The new Pre-Action Protocol for Debt Claims (PAPDC) will come into force on 1st October 2017.
Currently, parties involved in debt proceedings must comply with the general provisions set out in the Practice Direction Pre-Action Conduct and Protocols (the Practice Direction) however, there is no specific protocol for debt claims.
Who does it apply to?
The PAPDC will apply to “any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader)”. However, the PAPDC will not apply to business to business debts [except in circumstances where the businesses are sole traders]. The PAPDC will apply where a personal guarantee has been given by an individual on behalf of the business.
The Key Aims
Similar to the Practice Direction and pursuant to the Overriding Objective, the PAPDC aims to encourage:
The early engagement and communication between the parties;
The early exchange of information to try and clarify whether there are any points in dispute;
Settlement without the requirement for formal Court proceedings;
The parties to act in a reasonable and proportionate manner; and
Efficient case management.
The Key Changes
The Letter of Claim
Whilst the current pre-action position requires a Letter of Claim to be sent before proceedings can be commenced, paragraph 3 of the PAPDC sets out specific requirements. The Letter of Claim must include:
Details of the debt; specifically, the amount, any interest or charges and how the debt has occurred;
Specific details regarding the terms of any oral/written agreement;
if instalments are being offered/paid by the debtor, an explanation as to why the payment terms are not acceptable and why proceedings are being considered;
details of how the debt can be paid; and
the address to which the completed Reply Form should be sent.
The letter should be posted on the day it is dated [or the next following day] and should be sent by post [unless expressly stated otherwise]. A prescribed information sheet and reply form should accompany the letter, including an up to date financial statement. The debtor then has 30 days to complete and return the Reply Form to the Creditor, failing which Court proceedings can be commenced.
If in the debtor requests disclosure of a specific document or information in his reply, the creditor must provide that document/information within 30 days of receipt of the response or provide an explanation as to why it isn’t available.
Business creditors must ensure they are mindful of the changes coming in to force as if they fail to comply with the PAPDC they are likely to face cost consequences if proceedings are commenced. The PAPDC undoubtedly increases the amount of paperwork and pre-issue costs and so it may act as a deterrent for some creditors. Alternatively, the volume of paperwork that will be sent to the debtor from the outset may overwhelm the debtor and cause them to shy away from the process.
If you would like to discuss the contents of this blog or have any related queries, please do not hesitate to contact our Advisory Dispute Resolution department on 0330 024 9643 or contact Neusha Mazaher direct by email addressed to firstname.lastname@example.org.
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