A new debt collection process

A customer is not paying their bill and despite several polite requests you find yourself in position where you’re getting nowhere and the debt remains outstanding writes Adam Bernstein.

Your thoughts turn to considering the law, but what steps do you need to take before you can ‘see them in court’? As it turns out, more than you may have thought.

Business creditors dealing with a debt claim involving an individual as opposed to a business, currently have to follow the Practice Direction for Pre-Action Conduct and Protocols. It presently contains no specific pre-action protocol (rules) for debt claims. However, from October 1 2017, the new Pre-Action Protocol for Debt Claims (also known as the Debt Claims Protocol) will apply and businesses will need to ensure that they have complied with it when trying to collect debts owed. The Debt Claims Protocol will be used alongside any other regulatory regime to which the creditor may also be subject.

The changes have been brought in because of the large numbers of debt claims in the courts. The protocol only applies to businesses (including sole traders and public bodies) claiming payment of a debt from an individual including sole traders. It does not apply to debts owed by a business to another business (except that of sole traders) and nor will it apply to claims issued by HMRC.

Currently, the position for debt claims is that a business creditor will issue a ‘Letter Before Claim’ to the debtor in order to give them chance for the matter to be settled before court proceedings. The protocol seeks to formalise the process even before a letter is issued. In practice, this will likely mean more work will need to be accomplished before even a simple debt claim is issued, the intention being that the parties try to settle the matter without the need for court proceedings.

If you intend to send a Letter Before Claim in respect of an unpaid debt, the protocol aims to encourage early communication between the creditor and debtor without reverting to court proceedings in the first instance.

Failure to comply with the new protocol will result in case management directions and possibly cost sanctions if the matter proceeds to litigation.

The new process requires a standardised Letter Before Claim be sent to a debtor with the inclusion of particular information.

From the date the Letter Before Claim is sent (by post), the debtor will have 30 days to respond. If the debtor fails to pay the claimed debt, another letter must be issued from the creditor giving a further 14 days for the debtor to respond before starting court proceedings.

Their response may request more information or state that they’re seeking legal advice. Either way, the creditor will need to allow more time before proceeding – up to another 30 days.

If the parties cannot agree to resolve the debt repayment, both parties should take appropriate steps to resolve the dispute without starting court proceedings and should consider other forms of alternative dispute resolution, for example a without prejudice meeting or mediation.

Clearly the protocol allows what may seem generous time allowances at each stage. Time will tell whether individuals will use the new rules to frustrate collection actions and if the front-loading of costs onto the creditor pre-hearing may prevent creditors from pursuing all of their debt actions. 

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