Debts owed to businesses by individuals - debt recovery Pre-Action Protocol (PAP)

A new Pre-Action Protocol (PAP) for pursuing debts owed to businesses by individuals applies from 1 October 2017. Boys & Maughan debt recovery specialist Matt Champ explains the key relevant points to take into consideration.

When it applies
The PAP will apply whenever a business, which includes a sole trader or public body, claims a debt is due from an individual or sole trader. The PAP will not apply to business to business disputes, individual to individual disputes or where an individual is chasing a company for a debt.

The PAP will also not apply where the dispute is covered by another protocol or to certain claims that are issued by HMRC.

PAP is similar to other protocols in that it is hoped that it will encourage the exchange of information and resolution of disputes without troubling the courts.

Steps to take
The business needs to send a letter of claim to the debtor which includes the following:

  • Amount of the debt
  • Whether interest is accruing with details
  • Details about the agreement and if oral, who made it, where it was made etc, if in writing, the date of the agreement and that a copy can be provided if requested
  • Details of the original parties and dates of any relevant assignment
  • An explanation as to why an instalments being offered are not acceptable
  • Details on how payments can be made and how payment options can be discussed
  • Address to which the reply form should be sent.

In addition to the above, it is also advisable to include an up to date statement of the debt along with specific particulars relating to whether any interest or administrative charges have been applied.

The letter should also include a copy of the information sheet found at annex 1 of the PAP and a financial statement form found at Annex 2 of the PAP (we can supply copies of the form).

How to serve the letter
The letter should be sent in the post and can, if appropriate, be served additionally by other means such as email. If the debtor has specified a contact method then that should be adopted.

When the letter has been served
When the letter has been served you then have to wait for at least 30 days to receive a response before considering issuing court proceedings.

The debtor is expected to reply on the reply form and may make a request for documentation. If the debtor indicates they are seeking debt advice, creditors must give at least a further 30 days from receipt of the reply form or 30 days from providing any requested documents, whichever is the later.

Where a debtor indicates that they are obtaining advice which will take longer than 30 days, they are expected to explain the delay and the creditor is expected to oblige where it is reasonable to do so.

Any refusal to accept a debtor’s proposal to pay in instalments must be made in writing.

Debtor’s request for documents
Where a document or information is requested by the debtor then it has to be supplied, or explained why it cannot be supplied, within 30 days of receipt of the request.

Alternative Dispute Resolution (ADR)
Parties are still expected to consider ADR. However, if an agreement is reached but court proceedings are required at a later date, the PAP must be complied with afresh, although documents do not need to be resent unless they require updating.

Consequences of non-compliance
As per other protocols, the court will take non-compliance into account.

The official line is that courts are unlikely to be concerned with minor or technical infringements. However, if a judge wishes to assist a sympathy-invoking debtor, they may clearly take even such trivial infringements to account and so full compliance seems to be the more prudent course of action.

In this economic climate deputy and full time judges have been keen to reduce costs to an unrealistic amounts in any event. The last thing a client needs is for a debtor, opposing lawyer or CAB representative to highlight failures to comply with the PAP.

There is no financial limit on this PAP and so, especially in Fast Track and Multi Track disputes, it is even more imperative to do everything correctly.

If things are still not resolved
Parties are encouraged to ‘take stock’ and try to avoid proceedings, or at least to narrow the issues. However, if proceedings are needed then at least 14 days should then be given unless urgent action is required e.g. limitation is due to expire.

It is clear that the PAP is very debtor friendly. The biggest issue for our clients is that they are now, potentially, expected to give debtors 74 days notice between sending a letter of claim and issuing proceedings. Unfortunately some astute debtors are likely to take advantage of this system to the creditor’s detriment.

In theory, in that time frame debtors can dispose of assets, companies can go under and so the overall process of obtaining judgment and then enforcement appears to be becoming even lengthier.

Whilst the PAP states that the court will not normally focus on minor infringements, the rules allow the court an easy option to punish parties if they do not follow the PAP to the letter.

However, it is important to remember that, whilst frustrating in applicable cases, it does not apply to debts owed from one individual to another (unless the creditor is a sole trader), business to business disputes or where the creditor is pursuing a company for an owed debt (again, unless the creditor is a sole trader).

Contact Matt Champ at Boys & Maughan Solicitors for advice on the Pre-Action Protocol and pursuing debts.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.