If you have been unable to reach agreement you must give the debtor 14 days’ notice that you intend to commence court proceedings.
We have not complied with the Protocol, what is likely to happen?
The Protocol sets out what the Court expects of both parties prior to filing a claim. Failure to comply may result in the claim being stayed, in order for parties to comply with Protocol and sanctions on costs or interest ordered against the offending party. Therefore it is in your best interest to ensure your business complies with the new pre action protocol.
This article has been written for information purposes only and does not constitute legal advice. If you are concerned about compliance we recommended that specific professional advice is sought before acting on any of the information. Our Commercial Disputes Team are on hand to assist you with managing dispute resolution and provide practical advice and to ensure your business implements the correct procedures.