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Details of the final version of the Pre Action Protocol for Debt Claims confirmed

April 2017

Details of the final version of the Pre Action Protocol for Debt Claims confirmed

On 22 March 2017, the final version of the Pre-Action Protocol for Debt Claims (the Protocol), to be annexed to the Civil Procedure Rules of England & Wales was published, with an implementation date of 1 October 2017.

The Protocol will apply to all civil court claims by a ‘business’ seeking payment of a debt from an ‘individual’ (including sole traders), unless the claim is of a type already covered by another Pre-Action Protocol (such as the mortgage possession claims PAP). 

The main requirements of the Protocol include:

  • Changes to the information which must be included in the Letter of Claim/Letter Before Action.
  • Documentation which must be sent to the debtor with the Letter of Claim/Letter Before action.
  • The response time periods.

Letter of Claim / Letter Before Action

The Protocol stipulates that the creditor must issue a Letter of Claim (LoC) to the debtor before commencing litigation proceedings and provides mandatory requirements for its content, as well as set enclosures, which include:

  • The LoC should refer to the amount of the debt as well as any interest and charges.
  • Full details of the written (or oral) agreement should be set out, as well as the option for the debtor to request a copy of the written agreement. 
  • In the event that the debt has been assigned, the LoC must provide the details of any assignment. 
  • If instalments are being paid against the debt, but the creditor is still wishing to commence a court claim, the LoC should provide an explanation as to why the current arrangement is unacceptable.

Letter of Claim enclosures

On receipt of the LoC, the debtor can respond by way of a standard ‘tick box’ style Reply Form, a copy of which (in the form as annexed to the Protocol) must be given by the creditor to the debtor with the LoC. Other items that must be included with the LoC include:

  • Reply Form (as above).
  • Standard Information Form and Financial Statement, to enable the debtor to set out their income and expenditure. The Standard Financial Statement launched by the Money Advice Service in March 2017 is annexed to the Protocol as an example, although it is not a mandatory requirement to use it.
  • Up to date Account Statement (detailing interest and charges added).

If such a statement is not available, creditors are able to provide the most recent statement along with confirmation in the LoC of any interest and charges which have been applied since the account statement provided (or since the debt was incurred, if applicable).

The LoC must be delivered in paper format by post, unless expressly agreed otherwise with the debtor (the Protocol makes clear that a standard clause in an agreement is not sufficient for this purpose).

The response

The creditor must give the debtor at least 30 days from the date of the LoC to respond. Any requests for documents by the debtor should be made at this stage. If the debtor states that advice is being sought, the creditor must allow a reasonable period for the advice to be obtained and should avoid issuing proceedings until 30 days from receipt of the completed Reply Form, or from the creditor providing the documents requested, whichever is later. 

If the debtor requires more than 30 days to obtain advice, the debtor must provide details as to why the advice cannot be obtained and also when it is expected to be received. The Protocol states that the creditor should then act reasonably in regards to providing extra time. In the event that time to pay is requested, attempts should be made for an agreement to be reached with due consideration afforded to the Financial Statement. If a repayment proposal is rejected, written reasons must be provided. 

In the event that no response is received, proceedings may be issued 30 days after the LoC. If a response is received and no agreement reached, the Protocol states that the parties should ‘take stock’ of their positions. In any case, in these circumstances, creditors are expected to provide a further 14 days’ notice of their intention to commence proceedings. 

Conclusion 

The Protocol introduces a number of new requirements which creditors and debtors are expected to follow before court proceedings are commenced. Compared to existing practices, the passage of time from LoC to the commencement of court proceedings is likely to increase from an average of 2 weeks to 30 days, but possibly up to 74 days or more in some cases. 

Although the Protocol states that the courts will not be concerned with minor and technical breaches, particularly when the matter is urgent, they do have the power to consider breaches and potential sanctions.  These could potentially include orders relating to the payment or rate of interest claimed/to be paid, costs orders, unless orders and other case management orders such as stays to seek compliance with the Protocol. 

A Protocol along the lines of what has now been published in its final form has been on the horizon for a while, so some creditors are likely to be at various stages of beginning their preparations to be ready for the 1 October 2017.  As a specialist debt litigation law firm, Optima’s preparation is naturally underway and we will be working with each of our clients affected by the Protocol over coming months to provide support and guidance as to how best to apply and implement it.  

In the meantime, any of our clients with queries or concerns regarding the Protocol should contact their Optima Client Relationship Manager or operational contact.

The full Protocol can be viewed here: https://www.justice.gov.uk/courts/procedure-rules/civil/pdf/protocols/pre-action-protocol-for-debt-claims.pdf

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