The new Pre-Action Protocol for Debt Claims came into force on the 1st October 2017. Due to this, there are now important changes to the way debt claims must be managed that we must bear in mind when pursuing a debt.
The new Protocol outlines conduct the court expects of parties to a debt claim before proceedings are issued. It is important these steps are followed as a failure to adhere to the Pre-Action Protocol can result in the court imposing sanctions upon a party for non-compliance.
What claims are affected?
The Protocol affects the way in which debt claims must be managed for business to individual (and sole-trader) debts however business to business debts are not affected by these changes.
The Letter of Claim
The way in which a creditor is to send a Letter of Claim to a debtor (an individual or sole-trader) has changed. The Letter of Claim must now include much more information than previously required including:
- The amount of the debt;
- Whether interest or other charges are accruing;
- How the debt arose (including details of the oral / written agreement (a copy should be made available of any written agreement);
- If the debt has been assigned, details of the original debt and creditor and when this was assigned and to whom;
- Details of how the debt can be paid;
- How to proceed if the debtor wishes to discuss payment options (if instalments are offered, or are currently being paid, an explanation must be provided by the creditor in relation to why the offer is not acceptable and why a claim is still being considered);
- The address to which the completed reply form should be sent;
- An up-to-date statement of account for the debt should be attached (including details of interest / all other charges). If a statement of account cannot be provided then the letter must explain the amount of interest incurred / any other administrative charges imposed; and
- An Information Sheet, Reply Form and a Financial Statement Form to be completed by the debtor should also be attached.
The Letter of Claim should be clearly dated and sent out by post (and also by email if possible). The debtor then has 30 days to respond, which is a substantial time longer than previously allowed. For business to business debts a reasonable time (14 days) should be given to respond.
The Debtor's Reply
The debtor should respond using the Reply Form sent to them together with any copy documents in support. They debtor can, at this point, request copy documents from their creditor and these should be provided within 30 days of their request.
In the event the debtor does not respond then following expiry of the 30 day period a creditor can issue proceedings. A creditor must not commence proceedings before this 30 day period has passed.
Similarly, a creditor must not commence proceedings any less than 30 days from receipt of the completed Reply Form or 30 days from when the copy documents were sent by request to the debtor (whichever is later).
If the debtor indicates they are seeking debt advice, or if the debtor cannot obtain advice within 30 days of their reply, further time must be allowed for this advice to be obtained. A specific time limit is not stipulated within the Protocol only that a 'reasonable amount of time' should be allowed and we suggest 14 days is reasonable.
Instalment plan proposals
If a debtor wishes to pay by instalments parties should try to reach an agreement based on the debtor's income and expenditure. This information can be provided by the debtor within the Financial Statement Form sent to them with the Letter of Claim. If a creditor does not agree with the debtor's proposal for repayment they should give their reasons in writing.
Where an agreement has been reached concerning repayment of the debt the creditor should not start court proceedings whilst the debtor complies with the agreement. If court proceedings become necessary at a later date (e.g. if the debtor defaults) a further, updated Letter of Claim must then be sent out to the debtor.
A response has been received but no agreement has been reached.
Where the debtor responds to the Letter of Claim, but an agreement has not been reached, the creditor should again give notice to the debtor of their intention to start court proceedings (at least 14 days' notice) unless there are exceptional circumstances (i.e. the limitation period is about to expire) and urgent action may be required.
The new Protocol means:
- there is more work involved before issuing a claim;
- more documents, information and a revised Letter of Claim is required to be sent to the debtor;
- an Information Sheet, Reply Form and Financial Statement Form must be sent to the debtor;
- further time must be allowed before issuing proceedings; and
- there are further requirements to be aware of within the new Protocol to ensure compliance.
In light of this, Fosters have revised our standard Letters of Claim (also known as demand letters) and have created our own versions of the required Information Sheet, Reply Form and Financial Statement Form to accompany the Letters of Claim.
To this end we remain able to offer advice and assistance with debt matters, in accordance with the new Protocol, and have revised the initial Letter of Claim service we provide.
There is now an increased level of work involved in debt matters due to the new Debt Protocol changes. We as always aim to be competitive regarding our fees and we continue to offer a cost effective service to our clients. If you require our assistance in drafting and sending the initial Letter of Claim to the debtor (together with the necessary forms) feel free to contact us to discuss our Letter of Claim service and we would be delighted to assist.
Some debtors pay upon receipt of the initial Letter of Claim and the matter reaches a swift conclusion. If however you require our advice and assistance following the initial Letter of Claim and reporting back to you with their response then we would be delighted to assist further and would charge at our usual hourly rates from this point.
Future debt matters and instructions
In order to draft the Letter of Claim we will require as much information as possible in relation to the debt and all relevant documents in support when providing your instructions. By ensuring we have these at the start of your debt recovery matter any delay can hopefully be avoided (for example by the debtor requesting further copy documents and subsequently giving themselves more time to respond to the Letter of Claim).
Please feel free contact Fosters if you have any questions in relation to the new Debt Protocol and how any of your future debt matters will be handled by Fosters.