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The Second Draft Pre-Action Protocol: A balanced proposal addressing the interests of creditors and debtors?

December 2015

The Second Draft Pre-Action Protocol: A balanced proposal addressing the interests of creditors and debtors?

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Introduction

In September 2014, a consultation by the England & Wales’ Civil Procedure Rule Committee (the CPRC) on the first draft Pre-Action Protocol for Debt Claims closed. At that time, the pre-action provisions in force governing debt claims were found in Annex B to the general Practice Direction on Pre-action Conduct. 

However, Annex B was replaced on 6 April 2015 by the new general Practice Direction on Pre-Action Conduct and Protocols (PD-PACAP). As a result of there being neither a standalone debt pre action protocol nor retention of the debt provisions in Annex B, the interim result has been a ‘debt provision vacuum’, with stakeholders waiting for the outcome of the consultation.

Fast forward to November 2015 and the CPRC has published a second draft Pre-Action Protocol for Debt Claims (the Debt Protocol), prepared by the CPRC sub-committee which this time has included co-opted members with specific debt sector experience.  

A summary of the Debt Protocol and its provisions 

As the Ministry of Justice highlights, the Debt Protocol’s core principle remains as before; debtors should be provided with sufficient information to enable them to obtain advice on their position prior to the commencement of a Court claim. 

Volume business creditors are likely to still consider that the second draft unnecessarily duplicates processes that they already follow as a result of their financial regulatory obligations. Also, the second draft includes time periods similar in length to those that were included in the first draft, which are significantly longer than have been applicable in the past. These are therefore amongst a number of factors, which creditor stakeholders are likely to highlight in their responses to the consultation on the second draft. 

However, the proposed Debt Protocol has been significantly altered in a number of other ways compared to the first draft. Creditor stakeholders are likely to welcome some of these alterations, even if they do not consider that the changes go far enough. The second draft has the following features: 

  • A two-stage approach is set out in relation to information and documents to be provided by creditors. This will go some way to addressing stakeholders’ concerns about the volume of paperwork and information that every debtor would have received under the first draft.
  • It expressly makes clear that the protocol is intended to complement any regulatory regime to which the creditor is subject (for example, the Financial Conduct Authority’s Consumer Credit Sourcebook) and that where there is inconsistency between the protocol and a specific regulatory obligation, then the regulatory obligation shall take precedence. That does not appear to mean however that where, for example, information or documentation has been provided already, in other words before the ‘Letter of Claim stage’, the provisions relating to the Letter of Claim as set out in the Debt Protocol do not need to be followed to comply with the Debt Protocol.
  • The Letter of Claim should:
    • Contain certain information such as the amount of the debt, whether interest is running, details of the original creditor where the debt has been assigned, details of how to pay and the address to which to send a reply.
    • Include an up-to date statement of account or instead (as a revision to the provisions of the first draft protocol) include either the most recent statement of account with any further interest and charges added since it was prepared, or where no statements have been delivered, details of the amount of interest and charges since the debt was incurred.
    • Where the debt arises out of a written agreement, enclose a copy of the contract although notably (as a change from the first draft protocol), it will not be mandatory to include a copy with the Letter of Claim where providing a copy as standard is disproportionately burdensome to the creditor.
    • Enclose a ‘user friendly’ Information Sheet (effectively replacing the first draft protocol’s provision that the creditor should provide a copy of the protocol itself) and a Reply Form, both of which are in a prescribed layout. Amongst the matters in the Reply Form about which the debtor is asked to provide information are: whether the debtor agrees that they owe all or part of the debt and, if not, why they do not owe the debt; repayments proposed; information about debt advice being sought by the debtor; and any documents not included in the Letter of Claim which the debtor wishes to have (such as a copy of any written contract, a full statement of account, an interest calculation, information about administrative charges and any notice of assignment of the debt if relevant).
    • Include a ‘Statement of Means’ form (which is part of the Reply Form) for the debtor to complete and return where they agree to pay the debt but state that they cannot pay it all at once. A template Statement of Means form is included in the draft Reply Form. The information to be given by the debtor is intended to enable the creditor to assess the debtor’s income and expenditure and assist the parties to agree a reasonable repayment proposal which is affordable for the debtor.
    • Be delivered by post, unless the debtor has explicitly requested that correspondence should not be sent by post and has provided alternative contact details (such as an email address). The creditor may, in any event, send a duplicate by other means, such as by email.
    • Give the debtor 30 days to respond with the Reply Form.
    • If the debtor requests information or copy documentation, the creditor must within 30 days either provide it or give an explanation of why it is unavailable.
  • If the debtor indicates they are seeking advice, the creditor should not commence Court proceedings fewer than 30 days from the later of the date of the creditor’s receipt of the debtor’s completed Reply Form or the date of the creditor providing documents requested by the debtor.
  • If the debtor wishes to seek advice and is unable to obtain it within 30 days of their Reply Form, then the debtor must provide details about this in the Reply Form and the creditor should allow a reasonable amount of extra time to the debtor to obtain that advice.
  • Where the debtor has responded to the Letter of Claim but agreement has not been reached, the creditor should give the debtor at least 14 days’ notice of their intention to start court proceedings.

Finally, the Debt Protocol includes guidance on alternative dispute resolution and the Court’s expectation that parties will comply with the protocol.

Conclusion

The introduction of a debt specific protocol appears to be without question, because it has been in the pipeline since Lord Justice Jackson’s wide ranging report on civil justice published in 2010. That stakeholders involved in the debt sector will need to implement changes to their existing processes when the form of the debt specific protocol has been finalised, naturally follows. 

What has been and remains in question is the detail around expected changes, the timing of their introduction and therefore how and when stakeholders will need to adapt. The Debt Protocol is under consultation until 11 January 2016 and thereafter it may well yet see further revision or amendment. Creditor stakeholders are still likely to focus on the following areas for example:

  • although aspects of the first draft have been removed which were criticised for creating unnecessary administrative work and voluminous amounts of paperwork,  the second draft has not reduced it enough meaning that there will still be disproportionate costs associated with the current proposal which, ultimately, will be shouldered by debtors generally .
  • the timescale for response to the Letter of Claim remains similar to that set out in the first draft (actually increased to 30 days compared to the originally proposed 28 days), alongside the introduction of an option for creditors to seek more information, documentation and/or time if they specifically request it.
  • there remains room to remove regulatory duplication.

Consequently, it is fair to conclude that although the Debt Protocol may be implemented without further substantive amendments having sought to strike a better balance, there are still areas likely to attract attention from creditor stakeholders. The consultation invitation does not state by when the finalised Debt Protocol is expected to be implemented.

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