The New Pre-Action Protocol for Debt Claims: A Quick Guide

The Ministry of Justice have published the Pre-Action Protocol for Debt (“the Protocol”) which is to take effect on 1^st October 2017. As of this date parties will be required to comply with the Protocol before issuing proceedings and there may be costs consequences for any party that proceeds without complying with this Protocol.

Who will be affected by The Protocol?

The Protocol applies to any business (including sole traders and public bodies) claiming a debt from an individual (including a sole trader) although it will not apply where the debt is covered by another Pre-Action Protocol such as Mortgage Arrears.

The Protocol requires a creditor to send a debtor a Letter of Claim before proceedings are commenced. The Letter of Claim should –

(a) Contain the following information:

1. The amount of the debt;
2. Whether interest or other charges are continuing;
3. Where the debt arises from an oral agreement, who made the agreement, what was agreed (including as far as possible, the words used) and when and where it was agreed;
4. Where the debt arises from a written agreement, the date of the agreement, the parties to it and the fact that a copy of the written agreement can be requested from the creditor;
5. Where the debt has been assigned, the details of the original debt and creditor, when it was assigned and to whom;
6. If regular instalments are currently being offered by or on behalf of the debtor, or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered;
7. Details of how the debt can be paid (e.g. the method of and address for payment) and details of how to proceed if the debtor wishes to discuss payment options;
8. The address to which the completed Reply Form should be sent.

(b) Do one of the following:

1. Enclose an up to date statement of account for the debt, which should include details of any interest and administration or other charges added;
2. Enclose the most recent statement of account for the debt and state in the Letter of Claim the amount of any interest incurred and any administrative or other charges imposed since that statement of account was issued, sufficient to bring it up to date; or
3. Where no statements have been provided for the debt, state in the Letter of Claim the amount of interest incurred and any administrative or other charges imposed since the debt was incurred;
4. Where no statements have been provided for the debt, state in the Letter of Claim the amount of interest incurred and any administrative or other charges imposed since the debt was incurred;

(c) Enclose a copy of the Information Sheet and Reply Form which is provided in the Protocol; and

(d) Enclose a Financial Statement form. An example is provided in the Protocol.

Once the creditor has sent this letter, they should not start court proceedings before the expiry of 30 days from the date of the Letter of Claim.

Like other protocols, the aims of this protocol are to encourage early communications and settlement between the parties and to enable the parties to resolve the matter without the need to issue proceedings. There is some concern that the Protocol will simply allow debtors to delay the issue of the proceeding especially as it contains obligations to allow the debtor a reasonable time to seek advice. The Protocol simply documents a protocol which, save for the requirement of completion of specific documentation, was already followed by a large majority of creditors.

It remains to be seen whether the Protocol has any impact on the number of debt claims issued at Court or whether it simply creates further obstacles for a creditor, increasing their costs and allowing a debtor time to dissipate assets.

For more information on The Protocol and for further advice on how to recover outstanding debts contact a member of our litigation team and speak to an expert litigation lawyer. You can contact us on 020 7485 8811 or by filling in an online form.