New Debt Recovery Protocol; what businesses need to be aware of…

On 1 October 2017, there will be a new Pre-Action Protocol to follow for debt claims involving businesses pursuing individuals. To be clear the new Protocol does not apply to business to business debts unless the debtor is a sole trader.

The most important change companies should be aware of is to the Letter Before Action which needs be sent by post to the debtor before proceedings are issued.

The new Protocol sets out various details that need to be included in the letter, specifically;

  • The amount of the debt and whether interest or other charges are continuing to accrue;
  • Details of how the debt has arisen, and details of the Agreement itself;
  • If the debt has been assigned, details of the original creditor, and the assignment;
  • If instalment payments have been proposed, why this proposal is being refused;
  • Details of how the debt can be paid, and how to proceed should the debtor wish to discuss options; and
  • The address where the Reply form should be sent.

The new Protocol also sets out enclosures that are required to be provided with the Letter Before Action, including;

  • A copy of the Information Sheet annexed to the Protocol, which sets out the debtor’s rights and applicable procedure;
  • A copy of the Reply Form annexed to the Protocol, which the debtor will use to respond to the allegations set out in the letter;
  • A copy of the Financial Statement Form annexed to the Protocol;
  • And one of the following;
  1. An up to date statement of account, including details of interest and administrative charges;
  2. The most recent statement of account, with the interest incurred set out in the letter along with details of any administrative charges; or
  3. Where no statements are provided, the letter must state the amount of interest incurred and any administrative or other charges imposed since the debt was incurred.

Debtors should reply to the Letter Before Action using the standard Reply Form. They must include any request for documentation, as well as any documents they believe are relevant, with their Reply. This should be returned within 30 days of receiving the Letter Before Action. Unless there are exceptional circumstances, where a debtor has replied to the Letter Before Action, a creditor should give the debtor at least 14 days notice of their intention to start court proceedings.

Furthermore, a creditor must not start proceedings within;

  • 30 days from the date of the Reply;
  • 30 days from the date of sending the debtor any requested documentation; and
  • 30 days of the Letter Before Action.

Even then a creditor would be encouraged to delay the commencement of proceedings on the 31st day. A creditor must be able to show that they have acted reasonably at all times. To immediately issue proceedings would not allow sufficient time for the receipt of any document sent on the 30th day, and a creditor issuing on the 31st day may find it difficult to show that this was reasonable.

Where a debtor indicates their intention to pay but the need for more time, the creditor must seek to reach an agreement regarding instalment payments. If a creditor refuses a debtor’s repayment proposal they must set out their reasoning in writing, and again the creditor must be able to show that their actions were reasonable.

The main emphasis throughout the Protocol is ensuring that relevant information is exchanged and disclosed at the earliest opportunity so as to ensure both parties are aware of their respective positions. Alternative Dispute Resolution should be considered, even if this is simply a discussion or informal negotiations. Importantly a creditor must always remember the need to act reasonably throughout or else they are likely to face sanctions at a later date.

With these new requirements becoming key to all debt recovery matters, we strongly advise any company seeking to recover a debt, to get in touch with our Debt Recovery team. Our Debt Recovery department have various different costs structures to adhere to all levels of debt, and are vastly experienced in the various options and methods to best recover outstanding monies for both individual and commercial debts. If you have any questions please get in touch with Andrew Pay at Andrew.Pay@kitsons-solicitors.co.uk.