A new way of recovering debts
Sep 11, 2017
The way in which businesses should go about recovering debts is changing.
On 1st October 2017, the Pre-Action Protocol for Debt Claims will come into force. It will require businesses (including sole traders) that are owed money by individuals (and not by another business, unless that business is a sole trader) to follow a prescribed process before issuing a debt claim in the courts. It’s aimed at encouraging the parties to share information and to communicate and co-operate at an early stage to get the issue resolved without the need for litigation.
There are fixed stages in the process, beginning with a Letter of Claim setting out details of the debt and inviting the debtor to make payment or discuss payment options. The debtor has 30 days to reply, failing which the creditor will usually be free to start court proceedings.
Any reply to the Letter of Claim has to be in the prescribed Reply Form which should be sent by the Creditor with the Letter of Claim. This is the debtor’s chance to indicate whether they accept or dispute the debt, ask for more information/documentation, or explain that they are taking debt advice. In any event, proceedings should not be started any earlier than 30 days from receipt of the completed Reply Form or, if the creditor provides the information requested in the Reply Form, within 30 days of providing that information (whichever date is the later). If the debtor has said that they are taking debt advice, reasonable additional time should be allowed.
The process may well lead to a dialogue between the debtor and creditor with a view to agreeing a repayment plan. However, if the dispute remains then the parties are encouraged to look at Alternative Dispute Resolution (ADR) mechanisms such as negotiation or mediation.
The consequences of non-compliance with the pre-action protocol will usually be financial. If proceedings go on to be issued, the party that hasn’t co-operated could face having to pay costs.
As lawyers, we have long been strong supportersof court action being used only as the very last resort. And, while businesses keen to recover money owed to them will find themselves having to wait for the pre-action timetable to pass, we are hopeful that this protocol will further strengthen businesses’ hand in recovering their debts in a reasonable, proportionate, commercial way.
For more advice or initial assistance regarding any debts payable under current or new legislation, please contact our Litigation Department who will be happy to assist you further and discuss the best way forward. Call 01264 353411, email: email@example.com or fill in our no obligation enquiry form and we will be in touch shortly.
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