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Your business has a money claim against an individual consumer? Here are some changes to come in the

Who it applies to

The new pre-action protocol for debt claims , which comes into effect on 1 October 2017, applies to all businesses, including sole traders, wanting to make a claim against an individual consumer for an outstanding debt.

The protocol outlines the procedures and conduct that the court expects the creditor to have carried out prior to the start of official court proceedings.

This protocol does not apply if the debt is covered by another type of protocol (for instance construction or engineering, or mortgage arrears, or those issued by a government organisation for example HMRC).

It also does not apply to statutory debts (for example, owed to a government department) or restitutional claims (for example, a payment made in error)

The protocol complements any regulatory regime to which the creditor is subject and if there is an inconsistency, then the regulatory obligation will take precedence.

What do creditors need to do?

Creditors will be expected to have sent a clearly dated Letter before action by post, and should clearly state the following information:

  • The total debt summary

  • Whether interest or other charges are being added such as administration fees

  • If the debt arises from an oral agreement, who made the agreement, what was agreed, and when and where it was agreed

  • If the debt arises from a written agreement, the date of that agreement, the parties to the agreement and enclosing a copy or stating that a copy can be requested from the creditor

  • A statement of account for the debt, including the amount of interest and any other charges imposed since the debt was incurred

  • Details of how the debt can be paid and what the debtor can do if it wishes to discuss payment options

  • If regular instalments are being offered, an explanation of why this isn’t an acceptable arrangement and why court action is being considered.

  • A reply form example (that you can find in Annex 1 of the new pre-action protocol for debt claims - please click at the bottom of this article).

What happens next?

If the individual debtor has not responded to the Letter before action within 30 days of the date of the letter, the creditor may then start court proceedings.

The court will look at the documentation and adherence to this protocol and will consider the non-compliance when giving their directions for the management of proceedings going forward, so this legislation is important for anyone with a business or who is a sole trader doing business with individuals.

If an arrangement is made, but the debtor subsequently defaults, the creditor must start the entire pre-action protocol process again.

Scope for abuse?

Whilst the government is clearly bringing in new legislation to bring about positive changes, there is certainly scope for debtors to use the new pre-action protocol to push the claim right to the time limits, at the various stages, or to use any procedural error by the creditor, however minor, to create further delay.

This will be an inconvenience for large companies, but might have a very negative impact on small businesses and sole traders.

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