There is a new pre-action protocol for debt claims coming into force on 1 October 2017.
It applies where a business is claiming payment from an individual (including sole traders), but not to business-to-business debts. There are now certain principles that need to be complied with prior to issuing a claim which encourage communication and exchange of information early on with a view to avoiding court proceedings.
A much more detailed letter before action will be required. For example this must include information on the basis for the claim i.e. if the debt arises from an oral agreement: who made the agreement; what was agreed; and when/where it was agreed etc.
Additional paperwork must also be sent with the enhanced letter before action. This includes:
- An up-to-date statement of account for the debt;
- An Information Sheet (found at Annex 1 of the Protocol);
- A Reply Form (found at Annex 1 of the Protocol);
- A Financial statement for the debtor to complete (example found at Annex 2 of the Protocol).
The letter must be dated, and sent out the same day or the following day. The debtor has 30 days to respond before proceedings may be commenced. If the debtor does not respond then the creditor can issue proceedings so long as it gives 14 days’ notice to the debtor of its intention to do so.
The debtor should use the Reply Form, should indicate if he/she is seeking legal advice and must be allowed a reasonable period of time to do so (the 30 day period can be extended), he/she can also request copies of relevant documents and these should be exchanged to help understand each party’s position as early as possible. If the document(s) is unavailable then the relevant party must explain why.
The parties are, as usual, encouraged to consider Alternative Dispute Resolution if they cannot come to an agreement about repayment of the debt. If a creditor refuses an offer of repayment, it must explain why, and must still give 14 days’ notice of its intention to issue proceedings.
The creditor should not start proceedings until 30 days from receipt of a completed Reply Form, or 30 days after providing documents (whichever is later).
As usual, the court will take into account non-compliance of the pre-action protocol when giving directions and there may be costs sanctions.
The protocol can be found here.
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