This article looks at the forthcoming pre-action protocol for debt claims in its current form, with an anticipated implementation date around October this year.

There might be further changes ahead, and a shift in the implementation timetable, so please watch this space for further updates.

The protocol will apply to all debts where the creditor is a business (including sole traders and public bodies) and the potential defendant (debtor) is an individual (including a sole trader). Following implementation you will need to include a prescribed list of information when sending a letter before claim (LBC) to a debtor including:

  • debt, interest and other charges claimed
  • the date of the agreement and parties to it
  • (if assigned) the details of the original debt and creditor, when it was assigned and to whom
  • if the debtor is making or offering regular payments and explanation of why the offer is not acceptable and why a court claim is being considered.

The LBC will also include an up to date statement of account (including charges and interest claimed), a reply form and a financial statement form as annexed to the protocol.

The LBC will need to be sent by post, unless an alternative method has been agreed with the debtor. You will then have to wait for 30 days before court proceedings can be started. If a reply is received, you will need to allow the debtor a reasonable period to take legal advice if they have confirmed that they are doing so. If an offer is payment is made, attempts should be made to agree a proposal with reference to the debtor's means or reasons given for its refusal. A creditor should treat a partially completed form as an attempt to engage, and should attempt to discuss the matter with the debtor before starting court proceedings.

If the debtor asks for further documents to enable them to understand their position then these should be sent within 30 days of the request.

If the parties cannot agree about the existence, enforceability, amount or any other aspect of the debt, they should both take appropriate steps to resolve the dispute through alternative dispute resolution without starting court proceedings. This can include informal discussion, but can extend to mediation or referral to a relevant Ombudsman or industry scheme.

If a deal is reached and the debtor defaults again, a fresh LBC will need to be sent, but you will not need to send the supporting documentation again if this was sent in the preceding six months (unless it needs updating).

If court proceedings are started, the court will expect the parties to have complied with the protocol. The court has the power to sanction a party who has not complied with the protocol. This can include reducing or removing any right to costs or interest.

Finally, if agreement cannot be reached, the creditor will have to give the debtor 14 days' notice that they intend to start court proceedings.

Commentary

Clearly the aim of the protocol is to reduce the number of claims coming before the court. The requirements of the protocol will mean that a compliant approach to pre-action correspondence is required. Your professional advisers will need to manage replies and ensure that you avoid sanctions. You will also need your advisers to help you with alternative dispute resolution management.