On 1 October 2017 a new Pre Action protocol comes into effect, dealing with any claim of a debt by a business (including sole traders and public bodies) against individuals (again, including sole traders).

This protocol is aimed at ensuring that far more disputes are settled at the pre-action stage, alleviating the pressure on the increasingly overloaded County Courts There are a number of new provisions that businesses must comply with when chasing debtors..

It is also important to note that, where this new pre-action protocol and a specific regulatory framework contradict each other, the regulatory framework will take precedence.

The Letter of Claim

Before proceedings are issued the creditor must send the debtor a Letter of Claim. This letter must specify:

  • the amount due including any continuing interest and charges;
  • how the debt arose including details (such as whether there was an oral or written agreement, and details of the parties and terms. w (A copy of any written agreement can be requested from the creditor);
  • details of any assignment (if applicable);
  • if instalments are being paid why these are no longer acceptable; and
  • details of how payment can be made and the address for returning the reply form.

The letter should also be accompanied by the following:

  • an up to date statement of account or the last statement of account and detail charges that have arisen since it was sent; and
  • if no statement has been sent the Letter of Claim should state this along with a calculation of charges that have been applied.

The letter must also enclose two pro-forma documents:

  • the ‘Information Sheet and Reply Form‘ which provides information to the debtor about what the Letter of Claim means, what they should do next as well as providing the details of a number of debt support charities that can assist them; and
  • a ‘Financial Statement‘ form, which allows the debtor to provide the creditor with details of their financial position.

The Letter of Claim should be sent to the Debtor by post. If an email address is available, it may also be sent to this. If the Debtor has explicitly requested that correspondence is only sent by email then this should be complied with (a condition in the Creditors terms and conditions will not be sufficient for these purposes).

If the Debtor does not respond within 30 days of the date of the letter, the Creditor may start court proceedings.

The Debtor’s Response

The debtor should reply using the form provided, requesting copies of any documents under the Creditor’s control which they may wish to inspect.

If the Debtor indicates that they are seeking debt advice a reasonable period for advice should be allowed. Unfortunately, there is no indication of what this constitutes, but the Creditor should not issue proceedings within 30 days of receipt of the reply or 30 days of providing any requesting documents, whichever is later. If the Debtor indicates they are seeking advice but it cannot be received within 30 days, the Creditor should allow reasonable extra time to the Debtor where it would be reasonable to do so in the circumstances.

If the Debtor indicates they require time to pay the Creditor should try to reach an agreement for instalment payments based on the financial information in the Financial Statement.  If the Creditor does not agree to the Debtor’s payment plan, they should explain why in writing.

Other Points to Note

If parties cannot agree on the existence, enforceability or amount of the debt, they should take steps to resolve matters without recourse to the courts where possible, and consider alternative dispute resolution (ADR). The protocol itself refers to complaints to the Financial Ombudsman Service by way of example.  Mediation may also be appropriate for larger debts.

Where the Debtor responds to the Letter of Claim but agreement has not been reached, the Creditor should give the Debtor at least 14 days’ notice of their intention to commence court proceedings unless there are exceptional circumstances (such as limitation).

Conclusion

This new pre-action protocol places a substantially greater burden on the Creditor than before. It is therefore important that businesses have a clear process in place for handling debtors.

If you would like Spearing Waite to advise on your debt recovery processes or indeed advise and/or assist you with the recovery of any debts, please do not hesitate to contact us.

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