Enforcement of debts is something that we regularly have to deal with as Dispute Resolution solicitors. It is imperative that the correct procedure is followed to avoid costs sanctions. The protocol was introduced in October 2017 with a view to reduce unnecessary proceedings and encourage communication between the creditor and the debtors.
What was the protocol before 1 October 2017?
Prior to 1 October 2017, there was no Pre-Action Protocol specifically for Debt claims. Having said that, parties were expect to comply with the Practice Direction for Pre-Action Conduct.
What is the protocol Post 1 October 2017?
The Pre-Action Debt Protocol 2017 now applies to any business (or “Creditor” as the pre-action protocol refers to), which also includes sole traders and public bodies, in claiming payment of debts owed by individuals. It is worth noting that the Protocol does not apply to commercial business to business debts, except where the “Debtor” (or individual) is a sole trader.
What is the point of the pre action debt protocol?
It is hoped that the Protocol will do 4 things:
- To encourage early engagement and communication between the parties, including early exchange of sufficient information about the matter to help clarify whether there are any issues in dispute
- To enable the parties to resolve the matter without the need to start court proceedings, including agreeing a reasonable repayment plan or considering using an Alternative Dispute Resolution (ADR) procedure
- To encourage the parties to act in a reasonable and proportionate manner in all dealings with one another (for example, avoiding running up costs which do not bear a reasonable relationship to the sums in issue)
- When proceedings are instigated this should help with efficient management of them.
What does the pre action debt protocol involve?
- Creditors must send an initial letter of claim
- The Debtor must complete forms such as Information Sheet, Reply Form and a Financial Statement Form
- Debtor has 30 days to respond to a letter of claim
1. Sending a Letter of Claim
Before proceedings are started a Letter of Claim should be sent to the debtor containing the following information:
- Amount of debt and whether interest or other charges are accruing
- Whether the debt arises from an oral or written agreement and detailed information about this
- If regular instalments have been offered or are being paid, and an explanation as to why the offer is not acceptable and why court claim is being considered
- Details of how the debt can be paid
- Provide an address for which the completed Reply Form should be sent.
The Creditor should also do one of the following:
1. Enclose an up-to-date statement of account for the debt, which should include details of any interest and administrative or other charges added;
2. Enclose the most recent statement of account for the debt and state in the Letter of Claim the amount of interest incurred and any administrative or other charges imposed since that statement of account was issued, sufficient to bring it up to date; or
3. Where no statements have been provided for the debt, state in the Letter of Claim the amount of interest incurred and any administrative or other charges imposed since the debt was incurred.
2. Forms for Debtor to Complete
The Protocol also requires Creditors to send a copy of the Information Sheet and Reply Form and a Financial Statement Form with the Letter of Claim
3. Response to Letter of Claim
If a debtor does not respond within 30 days of the date of the letter, the creditor can start court proceedings. It should also be noted that the debtor has to respond using the Reply Form provided with the Letter of Claim and can request copies of any documents that they wish to see and enclose copies of any documents they consider relevant.
If the debtor explains that they are receiving debt advice, they should be afforded a reasonable period to do so.
Where a debtor indicates in the Reply Form that they require time to pay, the creditor and debtor should try to reach agreement for the debt to be paid by instalments, based on the debtor’s income and expenditure.
A partially completed Reply Form should be taken by the creditor as an attempt by the debtor to engage with the matter.
What does this all mean?
The protocol emphasises the need for a conciliatory approach between parties as opposed to launching into what could be perceived as unnecessary litigation. In most cases this can only be a positive thing however this is a potential danger with the protocol in that some debtors may use it as a stalling mechanism and the timescales may increase as a result for much longer than a claimant may have envisaged for negotiating. It is nonetheless important that future Claimants use caution and send a Letter of Claim, rather than face costs sanctions.