The Pre-Action Protocol for Debt Claims applies whenever a business is chasing an individual (including a sole trader) for a debt and is planning to sue. From 1st October 2017 a claim letter has to be sent before proceedings are started and this has to contain detailed information with regard to the claim. The debtor then has to complete a Reply Form and the Protocol allows for the parties to try to agree on a settlement before court action is started.
The letter of claim should contain the following:
- the amount of the debt
- whether interest or other charges are due and continuing
- where the debt arises from an oral agreement, who made the agreement, what was agreed, when and where;
- if there is a written agreement, the date of the agreement, the names of the parties and a statement that a copy of the agreement can be obtained from the creditor;
- if the debt has been assigned (e.g. the creditor took over the debt from another business), the details of the original debt and creditor, when it was assigned and to whom;
- if regular instalments are being offered or paid by the debtor, an explanation why that is not acceptable and why proceedings are being considered;
- details of how the debt can be paid (e.g. method of payment and address for payment) and details of how to proceed if the debtor wants to discuss payment options;
- the address to which the completed reply form should be sent.
The claim letter must be accompanied by:
- an up-to-date statement of account showing the debt and interest and other charges due;
- a copy of the Ministry of Justice Information Sheet and Reply Form;
- a Financial Statement Form.
The claim letter should be dated and sent by post or by email.
If the debtor does not reply within 30 days, the creditor can start court proceedings.
The Protocol also sets out what the debtor should do when replying – for example they should use the official Reply Form and set out what documents they want to see or enclose copies of documents they think are relevant – e.g. details of payments that have been made which are not mentioned by the creditor.
If the debtor is taking advice, the creditor has to allow time for this before starting the proceedings. If the debtor asks for time to pay, the parties should try to reach agreement based on the debtor’s income and expenditure; this is the reason for Financial Statement Form – it details the individual debtor’s income and expenditure.
The aim of this Protocol is to encourage proper communication between the parties and enable them to reach agreement without court proceedings. From a creditor’s point of view, it makes debt collection more cumbersome although if it avoids the need for court proceedings, that can make it worthwhile.