Wednesday, 22 March 2017

Cool it you creditors: New Pre-Action Protocol for Debt Claims.

It was published yesterday. A new and long awaited protocol to be followed by a business to which you owe money before they sue you. It will apply as from 1 October 2017. It also catches creditors who are sole traders or public bodies. It is for the benefit not only of private individuals but individuals who are sole traders.This protocol will not apply to tax claims by Revenue & Customs or where the debt is covered by another protocol such as for mortgage arrears. Businesses should get on with reorganising their debt collection procedures so that they are ready in six months' time.

The court will normally expect both creditor and debtor to follow the debt protocol. Breach will not be a defence to a claim but it will be taken into account by the court in deciding how to deal with a case started without it being followed. This could result in a case being halted so that steps which should have been taken before proceedings were commenced can be taken after they have been commenced. Or a creditor may be denied the whole or part of their costs which would otherwise have been payable by the debtor. Similarly, interest - or some of it - on the debt which would otherwise have been payable by the debtor may be denied to the creditor. 

Before starting proceedings the creditor must send the creditor a letter giving specific details of the claim. The details should include whether interest on the debt is payable and whether it is continuing. Also, where the debt has been transferred - for, example, by a credit card company to a debt collection company, probably for the price of two grapes - details of the original debt and creditor, when it was transferred and by whom. If the debtor is paying or offering to make regular instalments to settle any debt, an explanation is to be given of why the offer is unacceptable and why a claim is being considered. The letter is to be accompanied by an information sheet and reply form as well as  a financial statement form and dated. On that date or the next day, the letter with its bits and pieces is to be posted to the debtor. Where the debtor has made an explicit request that correspondence should not be sent by post and has provided alternative contact details, then those details should be used when sending the letter.

30 days from the date of the letter. That is the period the debtor has to reply to the letter. The debtor is silent? The claimant may carry on and start proceedings. Where the debtor indicates in their reply that they are seeking debt advice, the creditor should allow a reasonable time for this to be done. If time to pay is sought then both sides should try and reach an agreement based on the debtor's income and expenditure. And where any aspect of the debt is disputed, the parties should exchange information and disclose documents which are sufficient to enable them to understand each other's position. Any document or information requested by the debtor should be supplied to them within 30 days or an explanation given of why it is unavailable.

Provided the debtor has responded to the creditor's original letter but no agreement has been reached, the creditor should give the debtor at least 14 days' prior notice of their intention to sue unless there are exceptional circumstances.

And the position before 1 October 2017? If you are the debtor and your creditor is being aggressive, tell them about the protocol and say they ought to be acting within the spirit of it although it is not yet legally in force.

See Breaking Law for much more on how to protect yourself from your creditors.