Debt Recovery Pre-Action Protocol for Debt Claims

Debt Recovery Pre-Action Protocol for Debt Claims

In October 2017, the Pre-Action Protocol for Debt Claims was created to govern how a business (including a sole trader) must deal with recovering a debt from an individual (including a sole trader) before starting Court proceedings. The parties (i.e. the Creditor and the Debtor) are expected to comply with this Pre-Action Protocol for Debt Claims and a Court will take into account any non-compliance, if a claim is issued. Business to business transactions (with the exception of sole traders) are excluded from this Pre-Action Protocol.

What is the Pre-Action Protocol for Debt Claims?

The aim of the Protocol is to encourage early communication with a view to avoiding Court proceedings by negotiating payment plans or using a form of Alternative Dispute Resolution (ADR). The parties are also encouraged to act reasonably and proportionately, taking into account the size of the debt, and to negotiate reasonably where Court proceedings are simply unavoidable.

The Protocol sets out the procedures which must be followed and consists of the following stages:

Stage 1 – Letter of Claim

A Creditor must first send to the Debtor a “Letter Before Claim” (also known as “Letter Before Action”) however the Protocol places a heavier burden on the Creditor to provide full particulars of the debt and how the debt arose. The Letter Before Claim must now include:

• The amount of the debt;
• Whether interest or other charges are continuing;
• Where the debt arises from a verbal 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, or are being paid, an explanation of why the offer is not acceptable and why a Court claim is 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 wishes to discuss payment options;
• The address to which the completed reply form should be sent.

The following documents must also be provided with the Letter Before Claim:

• An up to date statement of account, which should include details of any interest and administrative or other charges;
• Copies of documents known as an “information sheet” and “reply form”, both produced by the Ministry of Justice (MOJ);
• A copy of a document called a “financial statement form” also produced by the MOJ.

The Letter Before Claim must be sent by post, unless the Debtor has made an explicit request that correspondence should not be sent by post.

The Debtor has 30 days from the date of the Letter Before Claim to respond. The Creditor is therefore unable to commence Court proceedings or issue a Court Claim within this 30 day period and consideration should be given to the possibility that a reply may be posted close to this deadline.

Stage 2 – Response by the Debtor

As noted above, the debtor has 30 days to respond to the Letter Before Claim. The Debtor is expected to use the reply form (although this is not necessary) and may request time to pay (instalment arrangement / payment plan) or notify the Creditor that debt advice is being sought, request copy documents or dispute the debt. If the Debtor wishes to seek debt advice, the creditor must allow a reasonable period for the Debtor to do so.

In accordance with the Protocol, the Creditor is prevented from issuing Court proceedings within 30 days of receiving the Debtor’s reply or alternatively within 30 days of the Creditor providing copy documents or further information as requested, whichever is the later. To avoid any potential delays, we recommend all relevant documents are included with the Letter Before Claim, including for example copy invoices and any supporting documentation, a copy of the contract or purchase agreement etc.

Early disclosure of documents is encouraged by the Protocol and states that parties should exchange information and disclose documents sufficient to enable them to understand each other’s position and to help clarify or resolve any issues in dispute. If the Debtor requests copies of any documents or further information, the Creditor must provide these to the Debtor within 30 days of the request or explain why the document or information is unavailable.

If the Debtor disputes the debt, the Creditor should send their full and detailed response within 30 days of receipt of the reply.

The Creditor should view the reply as an attempt by the Debtor to engage with the matter and all efforts should be made by both parties to resolve the dispute (or at least narrow the issues) or negotiate settlement or payment proposals. Court proceedings should always be seen as a last resort and consideration should be given to ADR, including mediation if appropriate.

Stage 3 – Taking Stock

If the parties cannot reach an agreement, either in relation to a dispute or settlement/payment proposals, the Creditor and Debtor should undertake a review of their respective positions to see if Court proceedings can be avoided or whether they can at least narrow the issues in dispute.

If all attempts fail to settle the matter and Court proceedings are unavoidable, the Creditor must provide the Debtor with at least 14 days’ notice of their intention to issue the Court claim.

Summary

1. Any Letter Before Claim caught by the Protocol must be sent to the Debtor providing full particulars of the debt and must enclose the information sheet, reply form and financial statement form together with a copy of any relevant documents.
2. Court proceedings may be issued after 30 days from the date of the Letter Before Claim if the Debtor fails to respond.
3. If the Debtor replies to the Letter Before Claim the Creditor must send a full response to any disputed issues, and/or provide any requested documents or additional information within 30 days of receiving the reply.