10 July 2017 #Dispute Resolution
In April the Ministry of Justice released a new Pre-Action Protocol for Debt Claims which revises the procedure claimants have to follow before suing an individual for an unpaid debt. While it contains potentially helpful standardisation of pre-action documents, it also introduces time-frame adjustments which could help defendants to delay litigation for over three months. We think it crucial that organisations review their debt recovery systems and practices, to ensure these changes don’t increase the cash-flow impact of unpaid debts.
The new protocol, which will come into force on 1 October 2017, will lead to very significant changes for most creditor businesses including public bodies. Although the new procedure only applies to claims against individuals, that will of course catch many sole traders. It sets out very specific requirements for the information in a creditor’s Letter of Claim, including an additional 10 pages of standard forms, although thankfully these are for the debtor to complete! Aside from this, the protocol precludes Court proceedings from being started in the following situations:
It is easy to foresee a cynical debtor delaying proceedings for two months without having any legitimate defence, or longer if any document is omitted from the letter of claim. This begs the question, what are the consequences if a creditor issues proceedings without having complied? The Court has a several options to sanction the creditor:
Of course in practice it is difficult to see a Court penalising a creditor by imposing these sanctions if it appears the debtor has behaved unreasonably, but it creates unwelcome uncertainty and delay for a creditor seeking to recover even an undisputed debt.
It is recommended that all organisations revise their debt recovery procedures to ensure they are protocol compliant, and consider whether there is a need to involve solicitors at an earlier stage to ensure timely enforcement of debts. One procedural option to limit delay might be to send a standard form Letter of Claim as soon as, or shortly after, a debt becomes due, but this letter will need to comply fully with the protocol, and will require someone actively checking that all requirements have been met. Such a letter does not need to be aggressive but will need to at least mention that Court action is being contemplated and ask for a reply.
If you require assistance with procedural reviews, in-house training on the protocol, or with debt recovery generally, please don’t hesitate to give us a call on 0118 953 3911, or email at email@example.com.