Reclaiming a debt in court? Don’t fall foul of the new Debt Recovery Protocol
Published: 10 July 2017
Changes to debt recovery before commencing litigation in England and Wales from 1 October 2017
The implementation of the Civil Procedure Rules in 1999 brought in a new concept: pre‑action protocols.
The aim of these protocols was to encourage early engagement and communication between the parties with a view to enabling them to resolve matters without the need to start court proceedings and to save costs.
However, it has taken the Ministry of Justice until 2017 to suggest a suitable pre-action protocol for the litigation of debts owed by one party to another. This new protocol applies to any business debt, or claiming payment of a debt from an individual.
What are the changes?
Currently, businesses are expected to follow the preamble to the pre-action protocol which specifies the need to give as much information as possible to meet the aims of early engagement and settlement. However, these have now been codified and the new debt recovery protocol is similar to those used in other types of cases.
Initial information to be provided to the creditor
Specific details are required by the protocol to be included in the letter of claim. These details should be clearly specified to ensure that the debtor has clear knowledge of the amount that is alleged to be owed. The protocol also states that the letter of claim should be sent by post and the debtor has 30 days in which to respond before the creditor may start court proceedings.
Response by the debtor
The protocol specifies the need for a specific pro-forma reply form to be included to enable the debtor to send their response. Notably, if a debtor indicates on that form that they are seeking debt advice, any creditor must allow the debtor a reasonable period for the advice to be obtained. The protocol envisages that this should be 30 days from the receipt of the completed reply form.
In practice, this means that the time limits for the debtor to respond can range from 30 days, if the debtor does not respond to a claim letter, or 60 days should the debtor engage with the creditor. This new deadline is considerably longer than most debt collection letters have previously allowed. Historically, most letters demanding payment require payment within 7 or 14 days.
Early disclosure of documents and Alternative Dispute Resolution (ADR)
The new protocol specifies that both parties are encouraged to provide early disclosure of documents. This, however, is not at odds with the procedure laid down in the existing preamble to the protocols, nor is the attempt to settle the matter by using alternative dispute resolution.
A warning. The consequence of not following the debt recovery protocol
If you do not follow the new debt recovery protocol, and you are successful in reclaiming the debt, you may not be awarded costs by the court in relation to any legal action taken following the introduction of the new protocol. In the case of debts over £10,000.00, this of course could eat into any award that the court may make, and make the chasing of debts uneconomic.
The lesson of to be learnt by the introduction of the new debt recovery protocol is clear. Failure to follow the specifics of the protocol in pursuing your claim could put the recovery of your legal costs in serious jeopardy.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.