New Debt Recovery Rules from 1st October 2017
Rob Winder explains the new debt recovery rules, brought into force on 1st October 2017.
New Debt Recovery Rules
The Pre-Action Protocol for Debt Recovery (“the protocol”) came into force on 1st October 2017. The protocol applies to any business, including sole traders and public bodies, claiming debt from an individual.
The protocol lays down a set procedure which the courts will have expect to have been followed before considering issuing Court Proceedings.
It does not apply to business-to-business debts unless the debtor is a sole trader.
Steps required by the protocol
1. Initial information to be provided by the creditor
The creditor is required to send a letter of claim to the debtor, which should contain the following information:
- Amount of the debt.
- Whether interest or other charges are continuing.
- The date of the letter, towards the top of the first page.
- If the debt arises from an oral agreement, who made the agreement, what was agreed, and when and where it was agreed.
- If the debt arises from a written agreement, the date of that agreement, the parties and the fact that a written copy can be requested from the creditor.
- Statement of account for the debt, including the amount of interest and any other charges imposed since the debt was incurred.
- Where the debt has been assigned, details of the original debt and creditor, when it was assigned and to whom.
- If the debt is currently being paid on behalf of or by the debtor, an explanation of why these payments are not acceptable and why proceedings are being considered.
- Details of how the debt can be paid, and what the debtor can do if it wishes to discuss payment options.
- An Information Sheet and Reply Form (Annex 1 of the Protocol).
- A Financial Statement for the Debtor to complete, (Annex 2 of the Protocol).
The creditor should post the letter either on the day it is dated or, if that is not reasonably possible, the following day. The Protocol states that the letter should be sent by post, unless the debtor has made an explicit request that it should not be sent by post and has provided alternative contact details.
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.
2. Response by the debtor
The debtor should use the standard Reply Form (annex 1 to the protocol) to respond.
The debtor can request copies of any documents from the creditor, and enclose documents they think are relevant.
The creditor should not start court proceedings less than 30 days from receipt of the completed Reply Form, or 30 days from the creditor providing any documents requested by the debtor, whichever is later.
If the debtor indicates that they are seeking legal advice, the creditor must allow the debtor a reasonable period of time to do so, which can be over 30 days in some circumstances.
3. Disclosure of documents
The parties should exchange and disclose documents as early as possible, to help them understand each other's position. The creditor must provide documents or information (or otherwise explain why the documents or information requested are not available) within 30 days of any request.
4. Taking steps to resolve the matter and alternative dispute resolution (ADR)
If the parties cannot come to an agreement about the repayment of the debt, they should consider using an appropriate form of ADR. If the parties reach an agreement for repayment of the debt, which the debtor subsequently breaches, the creditor must send an updated letter of claim and comply with the Protocol afresh before issuing court proceedings.
5. Compliance with this Protocol
The court will expect the parties to have complied with the Protocol if the matter proceeds to litigation, and will consider any non-compliance when giving directions for case management. This can include, but is not limited to, a costs orders being awarded against the non-compliant party, an order that the debtor does not pay the costs of a successful claimant or staying the court proceedings and ordering the creditor to comply with the various steps above. Therefore, it is very important that the Protocol is complied with.
6. Final Letter before Action
If the debtor responds to the letter of claim but an agreement is not reached, the creditor should give the debtor at least 14 days' notice of their intention to start court proceedings.
For more information on the The Pre-Action Protocol for Debt Recovery contact Rob Winder at firstname.lastname@example.org.
About the author
Senior Associate Rob leads the Debt and Property Recovery team and is head of the Penrith office.