From 1st October 2017 a debt claim between a business and an individual (which includes a sole trader) will be governed by a new Pre-Action Protocol.
Gavin Evans, Senior Associate in the Commercial Dispute Resolution team at The Wilkes Partnership examines the pros and cons of this new initiative.
The aim is to encourage early engagement between parties, enable debtors to be provided with sufficient information and if possible avoid the need for court proceedings.
The first stage of the Protocol is the Letter of Claim. A statement of account, information sheet, reply form, and financial statement should be provided in the prescribed form as annexed to the Protocol.
The statement of account should include the amount of the debt; interest; what the debt arose from; details of any instalments that have been offered; and methods by which the debt can be paid. In theory providing all this information at this stage may save on time and costs if proceedings are subsequently issued.
The debtor is encouraged to use the reply form for their response. It is here the debtor can request documents from the creditor. The debtor has 30 days to reply to the creditor. This is significantly longer than previously where it was normal practice to expect a response within 7-14 days. If the debtor indicates that he needs time to pay, the creditor should at this stage try and reach an agreement for the repayment of the debt.
Debtors could use this as an opportunity to drag out the pre-action process. If proceedings are going to be issued the creditor must then give the debtor 14 days’ notice of their intention to do so.
Gavin Evans comments that:-
“The big difference with this Protocol is early disclosure. If the debtor requests documents these must be given to them within 30 days. The reasoning behind early disclosure is to help resolve the dispute. However in reality this is likely to be a time consuming, onerous and potentially costly exercise for what might be a relatively small claim. If proceedings are issued the court will take into account non-compliance with the Protocol. The Protocol does however state the court is unlikely to be concerned with minor infringements.”
Alternatively, you can call us at our Birmingham City Centre office on 0121 233 4333.