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Changes to debt recovery procedures due October 2017

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Pre-Action Protocol for Debt Claims to come into effect on the 1st October 2017

The Protocol will apply to any business (including a sole trader or public body) claiming payment from an individual (including sole traders) and describes the conduct the court normally will expect of the parties prior to the commencement of legal proceedings.

Summary of the Protocol

It aims to:

  • Encourage early engagement, communication and exchange of sufficient information to help clarify if there is a dispute;
  • Enable parties to resolve a matter without the need for legal proceedings;
  • Encourage parties to act in a reasonable and proportionate manner;
  • Support efficient management of proceedings if a claim cannot be avoided.

A creditor must send a Letter of Claim (LOC) and it should include:

  • Details of the debt, interest and charges;
  • If based on a verbal agreement, who made the agreement, what was agreed and when and where it was agreed;
  • If based on a written agreement, the date of the agreement, the parties to it and a note that a copy can be supplied if requested;
  • Details of the original creditor if the debt has been assigned;
  • If payment by instalments has been offered or are being paid, an explanation as to why this is not acceptable and why a claim is being considered;
  • Details of how the debt can be paid and contact details;
  • An up to date statement or equivalent information;
  • A prescribed Reply Form and Information Sheet.

The date needs to be clearly visible at the top of the letter and the debtor will have at least 30 days to respond!

A Debtor’s should:

Respond using the prescribed Reply Form to indicate whether they admit or dispute the debt (or part of it), put forward any offer of repayment, indicate whether they are seeking advice and request any additional documents/information they need.

Where the debtor indicates that they are seeking advice, the creditor must allow reasonable time for advice to be obtained but in any event not issue a claim within 30 days of receiving a reply.

Where the debtor’s reply seeks time to pay, the parties are to attempt to reach an agreement based on the debtor’s income/expenditure. The creditor is required to give reasons in writing if a payment proposal is not accepted and a partially completed Reply Form is to be treated as an attempt to engage in the process, so on receipt a creditor must make further enquiries if the reply does not contain sufficient information.

Early Disclosure, Steps to Resolve a Dispute and Taking Stock

The parties are required to exchange information/documents early in the process to help clarify or resolve a dispute and to understand each other’s position.

If the debtor requests further documentation or information, a creditor is require to produce the same within 30 days or explain why the same is not available.

If in dispute, the parties should attempt to resolve the matter without issuing a claim and should consider appropriate Alternative Dispute Resolution (ADR), such as engaging in further discussions/negotiations, a referral to an appropriate Ombudsman or more formal ADR such as Mediation.

A creditor should not issue a claim whilst a debtor is complying with any agreement relating to the repayment of a debt and a fresh LOC may be needed if a creditor wishes to issue a claim at a later date.

If an agreement cannot be reached, the parties should review their respective position and attempt to narrow the issues before issuing a claim. Where a creditor has replied to LOC but the parties have not been able to reach agreement, the creditor should give the debtor 14 days written notice before issuing a claim.

Compliance with the Protocol

The Protocol describes what the Court expects of the parties prior to a claim. Failing to comply can result in a clam being stayed whilst the Protocol is complied with and/or sanctions on costs and/or interest ordered against the offending party.

There really is nothing to be gained by failing to comply!

We have been prepared for the implementation of the Protocol for some time so we do not envisage any major changes to the way we work or the cost of our Pre-Action Stage.

The most notable change will, of course, be the requirement to allow at least 30 days for a debtor to respond to a LOC and wait a further 30 days after any subsequent documentation/information has been provided. In reality, this will simply extend the timeframe in which we will be actively attempting to provoke payment without the need for legal proceedings.

If you have any queries or wish to discuss a specific debts matter, please do not hesitate to contact any of the Debts Team on 01775 764 156.