The Ministry of Justice has published the final version of the new pre-action protocol for debt claims. This will come into force on 1st October 2017. It will apply where a business (including sole traders and public bodies) claims payment of a debt from an individual including a sole trader. Apart from the exception of the sole trader, it will not apply to other business to business debts.
The protocol describes the conduct the Court will generally expect to see before a Claim Form is issued.
An enhanced Letter of Claim (letter before action) is required. This should include:
- Details of the basis for the claim
- Dates and parties to a written contract
- In the case of an oral agreement, the actual words spoken, when and where
- Details of any assignment
This letter needs to include supporting documentation:
- An up-to-date statement of account
- Information sheet
- Reply form
- Financial statement form
Unless express consent is given, this information cannot be sent in electronic form.
The Letter of Claim will have to state if the original agreement is available on request. So as to avoid delay, it may be preferable therefore to enclose this.
The individual debtor is allowed 30 days to reply. They may:
- Admit or deny the debt
- Say they have no knowledge
- Make a payment or seek more time to pay
- Ask for more information/documentation
- Ask for time to take debt advice
The creditor will be expected to engage with the debtor regarding requests for more time/affordable payment plans. If more documentation is sought by the debtor, the creditor is to supply that within 30 days of request.
If there is a substantial dispute, then alternative dispute resolution should be considered.
The Court can impose sanctions for failure to comply with the protocol in terms of putting the Court action on hold, making adverse Costs Orders or depriving the creditor of interest/awarding interest at a higher rate (if the debtor is in default).
The protocol is likely to allow difficult debtors to further postpone payment increasing expense for the creditor.
In cases where the debt exceeds £5,000 and is undisputed service of a Statutory Demand giving the debtor 21 days to pay/apply to set that aside or face bankruptcy proceedings may prove a more effective debt collection tool.
Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.
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