Recovering a debt owed to you quickly and efficiently is crucial to the effective management and operation of your business.
Unpaid debts can have a detrimental effect to your cash flow and cause significant short and long term financial detriment.
In 2017 a Pre-Action Protocol for debt claims came into effect which affects all business creditors attempting to recover debts from individual clients/customer or sole traders.
The primary aim of this was to encourage creditor and debtor to communicate at an early stage in an attempt to reach a resolution without having to resort to court proceedings i.e. agreeing a reasonable repayment plan or considering using an Alternative Dispute Resolution (ADR)
The creditor is required to send a ‘Letter of Claim’ to the debtor before they can take any legal action to recover the debt. This is not exclusively part of the new protocol, however, the new protocol does now dictate what the letter should include:
- The outstanding debt amount
- Any interest or charges that apply
- Where the debt arises from an oral agreement, full details of who made the agreement and what was agreed (including, as far as possible, what words were used) and when and where it was agreed
- Where the debt arises from a written agreement, include the date of the agreement, the parties and the fact that a written copy can be requested
- Where the debt has been assigned, the details of the original debt and creditor, when it was assigned and to whom
- Instructions for how the debt can be paid (payment method and address for payment) and details of how to proceed if the debtor wishes to discuss payment options
- An enclosed up-to-date statement of account for the debt, along with an information sheet, financial statement form and reply form
Once the letter of claim is sent to the debtor, under the new Pre Action Protocol they now have a mandatory 30 days to respond, as opposed to the 14-21 days they would use to be typically afforded. The response should be set out in accordance with the reply form received in the letter of claim. If the debtor doesn’t respond, court proceedings can then be issued.
If the creditor receives the reply form within the 30 day time frame, they again must refrain from starting legal proceedings for a further 30 days.
If in the response the debtor indicates they require time to pay, the debtor should attempt to reach an agreement with the creditor for the debt to be paid in installments calculated based on the debtor’s income and expenditure.
If there is a disagreement about the existence, enforceability, amount or any other aspect of the debt, then appropriate steps should still be taken to resolve the dispute without starting court proceedings i.e. the use of an appropriate form of Alternative Dispute Resolution (ADR).
If an agreement cannot be reached, at least 14 days’ notice should be given by the creditor of the intention to issue court proceedings (unless there are exceptional circumstances, such as the limitation period is about to expire).
If the creditor fails to follow this protocol, the court can take this into account and even pause court proceedings in order for both parties to communicate. The Court may also impose court sanctions for non-compliance.
If you are owed money or received a letter of claim, it’s recommended you seek legal advice as soon as possible to discuss and ensure there are no breaches of the protocol and avoid costly repercussions from the court.
How can we help?
If you wish to instruct Gorvins to begin the debt recovery process, or send a letter before action, call us on 0343 507 5117, e-mail debtrecoveryteam@gorvins.com or fill in the enquiry form and we will call you back.