The new debt recovery claim protocol: Are you ready?

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Earlier this year the Ministry of Justice published the new and long anticipated Pre-Action Protocol (“PAP”) on debt recovery claims which comes into force on 1 October 2017. Credit control specialist Tracey Perrett provides an overview of the new requirements.

The new debt recovery claim protocol applies where businesses are seeking to recover debt from individuals. The protocol does not apply to business-to-business debts unless the debtor is a sole trader.

It will  include claims where creditors are seeking to recover from people who have given a personal guarantee for the debts or liabilities of another party.

If there is another specific Pre-Action Protocol covering the type of dispute involved, then that Pre-Action Protocol must still be followed.

At present a number of Protocols are in place, including:

  • Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property;
  • Pre-Action Protocol for the Construction and Engineering Disputes;
  • Pre-Action Protocol for Claims for Damages in Relation to the Physical State of Commercial Property at Termination of a Tenancy.

However, the vast majority of court cases relate to debt disputes which do not fall within the existing protocols. So, from the 1 October 2017 the new debt recovery claim protocol will apply. It is anticipated that this will have a significant impact on how debt claims are now pursued and defended.

Penalties for failing to comply with the new debt recovery claims protocol

All businesses should be looking at their debt recovery processes and adapting them so they comply with the new protocol. Penalties await those who breach the protocol. The sanctions for non-compliance with the protocol are:

  • Putting court proceedings on hold;
  • Disallowing interest;
  • Awarding more interest;
  • Making an order of costs against a defaulting party.

Protocol requirements that credit controllers need to be aware of

Letters of Claim must contain the prescribed information detailed within the protocol. The creditor then has 30 days to respond. There is a standard Reply Form that should be used and the creditor cannot issue court proceedings for at least 30 days following receipt of the Reply Form.

The debtor is invited to complete a standard Financial Statement Form if they are admitting the debt, but seeking time to pay. The debtor must complete the appropriate box if he is obtaining advice and be given reasonable time to obtain that advice and respond.

Should the debtor dispute the debt they must give reasons in their Reply Form. They may request further documents and these must be provided within 30 days of the request. The creditor cannot issue proceedings until 30 days after the documents have been provided. In the event that the creditor and the debtor cannot resolve the dispute Alternative Dispute Resolution should be considered.

The time limits for debtors have been significantly increased and should be factored into any businesses credit control procedure.

After receipt of the Reply Form the following steps should be taken:

  • Exchange information and documents;
  • Consider settlement options – including mediation or other alternative settlement discussions;
  • The creditor must give 14 days notice of the intention to start Court proceedings.

Practical points for credit controllers to consider

  • Review and possibly shorten credit control processes prior to sending a letter of claim;
  • Amend template debt recovery claim Letters of Claim
  • ensure key documents are disclosed;
  • Follow the protocol and, in particular, engage with a debtor’s reasonable requests for information and the supply of documents;
  • Use the pre-action period to seek useful information and documents from the debtor;

The new protocol in summary

The introduction of the new credit recovery claim protocol revolutionises the legal procedures for debt recovery claims.

Failure to comply with the protocol can lead to serious sanctions being imposed by the courts.

Whether you are a creditor or debtor, be sure to know what you are required to do when dealing with a claim under the new protocol.

Fixed fee legal services: Assistance for credit controllers

Slee Blackwell are offering to assist creditors who are pursuing debts under the new protocol to ensure they are complying with the requirements and steering clear of penalties.

We can prepare and submit protocol compliant Letters of Claim on a fixed fee basis.

We also offer assistance with resolving disputes, achieving settlements and negotiating payment plans to avoid costly court proceedings.

 For further details contact Tracey Perrett on 0808 139 1606 or email her at [email protected]