The New Pre-Action Protocol for Debt Claims - increasing the burden on Creditors and a step back in time?

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08 June, 2017

The New Debt Protocol comes into force on 1 October 2017 and you need to prepare for the debt recovery consequences now! Not only does the new protocol increase the burden on creditors it also could leave you without payment for even longer.

Who does the protocol apply to?

It applies to any business that is attempting to recover money from an individual (including sole traders)

It does not apply to business to business debts (unless you deal with a sole trader)

What are the biggest changes?

  • The Debtor will have 30 days to respond to a letter before claim
  • There is a heavy burden on creditors to provide documentation to accompany a much more detailed letter before claim:
    • Full details of the basis of the agreement need to be included; if an oral agreement, who made it? What was agreed? When and where was it agreed? If it was a written agreement, what date? Who were the parties? You also need to explain that a copy of the agreement is available from the creditor upon request.
    • An up to date statement of account needs to be enclosed
    • An Information Sheet
    • A Reply Form
    • A Financial Statement form
  • The debtor may request further time for up to 30 additional days to seek advice, time to pay or request further documentation
  • If you receive a response to the initial letter but do not reach an agreement you must give the debtor a further 14 days' notice of court proceedings

What is the aim of the protocol?

The overall aim of the protocol is to reduce the need to take further action by issuing legal proceedings. There is a focus on front loading the disclosure obligations at the pre-litigation stage to encourage the parties to communicate and negotiate at the early stages.

This aim is in fact in line with our approach at Forbes Collect - to maximise your chances of recovery at the initial pre-litigation stage.

However, what about those debtors that refuse to engage with the process, do not respond and simply bury their heads in the sand? Our experience suggests that there are many debtors that do not engage with the process unless there is a CCJ registered against them that has a direct impact upon their credit rating. This appears to be especially the case with individuals. This has been reflected in the Civil Justice Statistics which were released in March 2017. The risk is that the new protocol is punishing creditors by making them wait even longer to recover your monies and allowing debtors yet more time to pay.

Further, the protocol already seems to be outdated in parts. One example is that the additional documentation must be sent by post and cannot be sent by email unless express consent is given. This really is a heavy burden as all 12 or so pages will have to be sent out by post. This may also have a contrary effect to the aim of the protocol as the sheer amount of disclosure may make debtors even less likely to engage with the process.

Similarly, the Debtor is encouraged to complete the Reply Form and Standard Financial Statement by hand which is most definitely a step back in time. It could also be argued that many debtors do not complete an Income/Expenditure form when it is sent out by the court or as part of negotiations so it doesn't make us hopeful that these will be completed accurately and truthfully at such an early stage.

Our tips for debt recovery in the face of these changes:

  • Put a more stringent credit control process in place now. Reduce the length of time you keep debts within your internal processes and pass the debts over for legal collection sooner
  • The quicker we can kick start the 30 day clock the better
  • As the debt recovery process is now so different for individuals (including sole traders) as compared to businesses it is more important than ever to clearly know who you are contracting with at the outset and have full details on file
  • If the debt is above £5000 consider insolvency action rather than pursuing a county court claim. It is now more of a threat, less cumbersome and quicker to send a statutory demand to the individual for payment

Failure to comply with this new pre-action protocol for Debt Claims may have detrimental cost consequences, further any claim you have made might be stayed to allow time for this additional disclosure.

For more information about the changes see the pre-action protocol here or alternatively contact our Forbes Collect team on 0800 689 4176 or for any advice or assistance.

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