Are you a business, sole trader or public body in need of recovering payment of a debt from an individual or sole trader? Take note that a new Pre-Action Protocol for Debt Claims is coming into force on 1st October.
Creditors will need to adhere to the conduct set out in the Protocol to avoid sanctions being imposed on them if the matter proceeds to court.
The first step in recovering a debt is to send the debtor a Letter of Claim. The new Protocol has reinforced the importance of a Letter of Claim and there are important changes as to what information should be included in such a letter, which are as follows:
- amount of debt
- whether interest or other charges are continuing
- where the debt arises from an oral agreement: parties to the agreement; what, when and where it was agreed
- where the debt arises from a written agreement: date of and parties to the agreement; the fact that the debtor can request a copy from the creditor
- statement of account for the debt, including interest and other charges since debt was incurred
- where the debt has been assigned: details of original debt and creditor; when it was assigned and to whom
- if the debt is being paid on behalf of or by the debtor: explanation as to why those payments are not acceptable
- details of how the debt can be paid
- enclose Information Sheet and Reply Form
- enclose Financial Statement for debtor to complete
The deadline for a debtor’s reply to the Letter of Claim has increased from 14 calendar days to 30 calendar days.
However, if the debtor responds within this time to advise that they are obtaining debt advice, the creditor cannot take any further action within a further 30 calendar days from that point. Furthermore, if no payment is forthcoming or agreement reached, the creditor cannot start court proceedings without first giving the debtor 14 calendar days’ notice of their intention.
More importantly, if agreement is reached but the debtor subsequently defaults, the Pre-Action Protocol process must be started again i.e. a fresh Letter of Claim to be issued with the same deadlines as above.
The new Protocol will inevitably lengthen the debt recovery process. Creditors are therefore advised to act quickly on the occurrence of a debt.
When you do not have to follow the Protocol
Businesses who are pursuing a debt incurred during the course of their business, eg debts arising from a consumer contract, will have to follow the Protocol in all circumstances except where the debtor itself is a business or the debt is covered by another specific Pre-Action Protocol eg for construction or engineering disputes.