All Change for Debt Recovery
Until now there has not been a specific pre-action protocol that related solely to the recovery of debt. All debt claims have to date been dealt with and governed by the more general “Practice Direction - Pre Action Conduct and Protocols” which apply to disputes where none of the other pre-action protocols apply. That is about to change as, with effect from 1 October 2017, a new pre-action protocol on debt claims comes into force.
As with other pre-action protocols the courts will expect the parties to have exchanged information to:
The new pre-action debt protocol applies to any business claiming payment of a debt from an individual. This includes a claim for payment against any person who operates as a sole trader or partner in a partnership. The protocol does not apply to business to business debts (unless the debtor is a sole trader or partner) so claims against a company, limited liability partnership (LLP) or other body corporate will not be caught by the new protocol.
When pursuing a claim for payment of, say, an outstanding invoice, the new protocol is very specific about the information the creditor must give to debtor at the outset. The information that a court will expect a creditor to give to a debtor includes:
Given the above it's clear that letters before action in current use will require amendment in order to become compliant with the protocol.
In addition to the information that must be given to the debtor the protocol also expects creditors to comply with the following steps:
If, following receipt of the letter of claim, the debtor notifies the creditor that he is seeking debt advice (legal or otherwise), the creditor must allow the debtor reasonable time to obtain that advice. The protocol stipulates that the creditor must give the debtor at least another 30 days before starting court proceedings.
If the debtor responds to a letter of claim but agreement cannot be reached between the parties, then the creditor is required to give the debtor a further 14 days notice of an intention to start court proceedings. In these circumstances, court proceedings can't be started any earlier than 44 days from sending the initial letter before action.
Where it comes to the attention of the court that either of the parties has failed to comply with the protocol then it has the ability to make the following orders:
Whilst this new pre-action protocol has been anticipated for a while now its unlikely to be regarded as a welcome addition to the current pre-action protocols not least because the new steps are likely to significantly elongate the debt recovery process. In our opinion it is too “debtor friendly” and as a result open to abuse. Creditors, including Factors, will need to make sure they act quickly in order to avoid delays and the initial letter before action should be issued as soon as possible after non-payment.
Should you require further information, please contact William Angas, Nigel Davidson or Laura Sutton.
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