The pre-action protocol for debt claims comes into effect on 1 October 2017.
The protocol will apply to all civil claims by a “business” (including sole traders) seeking payment of a debt from an “individual” (including sole traders).

The main requirements of the protocol include changes to the information which must be included in a letter before action to an individual in debt (debtor), the documentation which must be sent to the debtor with the letter before action and the time limits for responding.

THE LETTER OF CLAIM

The creditor must issue a letter of claim to the debtor before they commence proceedings and the protocol provides mandatory requirements for what the letter contains, as well as prescribed set of enclosures. These new requirements include:

• A requirement that the letter sets out clearly, the amount of the debt as well as any interest and charges due.

• Full details of the written (or oral) agreement should be set out, as well as the option for the debtor to request a copy of the written agreement.

• In the event that the debt has been assigned since being incurred, the letter of claim must provide the details of any assignment.

• If instalments are being paid against the debt, but the creditor is still wishing to commence a court claim, the letter of claim should provide an explanation as to why the current arrangement is unacceptable.

LETTER OF CLAIM ENCLOSURES

The protocol’s stated emphasis is to be open and transparent. Items that must be included with the letter of claim are designed to promote clarity in respect of the debt being recovered and include:

• Reply Form – on receipt of the letter of claim, a debtor can respond by way of a standard “tick box” style reply form, (set out in the protocol) and a copy of which must be provided by the creditor to the debtor with the letter of claim.

• Standard information form and financial statement – a standard document to enable the debtor to set out their income and expenditure.

• Up to date account statement – detailing interest and charges added.

The letter of claim must be delivered in paper format by post, unless expressly agreed otherwise with the debtor. The protocol makes clear that a standard clause in an agreement opting out of paper format is insufficient for this purpose.

A creditor must now give the debtor at least 30 days from the date of the letter of claim to respond. Any requests for documents or information by the debtor should be made at this stage. If a debtor states that debt advice is being sought or more time is required, the creditor must allow a reasonable period for the advice to be obtained and should avoid issuing proceedings until 30 days from the receipt of the completed reply form, or from the creditor providing the documents requested, whichever is later.

If a debtor requires more than 30 days to obtain the advice, the debtor must provide details as to why the advice cannot be obtained sooner and also when it is expected to be received. The protocol states that the creditor should then act reasonably in regards to providing extra time.

In the event that more time to pay is requested, attempts should be made for an agreement to be reached with due consideration afforded to the financial statement. If a repayment proposal is rejected, written reasons must be provided to the debtor.

If a debtor fails to respond, proceedings may be issued 30 days after the letter of claim. If a response is received but no agreement reached, the protocol states that the parties should “take stock” of their positions. In any case, in these circumstances creditors are expected to provide a further 14 days’ notice of their intention to commence proceedings.

CONCLUSION

The protocol’s clear intention is to protect debtors from claims made by creditors where there is insufficient information provided about the debt and introduces a number of new requirements which creditors and debtors are expected to follow before court proceedings are commenced.

Historically solicitors demanded payment in 14 days: now under the protocol it is 30 days. The hoops that have been introduced will inevitably increase the costs but may result in fewer proceedings being issued. We shall see.

For all debt recovery issues please contact Jacqueline Deeming on 01926 831231 or [email protected]