New rules ring the changes for debt recovery claims
This month sees the introduction of new rules governing the procedure by which UK businesses should set about recovering debts owed to them by individuals and sole traders.
Previously, the first step in pursuing such a debt claim was to write and send a letter requiring the debtor to respond within 14 days – since the introduction of the government’s Pre-Action Protocol for Debt Claims, put in place on 1 October 2017, the claims process has changed. The new protocol applies to any business, sole trader or public body pursuing a debt against an individual or sole trader; its reach does not include debts owed by a limited company or a partnership, or claims covered by other protocols.
The new regime expands the amount of information a creditor must provide in a detailed Letter of Claim to the debtor. Included in the letter should be clear details explaining how and where the debt can be paid, along with a breakdown of any additional charges such as interest and an indication of whether these charges will continue to accrue while the debt is outstanding.
Crucially, the letter must attach an Information Sheet and Reply Form and a Financial Statement Form as well as an up-to-date statement of account or other document explaining in detail how the debt amount is calculated.
Under the new protocol the creditor’s letter must be sent by post, not electronically or by email unless the debtor specifically requests post is not used. The debtor is allowed 30 days to reply – if no reply is received by the end of this period, the protocol lapses and the creditor is free to issue court proceedings.
However, within the 30 days’ grace period the debtor is entitled to request copies of any documents that may help them understand the debt claim, which the creditor is obliged to provide – thereafter the creditor must wait at least 30 days before starting court proceedings. If the debtor needs more time, to take legal advice for example, the protocol allows for the creditor to grant an extension at this stage in the process.
The new rules encourage the parties to communicate either directly or, if the value of the debt warrants it, via a professional mediator. If agreement cannot be reached, the protocol recommends a further 14-day pause for the parties to “take stock” before issuing court proceedings.
Paul Lewis. Partner, litigation department.Business, General, George Ide, News