Debt claim pre-action protocol
Introduced on 21st March 2017 by the Ministry of Justice, the new pre-action protocol for debt claims will come into force on 1st October 2017. This article sets out some of the key aims of the protocol and how these may affect a business.
What is the pre-action protocol?
Currently, there is no specific pre-action protocol in place for debt claims. Parties generally follow standard Practice Direction Pre-Action Conduct and Protocols as set out in the Civil Procedure Rules; however, Lord Justice Jackson identified a need in his January 2010 Final Report on Civil Litigation Costs for a specific debt claim protocol, stating that debt claims ‘constitute a huge swathe of the business of the courts’.
The stated aims of the new protocol are to provide debtors with a greater amount of detail before a claim is issued, allowing them to obtain advice and, ideally, for the parties to settle the claim before it reaches formal proceedings.
What will be the effect of the new protocol?
The protocol comes into force on 1st October 2017, from which date businesses pursuing recovery of a debt from an individual, including sole traders, should comply with its procedures before issuing any claim in the courts. ‘Business-to-business’ debts are unaffected by the protocol, save where the debtor is a sole trader.
The protocol encourages reasonable and proportionate behaviour by the parties, and the early communication and sharing of information to allow them to resolve the dispute outside of the court process.
Which steps does the protocol contain?
The protocol sets out the following key pre-action steps:
- Issuing of letter of claim
The creditor issues a letter to the debtor, setting out information required by the protocol and attaching an information sheet, a reply form and a standard financial statement form to be completed by the debtor. The debtor is given a 30-day period within which to respond, after which proceedings can be commenced. - Debtor’s response
The debtor should respond with a completed reply form, and may choose to request copies of certain documents. The creditor must wait 30 days following receipt of the reply form to commence proceedings; this may be longer where the debtor has requested further information or is taking advice. Parties should engage in discussion at this stage to understand their respective positions. - Disclosure of documents
Full disclosure of relevant documents is encouraged, again to promote discussion and resolution of the dispute. - Settlement or alternative dispute resolution
In keeping with the ethos of the Civil Procedure Rules and the Pre-Action Protocols, parties are encouraged to seek alternative dispute resolution where settlement cannot be reached between themselves, where the cost of mediation is proportionate to the debt.
Which steps should you take next?
The new pre-action protocol for debt claims affects businesses differently, and we recommend that you take advice as to the steps, if any, that you may need to take.
We invite our clients to contact our team to discuss more about the protocol and our procedures over the phone or in person.
