The New Pre-Action Protocol For Debt Claims – What Is It? And How Will It Affect My Business?

New Pre Action Protocol for debt claims

As many of you will no doubt already be aware, the Ministry of Justice has released a new Pre-Action Protocol for Debt Claims that comes into effect on October 1st, 2017.

Whenever these kinds of changes are made it’s natural to have questions, and we’re going to do our best to answer some of them for you today;

Who does this new protocol apply to?

This protocol applies to all claims by a business for payment of a debt by an individual. This could be individual borrowers, tenants, trustees and so forth. Basically, any individual who owes a non-business to business debt is covered by the new rules.

The only instance where this protocol will apply to a business to business debt is in a situation where the debtor is a sole trader. If the debt is owed by a company or a partnership then the new protocol wouldn’t apply.

Why has the new protocol been introduced?

According to the Government, the aims of this new procedure are to encourage early engagement and communications between both parties, and to increase the chances of the issue being resolved without the need for court proceedings. This can include a reasonable repayment plan or use of an Alternative Dispute Resolution procedure.

Another key reason for the introduction of this new procedure is to encourage both parties to act in a reasonable manner and to try to avoid the running up of costs which aren’t reasonable in relation to the sums owed.

What can I do to be prepared for these changes?

Perhaps the most important question of all.

The first port of call should be to educate yourself on the changes, which means making sure you have access to the required information. This protocol will require a bit more information to be included in the Letter Before Claim, so it’s important that you are familiar with this information before the date of implementation, and that you make any necessary changes to your own systems before that date.

You should also keep your staff fully informed of any changes that they may have to make to their own records and practices. Getting ahead of this and making sure they’re fully briefed will help to avoid any transitional issues later on down the line.

You should consider asking yourself if your current credit policies will prove worthwhile after the changes come into effect. Will it be cost-effective to consider legal action in cases where the debtor is a sole trader or individual? In instances where you are offering credit to customers who fall under the umbrella of this new protocol, it may be worth making changes to your terms and conditions of issue and altering the requirements that those customers have to meet. This will help reduce the chances of debt recovery.

And finally, you have to start separating sole traders and individuals from companies and partnerships on your account records. This will assist you in applying the new protocol to the correct clients if & when the time comes to pursue an outstanding debt.

Another important step that you should take is speaking to your debt recovery solicitor.

In most cases, a quality debt recovery solicitor will already be taking the required steps to implement this new protocol smoothly into their procedures, but you should certainly double check that this is the case.

If the correct steps are taken before the October 1st implementation date you shouldn’t face any real issues. It’s just a case of making sure you’re ready.

9 September 2017