14 September 2017

Prepare for the Pre-Action Protocol for Debt Claims

On 1 October 2017 the new Pre-Action Protocol for Debt Claims against individuals (“the Debt Protocol”) will come into force.

What is a Pre-Action Protocol?

  • The Pre-Action Protocols are part of the Civil Procedure Rules (“CPR”) that regulate the conduct of civil litigation in England and Wales.
  • They set out the steps the Court would normally expect the parties to take before commencing proceedings.
  • For some civil claims, specific Pre-Action Protocols must be followed.
  • If no specific protocol applies, parties must nevertheless still comply with the CPR practice direction on pre-action conduct.
  • Parties who fail to comply with Pre-Action Protocols run the risk of the Court making punitive costs orders against them in any proceedings that may be pursued in connection with the debt.

The Debt Protocol aims to encourage early engagement, communication and co-operation between the parties to enable them to resolve the matter without the need for court proceedings, if possible.

If you are involved in matters where the Debt Protocol may apply, such as the recovery of rent or service charge arrears, please do not hesitate to contact us to discuss how the implementation of the Debt Protocol will impact your situation and current debt recovery procedures.

When will the Debt Protocol apply?

The Debt Protocol applies to all debt claims brought by businesses (including sole traders and public bodies) against individuals (including sole traders).

The Protocol does not apply to:

  • Debt claims against debtors who are not individuals;
  • Debt claims covered by another pre-action protocol, such as construction and engineering or mortgage arrears; and/or
  • Claims for the recovery of taxes and duties.

Key stages of the Debt Protocol

1. Letter of Claim

Prior to proceedings being initiated, the creditor should send a Letter of Claim to the debtor containing:

  • Comprehensive information about the debt;
  • The prescribed Debt Protocol information sheet;
  • The prescribed Reply Form;
  • The prescribed financial statement form for the debtor to complete;
  • An up to date statement of account for the debt, which includes interest and/or other charges which have been added.

The letter must be dated and posted on the same or following day. The Debt Protocol makes provision for sending the letter by other methods, such as email.

2. Debtor’s Response

The debtor should respond within 30 days using the Reply Form and can request copies of any documents they consider to be relevant.

If the debtor indicates that they are taking debt advice, the creditor must give them a reasonable time to do so.

The creditor cannot commence proceedings until either:

a) 30 days from receipt of the Reply Form or;

b) 30 days after the Letter of Claim is sent if no response is received in that timeframe.

Timings can be extended by agreement and the creditor should attempt to contact the debtor to discuss the situation.

Parties are encouraged to try and agree terms of payment by instalments and any refusal of a reasonable payment plan should include written reasons.

Where a Letter of Claim and Reply Form have been filed but agreement has not yet been reached, the creditor must give the debtor at least 14 days' notice of court proceedings being started unless exceptional circumstances exist.

3. Disclosure

Parties are encouraged to disclose documentation and exchange information. The creditor has 30 days to supply any requested documentation or to explain why it is unavailable.

4. Settlement / Alternative Dispute Resolution (“ADR”)

The parties are encouraged to consider proportionate ADR, such as mediation, if they cannot resolve the dispute.

If agreement is reached, the creditor should not start proceedings whilst the debtor complies with the settlement terms. If proceedings become necessary later on then the Debt Protocol procedure should be started afresh.

5. Taking stock

Following compliance with the Debt Protocol there is a requirement for the parties to 'take stock' to see if proceedings can be avoided.

Sarah is an Associate in our Property Litigation team.

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