A new set of rules came into effect on 1 October 2017 governing how debt claims can proceed. The Pre-Action Protocol for Debt Claims has certain specific aims which are:
- to encourage earlier, and better, communication between parties in dispute
- to encourage these parties to act reasonably and proportionately
- to settle disputes, where possible, outside court
Where proceedings are unavoidable, the protocol wants to help ensure that they are more efficient.
However, these new requirements place a heavier burden on those claiming from the outset, including incurring more costs for creditors earlier in the process.
What Does the Pre-Action Protocol Involve?
“The new rules expect a greater level of detail from claimants earlier on,” explains Jan Firth, of Firth Law, specialist in debt collection and enforcement, “and will apply to any business claiming payment of a debt from an individual.”
The protocol includes sole traders and public bodies as claimants, but excludes any business-to-business debts.
“This means it will apply to business-consumer claims, or those situations where both parties are sole traders,” Jan explains.
The protocol sets out clear stages, each of which will require the completion of detailed documentation. It also requires that the claimant supply the debtor with a comprehensive reply form with specific questions regarding the debt, methods of repayment, information about debt repayment and attached documents.
“It also sets out specific time limit of 30 days for the debtor to reply to the Letter of Claim,” Jan adds.
“Significantly, the new Letter of Claim is a much more comprehensive document than its predecessor, the Letter Before Action, which claimants completed before the start of any legal proceedings.”
Front-loading the Process
Essentially, the protocol means that any business wanting to make a claim against an individual must have all its supporting evidence and documentation ready at the start.
“From a cost viewpoint, the claimant may have to, effectively, invest more time and money in their claim before making it”
This includes ensuring documents are attached to the Letter of Claim encouraging the debtor to accept the debt in full or in part, and explaining how payment should be made. The debtor will need to complete the four-page reply form within the 30 days.
“If the object is to reduce the number of cases coming to court, or to help bring down the number of debt claims defended based on a lack of documentation, this may do so by potentially discouraging the claimant,” Jan says.
In other words, while the protocol has certain stated aims, its introduction may have very different consequences.
“The risk is that the new protocol will increase the number of documents in circulation, while deterring creditors,” Jan concludes.