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New Pre-Action protocol for Debt Claims

The new pre-action protocol comes into force 1 October 2017 and applies to any business (including sole traders and public bodies) claiming payment of a debt from an individual (including sole traders). For agents, this protocol can be used when seeking to recover unpaid fees.

Pre-Action protocols are designed to encourage early engagement and communication in order to resolve matters without the need for litigation. The pre-action protocol requires those owed money, the creditor, to send an initial letter of claim. Part three of the protocol details what should be included in the letter such as, amount of debt, whether interest is applied and how payment can be made. With the letter of claim a copy of the Information Sheet and Reply Form at annex 1 to the Protocol should also be attached, along with a Financial Statement (an example of a financial statement can be found at the end of the pre action protocol).

The party that owes the money, the debtor, should be given 30 days to respond. Failing which the creditor can issue proceedings. Any response by the Debtor should be made using the Reply Form and should include any request for paperwork, whether legal advice is being sought and/or whether time is needed to settle the debt. Where the Reply Form is returned partially completed the creditor should accept this as a sign that the debtor wishes to engage with the matter and make a reasonable attempt to discuss the debt and reach a settlement if possible.

Where settlement is not reached, parties are also encouraged to consider alternative dispute resolutions e.g. mediation before court proceedings are issued. Where a resolution is reached but the debtor fails to adhere to the agreement, then a letter of claim should be sent again before any court proceedings are issued.

Courts will take into account non-compliance with this protocol when giving directions for the management of the case. Minor or technical infringements will most probably be overlooked by courts however, they will want to see compliance in substance. If there has been a failure to comply the court could impose a number of sanctions including, ordering a stay of the proceedings to allow time to comply or ordering the party at fault to pay costs.

Comment

The pre-action protocol is clearly designed to prevent businesses issuing debt claims without attempting to resolve the matter first. With the current cut backs and closures of many courts around the country this clearly comes as no surprise however, businesses might need to wait a little longer before their debts are settled.

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