On 1st October 2017, a Pre-Action Protocol (PAP) for debt claims will come into effect. The PAP will apply to all forms of businesses, including sole traders, seeking to recover debt from an individual. The PAP will however not apply to business-to-business debts unless the debtor is a sole trader.
There is currently no specific pre-action protocol for debt claims, however, the Civil Procedure Rules (CPR) contain a number of pre- action protocols which require parties to undertake certain steps prior to issuing court proceedings, to enable parties to resolve disputes; involving courts should be a last resort.
What is the aim of the PAP?
- Promote an early engagement and communication between both parties.
- Enable both parties to resolve the matter without the need to commence court proceedings.
- Encourage both parties to act in a reasonable and proportionate manner in dealing with one another.
Ultimately, the aim of the PAP is to provide the debtor with all the information in relation to the debt due, to enable them to make a decision, and respond regarding payment or raise any issues with the creditor to allow both parties to resolve the matter without the need to involve courts.
The Letter of Claim
- The amount of the debt, together with any interest or other charges accruing.
- Details of your agreement with the debtor. If the debt arises from an oral agreement, this should include full details of what was agreed, when and where it was agreed. If the debt arises from a written agreement, this should include the date and the parties.
- If the debt was assigned to the creditor, details of the original debt, the original creditor and when it was assigned. If the debt was assigned multiple times it should include information relating to all assignments.
- If regular instalments are currently being offered by the debtor, or are being paid, an explanation as to why these payments are not acceptable and why court proceedings are being considered by the creditor.
- Details of how the debt can be paid, for example the method and address for payment.
The following documents must be enclosed with a Letter of Claim:
- An up-to-date statement of account for the debt; the most recent statement of account for the debt and state the amount of interest and/or other charges incurred to bring it up to date; or where no statements have been provided for the debt, state the amount of interest and/or other charges incurred since the debt was incurred.
- The Information Sheet at Annex 1 of the PAP. This sets out the debtor’s rights and obligations under the PAP, in plain English.
- The Reply Form at Annex 1 of the PAP.
- The Financial Statement at Annex 2 of the PAP.
- Any other documents which will help the debtor to understand your position. The PAP states that you can wait for the debtor to request copies of these documents in their Reply Form, however not providing these additional documents at this initial stage will simply protract the delay in payment of the debt.
The debtor’s reply to the Letter of Claim
- Request copies of any documents they wish to see.
- Indicate that they are seeking debt advice. If the debtor indicates that wish to seek advice but cannot do so within the 30-day period, you must allow reasonable extra time for this to be obtained.
- Indicate that they require time to pay. The creditor and debtor should try to reach agreement for the debt to be paid by instalments, based on the debtor’s income and expenditure. If you do not accept the debtor’s proposals for repayment, you should give reasons in writing.
If the debtor does not reply to the Letter of Claim within 30 days of the date at the top of the letter, the creditor may start court proceedings against them.
The PAP places a significant burden on creditors in relation to the additional information which now is required to be included within the Letter of Claim. It also potentially considerably extends the length of the pre-action process.
Failure to comply with the PAP
Commentary: Brendan Udokoro, Trainee Solicitor, Defended Litigation team
The Litigation team at Judge & Priestley can assist you to not only recovery your debts but also to assist in developing amendments to your current recovery processes which ensure that you do not fall foul of the new rules. If you would like to speak with a member of the team, please contact our Business Development Manager Andrew Lloyd on 0208 290 7096
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