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The Pre Action Protocol

Requirements Before Taking an Individual or Sole Trader to Court to Recover Debts

From October 1st 2017 there are special rules that apply to when any 'business' uses the civil claims court seeking the payment of a debt from an 'individual'. The rules are set out in a Pre Action Protocol (PAP) for Debt Claims. Since the term 'individual' includes sole traders and business debts that are underwritten by a personal guarantee issued by a company director, care must be taken even when considering a debt claim against a business.

The Department of Justice has written a number of 'Pre Action Protocols' (PAP) that govern how things should run before a claim to the court is made in areas as diverse as professional negligence, defamation claims, construction disputes, commercial property and now debt recovery. The goal of these measures is to ensure that all avenues to resolve the issue are explored before expensive court time is spent on it.

If a business does not follow the protocol properly before the court is asked to rule, then the court can apply sanctions such as reducing the interest charges that can be added to the debt and whether to allow that the debtor pays the creditors court costs.

What do you need to do?

Before a business takes an individual to court for the payment of a debt, the creditor must send the debtor a Letter of Claim (LoC) and the PAP stipulates that:

  • The LoC must show the value of the debt, as well as any interest and charges
  • Complete details of the agreement between the creditor and the debtor must be set out
  • If the debt has been assigned to another company, full details of this assignment must be given
  • If instalments are already being paid, the creditor must explain why the current arrangement is no longer acceptable
  • The LoC should also include a standardised Reply Form and a Financial Statement Form, with a return address to which they should be sent once the debtor has completed them.

The Reply Form follows a tick-box format defined in an annex to the PAP document, and you must use this format. The Financial Statement format is not mandatory, but an example from the Money Advice Service is given as an example.

The LoC must be delivered in paper format by post.

The debtor is allowed 30 days to reply before the creditor can move on to take Court Action. However, if the debtor returns the Reply Form, a further 30 days should be allowed and potentially a further 30 days if the debtor asks for further information. If, after the time allowed, no agreement has been reached, and the creditor wants to issue legal action, then they must give the debtor a further 14 day notice of their intention to proceed. On the other hand, if the debtor does not reply to the “PAP LBA” within the 30 days, then the creditor can issue Court proceedings and request judgment.

Useful Links:

Submit an Overdue Debt Online for us to Collect on your Behalf

Late Payment Interest Calculator

GOV.UK - Making a Court Claim for Money