On 1 October 2017 a new Pre-Action Protocol comes into effect for debt claims, where the Creditor is a business (including sole traders and public bodies) and the Debtor is an individual (including a sole trader).
The principle aims of this protocol, as with those covering other areas of the law, are to encourage early engagement between the parties, enable the parties to resolve matters without the need for Court proceedings, encourage the parties to act in a reasonable and proportionate manner and to assist in the efficient management of Court proceedings if those cannot be avoided.
Whereas beforehand the letter before claim may have only contained scant detail, now the letter needs to include a prescribed list of information including:-
The amount of the debt, interest and other Charges claimed.
The date of the agreement to which the debt relates, and the parties to that agreement.
If the debt is assigned, details of the original debt and creditor, when it was assigned and to whom.
If regular instalments have been offered, while being paid, an explanation of why that offer is not acceptable and why a Court claim is being considered.
Details of how the debt can be paid.
The letter will also need to include an up to date statement of account for the debt including details of any interest and administrative or other charges added plus a Reply form and a Financial Statement form as annexed to the protocol.
The letter of claim needs to be sent by post unless an alternative method has been agreed with the debtor. If the debtor does not reply to the letter of claim within 30 days, the creditor may then start Court proceedings subject to any obligations which the creditor may have to the debtor.
If a reply is received, the debtor will be allowed a reasonable period to take legal advice and in any event the creditor cannot start Court proceedings less than 30 days from receipt of the completed reply form or having provided any documents requested by the debtor whichever is the later.
Where the debtor indicates in their reply form that they require time to pay, the parties should try to reach agreement for the debt to be paid by instalments based upon the debtor’s income and expenditure. If the creditor does not agree to a debtor’s proposal for repayment of the debt they need to give the debtor reasons in writing.
If a partially completed reply form is received, the creditor should contact the debtor to discuss the reply form and obtain any further information needed to understand the debtor’s position.
Where any aspect of the debt is disputed the parties should exchange information and disclose documents sufficient to enable them to understand each other’s position and if the debtor requests any documents the creditor should provide those or else explain why they are not available within 30 days of receipt of that request.
If the parties still cannot agree about the existence, enforceability, amount or any other aspect of the debt, they should both take appropriate steps to resolve the dispute without starting Court proceedings and, in particular, should consider the use of an appropriate form of Alternative Dispute Resolution (ADR). This could be informal discussions or else more formal process such as a complaint to the Financial Ombudsman or, especially, where the debt is large, mediation.
If the parties reach agreement concerning repayment of the debt the creditor should not start Court proceedings whilst the debtor complies with that agreement. If the creditor wants to start Court proceedings at a later date in the event of default by the debtor, they must still send an updated letter of claim and comply with the protocol afresh but you do not need to send the supporting documentation if that was sent within the preceding 6 months.
If Court proceedings are brought, the Court will expect the parties to have complied with the protocol and it is likely that the Court would sanction a party that has not complied with the protocol.
If agreement cannot be reached then the creditor must give the debtor at least 14 days’ notice of its intention to start Court proceedings save where there are exceptional circumstances, for example where a limitation period is about to expire.
Clearly, one of the principle rationales behind this new protocol is to reduce the number of debt claims which come before the Courts and these requirements as set out in the protocol require the parties to ensure that they comply else face the consequences of not doing so should litigation ensue.