Pre-Action Protocol:  Getting paid: getting it right

A new Pre-Action Protocol for Debt claims will come into force on 1st October 2017.

This will apply to all debts being pursued from consumers and individuals through legal action. Thankfully, the majority, over 80% of CPA’s clients debts are resolved by the Overdue Account Recovery Service. However for the small number of debts that do require legal action to bring the debtor to the table, the protocol will apply.

The Protocol applies to all debt claims where a business is claiming payment of a debt from an individual irrespective of the value of the debt.  The definition of “business” includes a sole trader and public bodies in business and “individual” appears to include a sole trader. The process for debtors who are Ltd Companies or Limited Liability Partnerships is unchanged and the normal LBA (Letter Before Action) will apply.

The new Protocol aim is to:

  • encourage early engagement and communication between the parties;
  • achieve settlement of claims without recourse of the Courts including setting repayment plans and alternative methods of resolving disputes;
  • encourage parties to act in a reasonable and proportionate manner;

Therefore, early disclosure is going to be essential under the pre-action protocol.  An enhanced Letter of Claim which must detail the basis of the claim, including the details of any written or oral contract, and any charges and interest which have been added to the debt is required.  Further, a Statement of Account, Information Sheet, Reply Form and Financial Statement are all to be enclosed with a Letter of Claim.  Debtors will have 30 days to respond to a Letter of Claim and can request additional information and documentation during this period which must be supplied.

If a debtor indicates a need for time to pay, the creditor and debtor should try and reach an agreement to permit the debt to be paid by instalments, based on the debtor’s income and expenditure.  If the creditor does not agree to a proposal for repayment, they will need to give reasons for this refusal in writing.

The new Protocol places the onus firmly on a claimant to make sure that the debtor is provided with a lot more information at the time of legal demand than is customary at present. However, the provision of this information at an early stage is likely to promote settlement of claims, identify and narrow issues and areas of dispute and ultimately reduce the need to reference matters to the Court for determination.

Failure to observe the new Protocol will expose the claimant to an adverse costs order being made by a Court or interest penalties.

These additional requirements only underline the importance of resolving debts amicably without the need to resort to legal action. This can be done by making early use of the Credit Protection Association’s unique Overdue Account Recovery service.

If you have any questions, please do not hesitate to contact our Litigation Department on 020 8846 0000.

see also our previous post on this subject.