A new Pre-Action Protocol for Debt Claims

A new Pre-Action Protocol for Debt Claims comes into force on 1 October 2017 which sets out the steps to be taken before proceedings are brought in relation to all debt claims to be brought by a business, sole trader or public body against an individual including a sole trader.

The Protocol requires an enhanced Letter of Claim which has to 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. It also provides that a Statement of Account, Information Sheet, Reply Form and Financial Statement are to be enclosed with the Letter of Claim. The debtor also then has 30 days to respond to the Letter of Claim and can request further information and documentation which the creditor will need to provide.

The process set out in the Protocol is quite far-reaching and detailed and so please find below more detailed notes.

Pre-Action Protocol for Debt Claims

This Pre-Action Protocol comes into force on 1 October 2017.

The Protocol applies to all businesses including public bodies and sole traders when claiming a debt from an individual including a sole trader. It does not apply to business-to-business debts unless the debtor is a sole trader.

The Protocol sets out what the Court expects from the parties before proceedings are issued and promotes both early communication between the parties and the early exchange of information/documentation.

The aim of the Protocol is that it will assist parties in resolving disputes without the need for court proceedings by agreeing a repayment plan or considering alternative dispute resolution.

Under the Protocol, Creditors will be required to send debtors a Letter of Claim setting out prescribed information. Debtors will then have 30 days to respond to the Letter of Claim, using an enclosed Reply Form which enables them to admit the sums owing, dispute them, or request further information and documents.

The provisions of the Protocol are set out in details below:-

New Letter of Claim

A new form of Letter of Claim is required to be sent to the debtor before proceedings are issued. The Letter of Claim should:-

  • contain the following information:-
    1. the amount of the debt;
    2. whether interest or other charges are continuing;
  • where the debt arises from an oral agreement, you need to set out who made the agreement, what was agreed (including, as far as possible, what words were used) and when and where it was agreed;
  1. where the debt arises from a written agreement, the date of the agreement, the parties to it and that a copy of the agreement can be requested;
  2. where the debt has been assigned, the details of the original debt and creditor, when it was assigned and to whom;
  3. if the debtor has offered regular instalments or is paying regular payments, an explanation as to why the offer/payments are not acceptable and why proceedings are still being considered;
  • details of how the debt can be made (e.g. methods of payment, address for payment) and details of how to proceed should the debtor want to discuss payment options;
  • the address that the completed Reply Form should be sent to;
  • do one of the following:-
    1. enclose an up-to-date statement of account for the debt which also includes details of any interest and administrative or other charges added;
    2. enclose the most recent statement of account for the debt and then state in the Letter of Claim the amount of interest incurred and any administrative or other charges incurred since the statement of account so as to bring the total figure due up to date;
  • where no statements of account have been provided for the debt, then you need to state in the Letter of Claim the amount of interest incurred and any administrative or other charges imposed since the debt was incurred.
  • Enclose with the Letter of Claim the Information Sheet and Reply Form; and
  • Enclose a Financial Statement form.

The Letter of Claim has to be clearly dated and sent out to the debtor on the date that it is dated unless that is not reasonably possible and then it should be sent out the next day.

The Letter of Claim should be sent by post and so even if you have additional contact details for the debtor such as an email address, you can additionally send it by that method but the original Letter of Claim should be sent by post. The only time that the creditor is not required to send the Letter of Claim by post is if the debtor has specifically asked that correspondence should not be sent by post and has provided an alternative method. Please note that a condition in the creditor’s standard terms does not constitute an explicit request.

The debtor has 30 days from the date at the top of the Letter of Claim to respond and if no response is received then the creditor may commence proceedings. However, the Protocol does provide that the creditor should take into consideration, when deciding whether to issue, that a reply could have been sent towards the end of the 30 days period.

Debtor’s Reply to the Letter of Claim

The debtor should respond using the Reply Form which was enclosed with the Letter of Claim. In the Reply the debtor should request copies of any documents which they want to see and enclose copies of documents that they consider relevant.

If in the Reply, the debtor indicates that he is seeking debt advice, then the creditor must allow the debtor a reasonable period for the advice to be obtained. At the very least, the creditor should not commence proceedings for a further 30 days after receipt of the completed Reply Form or 30 days from the creditor providing any documents requested by the debtor, whichever is the later.

Where the debtor indicates in the Reply Form that he is seeking debt advice but that it cannot be obtained within 30 days of the Reply, then the debtor must provide the creditor with details as specified in the Reply Form. Where it is reasonable to do so in all the circumstances, the creditor should allow reasonable extra time for the debtor to obtain that advice.

When there is a request for time to pay in the Reply Form, then the creditor should try and reach an agreement with the debtor for the debt to be repaid by instalments based on the debtor’s income and expenditure as detailed in the Standard Financial Statement which accompanied the Reply. If the creditor does not accept the debtor’s payment proposals then they need to provide the debtor with written reasons.

If the debtor returns the Reply Form but it is only partially completed, then the creditor should contact the debtor to discuss the Reply and to obtain any information needed to understand the debtor’s position.

Disclosure of Documents

The Protocol encourages the early disclosure of documents and information in order to try and resolve issues at an early stage before proceedings are issued. Where the debt is disputed (including a dispute as to the amount, interest, charges, time for payment etc) the parties should exchange information and disclose documents so as to enable the parties to understand each other’s position.

Importantly, they are specified time periods for the creditor to provide information/documentation to the debtor. The creditor must provide the document or information or if not then explain why the document or information is unavailable within 30 days of receipt of the request.

Settlement and Alternative Dispute Resolution (ADR)

If the parties cannot reach an agreement then they should consider the use of an appropriate ADR method before proceedings are issued.

ADR may be as simple as an agreed form of discussion and negotiation between the parties or it may be more formal such as mediation. Although the Protocol does provide that the potential costs of mediation should be considered in relation to the amount of the debt.

Should the parties reach an agreement for repayment of the debt, then the creditor should not commence proceedings which the debtor is complying with the agreement. If, at a later date, the creditor wishes to commence proceedings e.g. the debtor stops making payments, then the creditor must send an updated Letter of Claim to the debtor and comply with the Protocol afresh.

Compliance with the Protocol

If proceedings are issued then the Court will expect that the parties will have complied with the Protocol and the Court will take into account non-compliance when giving directions for the case. Parties will need to show that they have complied in substance with the terms of the Protocol.

Before commencing proceedings

Where matters have not been resolved using the procedure under the Protocol, the parties should review their respective positions to see if proceedings can be avoided and at the least, to narrow the issues between them.

Where a debtor has responded to the Letter of Claim but no agreement has been reached, the creditor should give the debtor at least 14 days notice of their intention to start proceedings, unless there are exceptional circumstances in which urgent action is required (e.g. expiry of a limitation period).

To see examples of the information sheet, reply form and financial statement follow this link https://www.justice.gov.uk/courts/…/protocols/pre-action-protocol-for-debt-claims.pdf