If you’ve ever had to take a debtor to court for non-payment, you’ve probably encountered a pre-action protocol before now. This protocol has been in place for a long time, and exists to govern how creditors and debtors should interact when a debt has become overdue and non-payment is an issue. But in October 2017, the rules changed slightly, and now the pre-action protocols apply to any business claiming payment of debt or debts from an individual or sole trader, as well as other forms of business. Other changes to the protocol also revolve around increasing the amount of information shared between parties to help each party understand the other and come to an agreement, ideally without court involvement. Today, we wanted to take you through the process of a pre-action protocol and what it means for businesses.

What Is The Purpose Of The Pre-Action Protocol?

The pre-action protocol is designed to ensure a fair and consistent process has been followed before a debtor ends up in court over a debt owed to a business. It ensures that debtors have been suitably warned and given ample opportunity to pay their debt, and should ensure only cases that require court action end up there. The protocol is also designed to:

• Encourage early engagement and communication between parties.
• Enable the parties to resolve the matter without the need for court proceedings.
• Encourage parties to act in a reasonable and proportionate manner.
• Support the efficient management of proceedings.

What Changes Have Been Made To The LBA?

LBA stands for Letter Before Action, and is the formal request for payment of a debt to your business, and warns of the imminent issue of a court claim. As a business you are required to send this out to your debtors before you being legal proceedings. Inside, you must include a time period in which to pay, and you must not start legal proceedings before the allotted time is up. Failing to send a LBA could result in your forfeiting costs during the legal phase. But with this new change, you are also required to include in your LBA:

• Up To Date Financial Information: including details of any interest or administrative charges you have applied to the debt.

• Details Of The Agreement: including who made the agreement, whether it was written or verbal, and the date it was made. It also needs to be made clear that further information on the agreement is available upon request.

• Payment Details: including the method and address of payment, and details on how the debtor should proceed if they wish to discuss payment options.

• An Enclosed Reply Form, Information Sheet And Financial Statement Form: all of which have been provided for use in the protocol itself.

• A Reply Address: including a direction to the debtor to send the reply form to this address.

This letter should be clearly dated and posted on the same date, and it must be sent by post unless the debtor has specifically requested it be sent by an alternate method.

What’s The Timescale?

A lot of people think that a pre-action protocol is a long, drawn-out process that could take months or even years. But in reality it’s not. And while it’s not an instant process (since you need to give the debtor reasonable time to respond to each stage), it can be progressed in a timely manner. There are a few set time limits within the protocol, including:

• Original Letter – A standard LBA should provide the debtor with 30 days (+postage time) to reply or pay the debt before court proceedings begin.

• Reply Form Completed – If you receive a completed reply form, you should not start proceedings for 30 days from receiving the response.

• Documents Requested – If the debtor requests copy documents or information, you must allow at least 30 days from the date you provided them before starting legal action. If you can’t provide them, you need to provide a reason within the 30 days.

• Debtor Getting Advice – If the debtor responds saying they are getting advice you should allow 30 days before taking action, or longer if it would be reasonable.

• Partial Reply Form – If you get a partially completed reply form, you should try to contact the debtor to find out what the situation is. Perhaps there is a dispute of some sort, or they are looking for time to pay.

• Agreement Not Reached – If you’ve received a partially completed reply form or you’ve had a discussion with the debtor and can’t reach an agreement, review the case in full. You will need to give a final 14 days notice before beginning legal proceedings.

• Issuing A Claim – During any part of the pre-action process the debtor must be given an additional written warning at least 14 days in advance of court action being commenced. An exception to this is the upcoming expiration of limitation periods.

The main change this update has brought about is a complete overhaul of priorities – with the focus now being on nurturing communication between parties and avoiding court action if possible. While this does mean creditors may sometimes have to wait up to 60 days to file a claim, there is a better chance of a positive outcome without court proceedings. If it ends up in court, then the court will take into consideration any non-compliance and may even penalise businesses who do not follow the protocol. The worst of this is the forfeit of costs, so even if the creditor is successful, they may only be awarded part or none of its costs if it didn’t follow protocol. If you’re planning on taking a debtor to court, the first pre-action letter needs to be sent as soon as the debt becomes due. At Debtcol, we work with businesses through every stage of debt collection, from informal conversations with debtors to support through court proceedings. If you would like to find out more about how we can help, please just get in touch with us today.