The Analysis Comment


Working the process


The pre-action protocol may require creditors to entirely review their collections cycles


Penny Daisley Debt recovery manager, Debenhams Ottaway ped@debenhamsottaway.co.uk


The Ministry of Justice released the final version of the new pre-action protocol (PAP) on 21 March 2017. This applies where a business is claiming payment of an unpaid debt from an individual, including a sole trader. It does not apply to business-to- business debts, with the exception of the debtor business being a sole trader. The PAP describes the conduct a court will


usually expect prior to the issue of a claim. The PAP requires an enhanced letter of


claim which should include: l A detailed basis for the claim. l Details of any written contract, together with the dates and the parties to the contract. l Where the contract was oral, details of the words spoken and when and where the conversation took place. l Confirmation if the debt has been assigned. Details of when and who to, and state if the original contract (if applicable) is available upon request. The letter of claim will need to include the following supporting documents: l Up-to-date statement of account: l Information sheet signposting the process. l Reply form. l Financial statement. l State if the original agreement is available upon request.


When dealing with individuals, it is often


the case that responses will not be received until the time limit is almost due to expire, therefore replies are likely to be received at the end of the 30-day period. In the event that the debtor does respond


and no satisfactory agreement is reached, the creditor must send a further letter advising of their intention to issue proceedings. This letter must give a further 14 days before proceedings are issued. Whilst the court initially may excuse a


If a company has 30-day credit terms, the new PAP will mean a company is unable to issue proceedings until at least 60 days have passed


minor breach, sanctions may be imposed for failure to comply, such as: l A stay of proceedings (claim put on hold) to allow compliance of the PAP. l Cost penalties, such as disallowing costs on all, or part, of the claim. l Disallowing or reducing interest claimed.


Conclusion The new process will have a major effect on how claims are pursued and may result in an initial letter of claim running to several pages. The PAP is likely to generate increased requests for documents resulting in a greater


cost burden for the creditors and delays in claiming debts. The PAP will allow a savvy debtor an effective extension of credit days, potentially opening the floodgates for an abuse of the process. The new PAP may see companies looking to review the credit


Responding to the letter of claim The PAP allows 30 days for a response to be made to the letter of claim. Respondents are likely to: l Admit or deny the debt. l State they have no knowledge. l Make payment. l Request time to pay. l Request further documents. l Request time to take debt advice. The court will expect increased efforts from creditors to engage


with debtors on any response received, even if the reply is only received partly completed. This includes consideration for requests for time to pay and any request for extra time to seek debt advice.


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terms offered which are often 30 days. If a company has 30-day credit terms, the new PAP will mean a company is unable to issue proceedings until at least 60 days have passed. Often issues surrounding debt claims are routine, however the


new PAP places a significant burden on creditors to start the PAP clock ticking as soon as the invoices are overdue. Companies may consider reducing their credit-control cycles and refer earlier to legal representatives to manage the process. Companies may also consider bankruptcy, if the debt is over £5,000, as an alternative debt-collection tool. It appears, at this stage, that PAP is not intended to apply to


bankruptcy petitions which are, ultimately, governed by the Insolvency Rules. CCR


www.CCRMagazine.co.uk June 2017


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