Pre-Action Protocol for Debt Claims

On the 1st October 2017 the Pre-Action Protocol for Debt Claims will come into force.

The purpose of the Pre-Action Protocol is to try and engage both parties into early communication in an attempt to avoid Court proceedings.

This new Protocol means that Creditors will have to abide by more stringent rules in chasing debt before Court proceedings can be issued. Creditors are required to provide the individual who owes the debt with the following information before court action is taken:

  • The amount of the debt
  • Whether interest or other charges are continuing
  • (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 to the agreement, a copy of the agreement or stating that a copy can be requested from the creditor
  • A statement of account for the debt, including the amount of interest and any other charges imposed since the debt was incurred
  • Details of how the debt can be paid and what the debtor can do if they wish to discuss payment options

The Pre-Action Protocol will only apply to any business claiming payment of a debt from an individual (including a sole trader). It does not apply to business-to-business debts unless the debtor is a sole trader.

Letter of Claim

A letter of claim is to be sent to the debtor and it must include the following.

  • The amount in which you are claiming (including any interest)
  • Whether the interest or other charges are to continue to accrue
  • Details of how the debt arose. i.e. If the debt arises from an oral agreement you should confirm who made the agreement, what was agreed, and when and where it was agreed or if the debt arises from a written agreement you should confirm the date of that agreement, the parties to the agreement enclose a copy of the agreement or confirm that a copy of the agreement can be requested from the creditor
  • An up-to-date statement of account
  • Details of how the debt can be paid and what the debtor can do if they wish to discuss payment options
  • Enclose the Information Reply Form. (This can be downloaded below)
  • Enclose a Financial Statement for the debtor to complete. (This can be downloaded below)

After sending the letter of claim the debtor will have 30 days to reply. (You should take into account that the debtor may have only posted their reply towards the end of that period).

Debtors Reply

If a debtor indicates that they require more time to pay, then a Creditor should look to agree affordable sums for repayment over an agreed period of time in line with the completed financial statement which should have been returned by the debtor.

If the debtor indicates that they are seeking legal advice, the Creditor must allow the debtor a reasonable period of time to do so.

Finally, both parties should exchange and disclose documents as early as possible, to help them understand each other's position. The debtor can request copies of any documents from the Creditor not already sent with the letter of claim. If this request is made then the Creditor must then provide documents or information (or otherwise explain why the documents or information requested are not available) within 30 days of the request.

In the event the parties cannot come to an agreement about repayment of the debt or there is a dispute on substantial grounds, they should consider using an appropriate form of Alternate Dispute Resolution (ADR), for example a without prejudice meeting or mediation.

Starting court proceedings

If all the above fail then Court proceedings can be issued. However, Court proceedings should not be started until 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 simply doesn’t reply to the letter of claim within 30 days of the date of the letter, then Court proceedings can be issued.

If the debtor responds to the letter of claim but an agreement is not reached, the creditor can commence Court proceedings but should give the debtor at least 14 days' notice of their intention to do so.

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 could mean that even if successful a Creditor who has not complied with the Protocol could be penalised on costs.

If you have any queries regarding the new Protocol, please do not hesitate to contact us.

Download the Reply Form
    
Download the Financial Statement