On 1 October 2017, the Pre-Action Protocol for Debt Claims (PAPDC) came into force. The PAPDC applies to any company, including public bodies and sole traders, who are seeking to recover a debt payment from an individual.
However, it does not come under business-to-business debts, where the party is seeking to gain liabilities from a business or a Limited Liability Partnership (LLP).
Further information is needed under the PAPDS within a ‘letter of claim’ and debtors should be allowed additional time to not only respond but to provide payment proposals during the pre-action process.
Public bodies such as local authorities must ensure that they comply with the requirements of the PAPDC or they could find themselves facing potential financial consequences if they do not follow the correct procedure.
The Protocol sets out the conduct the Court will usually expect of both parties prior to the start of proceedings.
What is the letter of claim?
Under the pre-action protocol for debts to be recovered, it was previously referred to as the‘ letter before action’ whereas now it has been replaced with the ‘letter of claim’. The letter of claim has new and improved requirements for the debt recovery process compared to the previous ‘letter before action’.
What are the requirements in the ‘letter of claim’?
The letter of claim would need to include information such as:
- The required amount of debt
- Any interest charges or additional charges that have been applied and or are continuing
- Specifics of the agreement i.e. written or oral – In a scenario where the debt became apparent from an oral agreement, the letter of claim would have to include the names of all parties to the agreement as well as further details including, what was agreed, where and when;If the debt came from within a written agreement, the letter of claim requires the names of all the parties to the agreement, the date of the agreement and a copy of the agreement may be required.
- Where the debt has been assigned to the party seeking to recover it, the letter of claim will need information on the original debt, when it was assigned and to whom it was assigned
- If the debtor is currently paying back the debt in instalments, then the letter of claim will need to include why now it is not to continue being accepted and reasons a claim Court is being considered
- Ways the debt can be paid such as the method of payment, address it should be sent to, etc.
What documentation must be included in the ‘letter of claim’?
Legally, there are certain documents which must be enclosed in the letter before the claim, see below:
- A current statement of account for the debt, which would need to include aspects of interest and any additional charges, in circumstances where no statements have been given, including in the letter before the claim, the amount of interest, and charges since the debt was incurred;
- The Reply Form and Information Sheet;
- A Financial Statement Form
Response time requirements
Previously the debtor was only given 14 or to an extent 21 days in which to respond to the letter of claim, however, since then the period has been extended to 30 days commencing the date of the letter.
If the debtor does not respond in that given time period, then the creditor has the right to start proceedings.
When issuing proceedings, account must be taken of the fact that the debtor may not have responded until towards the end of the 30-day period. It is advised to wait a couple of days before issuing proceedings immediately.
The debtor’s response
If the debtor decides to reply then it should be on the Reply Form. The debtor has the right to request any copies of relevant documents if they were not included in the letter of claim.
In the Reply Form, the debtor should enclose any documents they feel are relevant to the matter for example, details of payments that have been made which may not have been taken into account when being issued the letter of claim.
It’s important to note that if the debtor is seeking advice regarding the debt, then the creditor has to allow a reasonable amount of time for them to receive such advice. However, the debtor must provide details to the creditor in the Reply Form.
Under no circumstances must the creditor issue Court proceedings less than 30 days from the completed Reply Form or 30 days following the provision of documents to the debtor.
If the debtor implies that they require some time to pay off the debt, then we advise parties to try to reach an agreement for the debt to be recovered through instalments dependent on the debtor’s income and expenditure.
When considering terms of repayment through instalments the creditor should take into consideration the information given in the Standard Financial Statement. If the settlement order provided by the debtor is not in agreement with the creditor then it should give written reasons to the debtor as to why it is not an acceptable offer.
If the debtor only partially filled in the Reply Form, then the creditor must accept this as an attempt by the debtor to participate with the matter. After this, the creditor is obliged to attempt to get in touch with the debtor to talk about the Reply Form and acquire any additional information needed to understand the debtor’s financial situation.
What if the parties still cannot agree?
If neither party can agree after taking the above steps then they should seek to resolve the debt dispute through an appropriate form of Alternative Dispute Resolution.
However, if an agreement is reached then the creditor should not issue Court proceedings while the debtor is complying with the agreement. In terms of a settlement, if an agreement can’t be reached, a creditor must give 14 days notice of its intention before commencing proceedings.
What if the parties fail to comply with the Pre-Action Protocol?
Failing to comply with the requirements of the pre-action protocol for debt claims can lead to:
- Further delay in receiving debts, the matter is also likely to increase in costs
- Risk of being penalised in costs for failing to comply with PAPDC.
- Risk receiving a sanction from the Court under section 7 of the PAPDC, the party who failed to comply could also reduce their right to interest or not being given the option to add interest onto the costs owed
Comment
If the matter proceeded through the Courts, then the Court would expect both parties to have complied with the PAPDC. Even though the protocol is not compulsory, if a party has not complied then the proceedings are not likely to go in their favour if they have no valid reason. It is advised that you fully comply with the requirements stated above.
How can we help
For further information or advice in relation to the Pre-Action Protocol or any related subjects, please contact a member of our expert Debt Recovery team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online form.