The new debt recovery protocol came into force on 1 October 2017 and applies to any business claiming a debt from an individual. It will not apply to business-to-business debts, unless the debtor is a sole trader, nor if another protocol applies to the debt.
The new protocol aims to ‘encourage early engagement and communication between parties’, including early exchange of information about the matter, thus, avoiding court proceedings wherever possible. Under the new protocol the Creditor must send out a comprehensive letter of claim which must include:-
l Interest rate charged on the outstanding debt; and
l Details of how the debt arose and the type of agreement it relates to.
This letter must enclose a statement of account, reply form, information sheet and a financial statement.
The debtor has thirty days to reply, during which proceedings should not be issued. If the debtor requires more time to pay, the parties should attempt reaching an agreement to pay instalments based on the debtor’s income and expenditure.
Should the debtor return a partially completed reply form this should be taken as attempt to engage with the matter and the creditor should attempt to discuss it further. As with any protocol the Court expects compliance. Should the Creditor not comply they risk costs consequences once proceedings have commenced.
Introducing a time-frame for parties to correspond prior to issuing proceedings is beneficial. It allows time to negotiate and attempt settlement which helps to avoid the need to issue court proceedings. Whilst the new protocol encourages early settlement (by encouraging early disclosure of documents and consideration of alternative dispute resolution) there are issues for Creditors where the debt falls under the £10,000.00 limit. Such claims fall within the small claims track limit where costs are generally not recoverable bar fixed costs and disbursements. It follows that associated costs, in complying with the new pre-action protocol for claims under £10,000.00, are unlikely to be recoverable.
The need for creditors to comply with the time-frame set down in the protocol may in certain circumstances mean debtors use the additional time to delay payment. Therefore, it is likely that we will see an increase in the issue of bankruptcy proceedings and the use of the Insolvency Act 1968 for undisputed debts of £5,000.00 and more instead of complying with the new protocol.
Author, Rachel Upton, a Solicitor in the Civil Litigation department at Duncan Lewis Solicitors, has extensive experience in debt recovery, insolvency, enforcement and contractual disputes. Contact her on [email protected] and 020 3114 1244
Duncan Lewis Civil Litigation Solicitors
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