On 1 October 2017, the new Pre-Action Protocol for Debt Claims came into effect, which could potentially have a far-reaching impact on UK businesses that have outstanding debts due from individuals.
The Protocol applies in circumstances where a business (including a sole trader) is pursuing debts from an individual (including a sole trader). It does not apply to business to business debts unless the debtor in question is a sole trader.
The Protocol describes the conduct the court expects from both parties, with an emphasis on parties trying to settle matters without court proceedings. The aims of the Protocol are as follows:
- To encourage early engagement between parties, including the early exchange of sufficient information in relation to any deeper issues in the dispute.
- To enable both parties to resolve matters out of Court where possible.
- To encourage both parties to act in a reasonable and proportionate manner in any dealings with one another.
- To support the efficient management of any proceedings.
Concerns have been raised that the debt recovery process could become more complex for creditors under the new rules, as more obligations are being imposed on them. In particular, creditors must ensure they provide certain minimum information within the letter they must provide before a claim, and provide the debtor with an Information Sheet and Reply form (in the prescribed form) along with a Financial Statement. Creditors will also need to be much more proactive in terms of engaging with debtors and exchanging information with them.
The new Protocol also potentially allows for increased scope for delaying collection by intransigent debtors, as a debtor now has 30 days to respond to the letter before claim, meaning that the creditor will have to wait at least 30 days before court proceedings can be issued.
Businesses are therefore being advised that greater patience will be needed when collecting outstanding debts, as the prospect of imminent Court proceedings will no longer be able to be used as a pressure tool. Indeed, failures to comply with the Protocol could result in a further delay in the collection of debts, especially if legal proceedings need to be stayed in order to remedy failures to comply with the new rules.
Furthermore, additional costs and sanctions may now be imposed in instances where a creditor fails to comply with the Protocol.
It is therefore important that businesses are aware of and comply with the new Protocol when pursuing business debtors.
The Commercial Litigation team at Palmers Solicitors are able to advise on all kinds of business disputes, including late payments and debt recovery. For more information about any of our services, including our Commercial Debt Recovery Scheme, please contact Luke Morgan at lmorgan@palmerslaw.co.uk