By Tom Smith, partner and head of dispute resolution, Forbes Solicitors.
On 1 October 2017, the all new, snappily entitled Pre Action Protocol for Debt Claims came into force, codifying the behaviour that the courts will expect from creditors before they seek to recover payment through the courts.
The provisions are, on the face of it, quite onerous to creditors, expecting exchange of detailed information and allowing significant time before court proceedings should be issued.
So who does it apply to?
It applies to all businesses seeking to recover money from individuals. The good news is that it does not include limited companies or partnerships. The bad news is that it does include sole traders.
As such, most businesses supplying goods or services will be caught by the Protocol in some way or other.
So what are the new requirements?
They mostly relate to the provision of information and timeframes, which were not previously prescribed. In particular:
- The Debtor will have 30 days to respond to a letter before claim
- There is a heavy burden on creditors to provide documentation to accompany a much more detailed letter before claim:
- Full details of the basis of the agreement need to be included;
- An up to date statement of account needs to be enclosed
- An Information Sheet
- A Reply Form
- A Financial Statement form
- The debtor may request further time for up to 30 additional days to seek advice, time to pay or request further documentation
- If the debtor responds to the initial letter but no agreement is reached, a further 14 days’ notice of court proceedings must be given.
So what is the aim of the protocol and will it succeed?
The aim is to encourage parties to exchange information early in the process to avoid the need to instigate court proceedings.
Whilst that is a noble ambition, the amount of documentation that creditors will have to prepare is significant and the risk is that debtors use the prescribed time limits and burnens on the creditors to delay paying even further
One clear flaw is that the significant documentation (12 or 13 pages we think) will have to be sent by post unless express consent to receive emails is obtained. That means expensive printing and postal charges, in addition to having to wait for the debt to be paid!
Our suggestion to clients is that we can help to make sure they are protocol compliant early on in their credit control process or as soon as it appears that payment may not be forthcoming promptly.
That way, you will not be obliged to delay any further if you have to instruct solicitors to instigate a court claim to recover the monies and we can proceed straight to final demand and issuing the claim.
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