The Pre-Action Protocol for Debt Claims

From 1st October 2017, the Pre-Action Protocol for Debt Claims will apply to all businesses within the UK. This includes public bodies, sole trader, limited companies, and partnerships.

These new regulations have been put in place by the Ministry of Justice, and may have a great effect on businesses who largely deal with consumers by providing credit. A creditor, the business, will no longer be able to use pressure of a potential court proceeding with a debtor, the individual, if payments are late or missing. This is because the new Protocol requires a higher degree of patience when it comes to settling debts which arise.

The aims of the Protocol are 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
  • 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
  • Encourage the parties to act in a reasonable and proportionate manner in all dealings with one another
  • Support the efficient management of proceedings that cannot be avoided

Leading with these aims, the Ministry of Justice is putting a process in place for when individuals owe money to a business. This process ensures every stage is recorded and ticked off, to avoid a court proceeding when money is owed.

The first step for retrieving owed funds under this new Protocol starts with the creditor sending a Letter of Claim to the debtor. This letter must be dated at the top and sent on the same day, or next day at the latest, as the debtor then has 30 days to respond with the completed Reply Form.

Following strict guidelines, the Letter of Claim must include the following:

  • The amount of the debt
  • Whether interest or other charges are continuing
  • When the debt arises from an oral agreement, who made the agreement, what was agreed in exact words where possible, and when and where it was agreed
  • When 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
  • When 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 still being considered
  • Details of how the debt can be paid 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

In order to create a documented record of the debt which is owed, when sending the Letter of Claim, the creditor must also do one of the following:

  • Enclose an up-to-date statement of account for the debt, which should include details of any interest and administrative or other charges added
  • 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 to bring it up-to-date
  • 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

If the Letter of Claim has not been responded to within 30 days, the creditor is then able to start court proceedings. However, if the debtor indicates that they are seeking debt advice, the creditor must allow a reasonable amount of time for the advice to be obtained.

In the instance where a debtor indicates that they require time to pay in their Reply Form, the creditor and debtor are encouraged to try and reach an agreement for the amount to be paid in instalments. This is calculated by an income and expenditure report done on the debtor’s finances.

The Pre-Action Protocol for Debt Claims is a way to assist creditors and debtors to settle their outstanding payments away from a court proceeding. If both parties cannot reach a mutual conclusion once the Letter of Claim and Reply Form has been exchanged, they are advised to take appropriate steps to resolve the dispute or to consider an Alternative Dispute Resolution (ADR). If the creditor then does decide to start court proceedings, they must give the debtor 14 days’ notice before they do so.

By putting this Protocol in place, the Ministry of Justice are trying to make the process for claiming back debt easier for both parties. With a strict guideline on resources to be included, all essential information is recorded and provides a way to keep debt claim court proceedings to a minimum.

Do you need help with a debt claim, or advice on the new Pre-Action Protocol? Call Caversham Solicitors for a free consultation on 0118 947 8638