The new Pre-Action Protocol for Debt Claims will come into force on 1st October 2017. It will apply to any business wishing to pursue a debt from an individual (including sole traders). It will not affect other business to business debt claims, for example if the debtors are a company or other corporation.
Pursuant to the Protocol, creditors should send a Letter of Claim to debtors who are individuals before commencing with Court Proceedings. The following are required to be contained in the Letter of Claim:-
• The amount of debt and whether interest or other charges are continuing.
• If the debt arises from an oral agreement, state who made the agreement, what was agreed, when and where.
• If the debt arises from a written agreement, provide full details of the agreement and provide a copy of the same.
• If the debt has been assigned, the details of the original debt and creditor and when it was assigned and to whom.
• If instalment payments have been offered by the debtor and/or are being paid, an explanation as to why the offer is not acceptable.
• Details of how the debt can be paid and details of how to proceed if the debtor wishes to discuss payment options.
• An address which the completed Reply Form should be sent.
• An up to date statement of account for the debt including details of any interest and other charges claimed or alternatively such information are required to be contained in the body of the letter.
• Enclose a copy of the Information Sheet, Reply Form and Financial Statement form as required by the Protocol.
The debtor then has 30 days in order to respond to the Letter of Claim. If no response is received then the creditor can issue court proceedings. If a reply is received from the debtor then there are further steps to comply with.
The purpose of the Protocol is to place an emphasis on Alternative Dispute Resolution so that parties undertake prescribed pre-action steps to facilitate settlement, thus avoiding the need for issuing legal proceedings. Non-compliance with a Pre-Action Protocol usually results in costs sanctions so, for example, even if you win your case at Court, if you have not complied with the Pre-Action Protocol, the Court may deem your conduct to be unreasonable and in this instance, you may not be able to recover all or any of your legal costs from the losing party and/or you may even be ordered to pay a contribution towards the debtor’s legal costs. So ignore Pre-Action Protocols at your peril.
Complying with the new Protocol places greater burden on creditors in terms of process, legal costs and delay so in effect provide an extension of credit terms to debtors unnecessarily. Notwithstanding what our thoughts are, it is what it is and we can only advise our clients to adhere this new Protocol as and when necessary from October onwards.
With regard to any additional legal costs incurred in order to comply with the new Pre-Action Protocol, we will always endeavour to recover such costs from debtors on behalf of our clients as and when we can. When pursuing commercial debtors, pursuant to the Late Payment of Commercial Debts (Interest) Act 1998, you are entitled to claim for statutory interest and statutory compensation. If the statutory compensation claimed does not cover your legal costs for debt recovery, creditors are entitled to claim additional, reasonable costs of collecting the debt. We will request payment of these additional costs from debtors if and when appropriate on that basis.
If you require further advice then please contact Brenda Li on 0151 6506833 or email@example.com.