On 1 October 2017 a new pre-action protocol for debt claims came into force, which aims to encourage early engagement between parties, avoiding the need for court proceedings.
The protocol applies to any debt claim by a business (including a sole trader) against an individual (who may also be a sole trader).
Under the new rules, creditors will need to send debtors a ‘Letter of Claim’ setting out prescribed information, along with:
• an up-to-date statement of account for the debt together with details of any interest incurred,
• a copy of an information sheet and reply form, and
• a financial statement form.
Debtors then have 30 days to respond to the Letter of Claim, using the reply form, either admitting the sums owing, disputing them or requesting further information and documents.
Early disclosure of documents and relevant information can help to clarify or resolve any issues in dispute. If a debtor requests a document or information, the creditor must provide it within 30 days of receipt of the request.
Where a debtor has responded to the Letter of Claim but the agreement has not been reached, the creditor will need to give the debtor at least 14 days’ notice of their intention to start court proceedings unless there are exceptional circumstances which require urgent action.
If a matter proceeds to litigation, the court will expect the parties to have complied with the pre-action protocol. Non-compliance will be taken into account when giving directions for the management of proceedings.