Pre-Action Protocol for Debt Claims: What you need to know before October 2017

Pre-Action Protocols are a series of steps the court expects the parties to take before starting a claim at court. There are 13 claims specific Pre-Action Protocols currently in force; these include protocols for professional negligence, construction and engineering disputes, defamation, personal injury. Pre Action protocols are approved by the court and can be found annexed to the Civil Procedure Rules (a procedural code that applies to all civil claims started in England and Wales after April 1999).

There has never been a protocol for debt recovery claims and in these types of cases the Practice Direction Pre-Action Conduct and Protocols will apply. However, following Lord Jackson's review of litigation costs in 2010 he recommended that a protocol for debt recovery claims be introduced. As currently drafted the Pre-Action Protocol for Debt Claims ('PAP') is intended to apply to any business (including sole traders and public bodies) claiming payment of a debt from an individual. The final draft of the PAP will come into force on 1 October 2017.

It is important that businesses faced with those who won't pay adhere to this protocol before taking steps to start a claim in court. Failure to do so could result in cost penalties at the end of court proceedings.

The aim of the PAP is to encourage reasonable and early communication between the parties and the early exchange of information and documents to enable the parties to resolve the dispute without the need to start court proceedings. This may include agreeing a repayment plan or using Alternative Dispute Resolution (see Alternative Dispute Resolution section below).

For the purposes of this article and the PAP the business is referred to as the 'creditor' and the individual is referred to as the 'debtor'.

Letter of Claim

It is intended that a Letter of Claim should be sent by the creditor to the debtor before court proceedings are started. This document is intended to be comprehensive and should include the following:

  • the amount of the debt;
  • whether interest or other charges are continuing;
  • details of the agreement to include dates, what was agreed, parties to the agreement and details in respect of any assignment;
  • details of how the claim can be paid and contact information.

Documents that should be sent with the Letter of Claim include:

  • an up-to-date statement of account for the debt.
  • an information sheet, which provides the debtor with information regarding the debt recovery process.
  • the Reply Form (see below);
  • a Financial Statement form.

Response to the claim

A debtor will be expected to respond within 30 days of the date of the Letter of Claim. If the debtor fails to respond in time the creditor may start court proceedings. However, a creditor is expected to take into account that the reply may have been posted towards the end of the 30 day period. The debtor should use the Reply Form for their response.

The debtor may respond to the claim in one of the following ways:

  • agreeing with all or part of the debt;
  • denying the debt;
  • making payment or seek more time to pay; or
  • Requesting and or provide information/documents from the creditor.

Where a debtor indicates in the Reply Form that they intend to seek advice and that they cannot obtain this within 30 days of their reply the creditor should agree a reasonable period of time for advice to be sought. A creditor should not start a claim at court in less than 30 days from receipt of the completed Reply Form or 30 days from the date that the creditor provides any document requested by the debtor.

If a debtor asks for more time to pay, the creditor should try to reach an agreement with the debtor for the debt to be paid by instalments. Consideration should be given by the creditor to the Financial Statement when negotiating the repayment terms. If the creditor is unable to agree the debtors proposals for repayment, reasons why should be provided in writing.

Upon receipt of the Reply Form the final draft of the PAP recommends that a creditor contact the debtor to discuss the Reply Form and to obtain any further information needed to understand the debtor's position.

Early disclosure of documents

Upon receipt of the Letter of Claim the debtor should request from the creditor any relevant documents to the claim. In addition the debtor should send copies of any documents which it believes is relevant to the issues in dispute. Early disclosure of documents between the parties may enable the parties to understand each other's position better and may assist them in narrowing the issues in dispute or even reaching a resolution.

If the debtor requests a documents or information the creditor must comply with this request or explain why the document or information is unavailable. The creditor must respond to the debtor's request within 30 days of receipt of the request.

Alternative Dispute Resolution

If on receipt of the Reply Form an agreement has still not been reached between the parties. The creditor and the debtor should consider whether the use of an appropriate form of Alternative Dispute Resolution (ADR) is appropriate. ADR may be further discussion and negotiation between the parties or where the debt is large, mediation (a third party facilitating a resolution) may be more appropriate. The appropriate method of ADR will be dependent upon the facts of the case. Although what is clear from the current draft of the PAP is that court action should be used as a last resort.

Court action

Where the debtor has responded to the Letter of Claim and the parties have been unable to reach an agreement, the creditor should give the debtor at least 14 days' notice of their intention to start court proceedings.

Where an agreement has been reached the creditor should not start court proceedings while the debtor complies with the agreement. However, should the creditor choose to start court proceedings at a later date (i.e. the debtor fails to make payments in accordance with the agreement) prior to doing this an updated Letter of Claim must be sent to the debtor and the parties must once again follow the process set out in the PAP.

Saunders Law - Expert Commercial Litigation Lawyers

Here at Saunders Law our Commercial Litigation team have a wealth of experience of dealing with high value and complex debt recovery matters. We have acted for a number of small and large businesses and individuals, wishing to recover debts owed to them. If you are experiencing issues with creditors or debtors, please do not hesitate to get in contact

Contact us on 02076324300 or make an enquiry online.


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