Legal News | 26.09.17
New Debt Collection Protocol
From 1 October 2017 a new Pre-Action Protocol comes into force in relation to Debt Claims. The aim of the Protocol is to encourage early communication between the parties, and, ultimately try to avoid costly litigation. The most severe impact will be for business with outstanding debts due from individuals.
Most important to mention is that the Protocol applies to any business (and that includes sole traders and public bodies) who is claiming payment of a debt from an individual. The Protocol will not apply to business-to-business debts unless the debtor is a sole trader.
The new Protocol introduces the requirement that a letter of claim be sent, inclusive of a vast amount of detail and enclosing several annexures as a prerequisite. The process is undeniably more burdensome for creditors and notably, could mean payment being delayed by obdurate debtors by up to 90 days. The currently termed “7 day letter” is now a thing of the past and costs sanctions will be incurred by any creditor who breaches the new Protocol.
In addition to the increase in time-frame noted above, the debtor will be allowed to ask the creditor for disclosure of any and all documents, of which the creditor should produce within 30 days – again, increasing the potential time frame before being able to issue a claim to recover the debt.
As aforementioned, the main aim of the greater regulation is to attempt to settle the majority of debt claims through agreement between the parties or, through some form of alternative dispute resolution (ADR), for example, mediation thus avoiding the need for the parties to attend Court. Patience will be required by businesses providing credit to individuals and sole traders, maybe even a review of their debt recovery processes will be required.
In summary there appears to be limited, if any, positive news for creditors.
If you are unsure as to the circumstances in which the new Protocol will apply, please do contact us and ask to speak with a member of the Commercial Team who will be able to advise you.