Published by: Saljuq Haider

The New Pre-Action Protocol for Debt Claims

The imminent introduction of the Pre-Action Protocol for Debt Claims (“Debt Protocol”) signifies a continuing trend in the civil justice system towards encouraging early resolution of disputes before seeking redress from the Courts.

From 1 October 2017, creditors will be required to demonstrate compliance with the Debt Protocol before instigating Court proceedings to recover debts.  It will apply to any business claiming a debt from an individual (including sole traders).  It does not apply to business-to-business debts, unless the debtor is a sole trader.  Business-to business debts remain governed by the Practice Direction for Pre-Action Conduct and Protocols (“PDPAC”) and whilst not perceived by comparison to be as onerous, still requires observance.  Indeed, the potential sanctions for non-compliance with the Debt Protocol are enshrined in PDPAC.

The Debt Protocol requires a Letter of Claim to be sent to the debtor before proceedings are commenced containing key information including:-

  • The amount of the debt;
  • Whether interest is claimed and continues to accrue;
  • The basis of the agreement (oral or written) and evidence;
  • Details of any assignment of the debt;
  • An explanation as to why any regular instalment offer from the debtor is not acceptable;
  • Details as to how payments can be made;
  • Enclosing an up-to-date statement of account

Perhaps the most controversial requirement under the Debt Protocol is the length of time afforded to a debtor to deal with the Letter of Claim.

A debtor must be given 30 days from the date of the Letter to return a standard Reply Form.  Even then, it is suggested that “account should be taken of the possibility that a reply was posted towards the end of the 30-day period”.  If no response is received, the creditor is entitled to issue court proceedings.

However, if the debtor does return the Reply Form requesting further information; or indicates they are seeking debt advice, then a creditor must not commence court proceedings less than 30 days from receipt of the Reply Form or from the date further information is provided.

It has therefore never been more important for creditors to ensure that internal procedures are tightened in respect of overdue invoices.  The net result of failing to do so will be the potential for further substantial delays whilst the Debt Protocol is complied with having an adverse effect on a creditor’s cash flow.

Saljuq Haider, Solicitor in the Commercial Litigation and Dispute Resolution Department at Taylor Walton LLP and Head of TW Collect, will be running a seminar on the new Pre-Action Protocol for Debt Claims on 28 September from 4-6pm at Beales Hotel, Hatfield. For further information, or to register please click here or contact us on 01582 731161.