Changes to Debt Recovery Procedure

In this blog, Alan Mattocks of our Litigation Department, discusses the changes to Debt Recovery Procedure.

From 1 October 2017, a new Debt Pre-action Protocol comes into force which will radically change the pace of debt recovery proceedings.

The Protocol applies to all debt claims (i.e. unpaid invoices) against individuals, including sole traders. Therefore, it applies to business debts where the debtor is a self-employed trader.

The Protocol specifies certain information that must be included within the letter of claim. There is nothing surprising about the required information, which simply reflects standard practice, but the major change is that the creditor must wait at least 30 days for a response to the letter before claim before court proceedings can be commenced. At the moment, particularly when the final letter before action comes quite a long way down the debt recovery process, the creditor generally allows only 7 days for payment proposals before commencing court proceedings. Often the letter of claim is known as a '7 day letter'. Therefore, it is going to be very important for businesses to incorporate the protocol letter before claim into the debt recovery process at an early stage.

The protocol also aims to get the debtor to engage with the creditor and there are 2 forms that have to be sent out with the letter before claim. These are an information sheet and reply form to enable the debtor to make an offer of payment and a financial statement in which the debtor can provide information about their financial circumstances to enable the creditor to weigh up an offer of payment. At that stage, the creditor is required by the protocol to 'pause and take stock' before proceeding with the claim.

Clearly, if the protocol has the desired result of encouraging early payment proposals before court proceedings are issued, that is in everyone's interests. However, failure to follow the protocol (including the "spirit" of the protocol) can lead to costs sanctions. For example, if court proceedings are commenced prematurely and the debtor makes what is considered to be a reasonable offer to pay following the commencement of court proceedings, it is likely that the court will not allow the creditor to recover its court fee.

Also, what of those situations where there is some perceived urgency to get the claim in before the debtor goes insolvent? Creditors will have to think carefully about balancing the risks of waiting for the protocol to run its course against the need for immediate action to be taken.

At Band Hatton Button, we specialize in business debt recovery across all of the major business sectors. We understand the particular issues that can arise within those sectors and how businesses operate in practice. We provide a fixed fee service, which gives certainty as to the costs being incurred and we always consider the commerciality of the various debt recovery options to ensure that we help our clients to avoid the risk of 'throwing good money after bad'.

To enquire about our fixed fee debt recovery service or to ask any questions about how we can assist your business with credit control and debt recovery generally, please see the information on our website here.