Any business owner will know the importance of consistent cash flow to the success of their business. On 1 October 2017, a new Pre-Action Protocol for Debt Claims will come into force. The new Protocol will make the process of claiming debts from unwilling debtors slower and more onerous for creditors as a new mandatory process before a claim can be issued is required, with longer timescales. It also aims to avoid court proceedings wherever possible, firmly encouraging parties to engage in alternative forms of dispute resolution.
The new Protocol affects all businesses, including sole traders, limited companies and public bodies who are claiming payment of a debt from an individual, including sole traders. Other forms of business to business debt are outside the scope of the new Protocol.
Creditors will no longer be able to send simple letters of demand for unpaid invoices before initiating a county court claim, including Money Claims Online. A detailed Letter of Claim must be sent to the debtor with prescribed contents. This includes an outline of the agreement, a full explanation as to why any repayment plans suggested by the debtor to date have not been accepted, an up-to-date statement of account for the debt and a copy of numerous forms for the debtor to complete.
It is also the creditor's responsibility to ensure that all referenced documents are enclosed and the debtor is within their rights to request any relevant documents not provided. Hence it is in the interests of the creditor to enclose all the necessary documents when the Letter of Claim is sent to avoid increasing the length of debt recovery any further than absolutely necessary.
The debtor must now be given 30 days from the date of the Letter of Claim to respond, rather than 14 days previously given, and proceedings cannot be issued if a response is received during this period. If the debtor indicates that they are seeking legal advice, the creditor must allow at least another 30 days from receipt of the Reply Form to allow for this. The new Protocol is sufficiently debtor friendly that even a partially completed Reply Form should be considered as an attempt to engage with the matter.
If the debtor indicates that they require additional time to pay, the creditor must consider the debtor's income and expenditure and justify any refusal with reasons in writing. If an agreement is made, court proceedings must not be issued unless this agreement is broken. In this case, the creditor must revert to the beginning of the Protocol, issuing a new Letter of Claim.
Where no agreement between debtor and creditor can be met, the creditor must give at least a further 14 days' notice of their intention to begin court proceedings. If the matter does eventually proceed to litigation, the Court will consider non-compliance with the new Protocol when giving directions for the management of proceedings.
The additional timescales provided by the new Protocol will inevitably put pressure on the cash flow of businesses looking to collect debts owed by individuals. In light of the more onerous requirements on creditors, as well as longer timescales for debtors to respond, it will be more important than ever to ensure every step is compliant with the new Protocol. All business owners will need to act swiftly and keep relevant information available in order to comply with the Protocol if debts are to be recovered as quickly as possible.
For further information, please contact the Asset Recovery Team at Ashfords LLP.