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Business creditors must revise pre-action procedures for recovering debt from 1st October 2017

Following Lord Justice Jackson’s Final Report on Civil Litigation Costs in January 2010 where he stated debt claims “constitute a huge swathe of business of the courts”, the Ministry of Justice released the final version of the pre-action protocol for debt claims on 21 March 2017. The protocol will be in force from 1 October 2017.

Where a business creditor claims for payment of a debt from an individual or sole trader they will need to adhere to the new pre-action protocol. The new protocol does not apply to business to business debts unless the business is a sole trader.

The aim of the new pre-action protocol is to encourage early communication between the creditor and debtor, including early exchange of information, which will hopefully result in the parties settling without needing to go to court.

The new pre-action protocol is formed of a two-step process where the creditor has to supply the debtor with:

  1. Information about the debt, interest and charges;
  2. Details of the agreement under which the debt has occurred;
  3. Details of any assignment of the debt;
  4. Details of any current re-payment offer and an explanation as to why the offer is rejected. In these circumstances the creditor should also explain why it is still considering making a claim.
  5. How the debt can be paid;
  6. What the debtor should do if it wants to make a payment offer;
  7. Enclose with the letter an information sheet, reply form and financial statement.

The debtor will have 30 days to respond to the pre-action letter using the reply form and financial statement.

The creditor and debtor are required to try and reach an agreement for payment by instalments based on the financial statement completed by the debtor. The creditor is also required to contact the debtor to discuss the reply form and request any further information to understand the debtor’s position.

The protocol encourages parties to disclose and exchange any relevant information to enable the parties to resolve the dispute. Both parties have 30 days to supply documentation from the date the documentation has been requested.

If the debtor does not respond within 30 days of the creditor’s pre-action letter then the creditor will be entitled to start a claim in the usual way. If the creditor and debtor are unable to resolve the dispute after receipt of the reply form, the creditor can start a claim at the earliest 30 days from receipt of the reply form. This 30 day period can be extended where the debtor has indicated that it is seeking debt advice, is requesting further documentation from the creditor or needs more time to pay.

Geoffrey Leaver Solicitors offers a fixed price debt recovery scheme to business owners, which will be updated to include the new pre-action protocol requirements in October 2017. If you require assistance with debt recovery options please contact Mairead McErlean at mmcerlean@geoffreyleaver.com or on 01908 689333 or Hollie Deacon at hdeacon@geoffreyleaver.com or on 01908 689373.