A new pre-action protocol for debt claims will come into force on 1 October 2017. The introduction of the protocol will have a significant impact on businesses claiming bad debts from individuals.

Pre-action protocols outline the steps that should be taken before court proceedings are issued. The first step is for a letter of claim to be sent to the defendant, setting out the details of the claim.  The aim of the protocols is to encourage communication between the parties in the hope that the dispute can be resolved without the need for court proceedings.

The new protocol for debt claims requires claimants to include in the letter of claim details such as the date of the contract giving rise to the debt, the wording of the terms that were agreed and information about interest and charges.

In addition, the protocol states that the letter of claim must include an up to date statement of account, information sheet, reply form and financial statement for the debtor to complete.

Once the protocol comes into force, letters of claim will need to be carefully drafted to ensure that all the relevant material is included and they are protocol compliant. As a result, debt recovery is likely to become more time consuming for businesses owed money.

The protocol will also mean the end of seven-day demand letters. Currently claimants only have to give the debtor seven days to respond to the letter of claim before they are able to issue court proceedings. The protocol extends this timescale and claimants will have to wait at least thirty days before taking further action. In the event that the debtor completes the reply form or requests any documents, the claimant should not start court proceedings until thirty days from receipt of the reply form or the provision of documents (whichever is later). The debt recovery process will therefore have the potential to become much more protracted.

It is very important for claimants to make sure that they comply with the new protocol when it comes into force. The court will take into account any non-compliance when considering the case. Failure to comply may lead to the claim being “stayed” (put on hold) or other sanctions. These sanctions can include a costs order or an order depriving the party at fault of interest.

In conclusion, the process of debt recovery is likely to become substantially longer and more onerous for claimants. Non-compliance with the protocol is likely to result in sanctions. A solicitor will be able to advise on the requirements of the new protocol and draft a letter of claim which complies with the protocol.

If you are involved in a dispute and would like advice, please contact Catherine Mathews on 01392 210700 or drx@stephens-scown.co.uk. Catherine specialises in commercial and contract litigation and has experience of many different forms of ADR, including mediation.  Catherine is Head of the Dispute Resolution Team in Exeter, which is top-ranked in The Legal 500. She is listed as a leader in her field in Chambers 2017.