New Protocol for Debt Recovery Claims

Matthew Howe

A new protocol covering claims for the recovery of debts came into force in October 2017. This protocol applies to any business claiming payment of a debt from an individual.

It does not apply to business to business debts, (unless the debtor is a sole trader), or where the debt is covered by another pre-action protocol, such as mortgage arrears and construction and engineering disputes.

The protocol describes the conduct the court will normally expect of the parties before commencing court proceedings.

The protocol aims to encourage early engagement and communication between the parties, enable the parties to resolve the matter without the need to start court proceedings, encourage the parties to act in a reasonable and proportionate manner and to support efficient management of proceedings.

The first step under the new protcol is the Letter of Claim: a letter of claim must be sent by post and may only be sent by email if the debtor has made an explicit request to receive it by email. The letter of claim must include the following information:

  • The amount of the debt;
  • Whether interest or other charge are continuing;
  • Details of any oral or written agreement;
  • Methods of payment;
  • Contact details to discuss payment options;
  • Address to return Reply Form.

It must also enclose the following documents:

  • An up to date statement of account for the debt;
  • Information Sheet;
  • Reply Form;
  • Financial Statement Form.

Under the new protocol, strict timescales must be observed by both parties. The debtor has 30 days from the date of the Letter of Claim to respond. They get a further 30 days to seek debt advice if they complete and return the Reply Form to the creditor. 

The creditor must provide documentation or information requested by the debtor within 30 days of receipt of the request, or explain why it is unavailable.

Where agreement has not been reached, the creditor should give the debtor at least 14 days' notice of their intention to issue proceedings (save for exceptional circumstances where urgent action is required, e.g due to limitation).

So what is the impact of the new debt recovery protocol? Non-compliance will be taken into account when directions are given for the management of court proceedings and when it comes to the consideration of possible cost sanctions.

Such changes have been controversial amonst solicitors, as the new protocol creates an imbalance between creditors and debtors. creditors have arguably lost the ability to apply pressure on debtors to pay immediately, resulting in an increase in delayed payments and potential cash flow problems for businesses.

The increase in opportunity for debtors to defer payment of their debts is therefore deployed through the effective use of the protocol.

Creditors must now ensure that their internal credit control procedures meet the requirements of the new protocol.

At Samuels Solicitors, based in Devon, we have a wealth of experience in assisting clients recover their debts. Contact us today for a free initial discussion about how our debt recovery team can help.