Pre-action protocols – A useful tool or an excuse to delay payments?

Sometimes it seems like things don’t move too quickly in the debt collection world, particularly when it comes to regulation. However, in October this year a new pre-action protocol will be brought into effect, all around debt claim and collection for individuals and sole traders. But what does this new protocol mean, and how will it help businesses collect on their debts, or prevent them in the first place?

What Is A Pre-Action Protocol?

Legally defined, a pre-action protocol (or PAP) is the series of steps to be taken by a person who wishes to bring a claim to court. These steps are designed to be easy to follow and exist to ensure that everyone involved is aware of the problem in dispute, and what each ‘side’ states has happened. At the time of writing this, there are protocols in place for 12 different types of claim, meaning that not all disputes have these protocols in place to follow. But from October 2017, a new pre-action protocol for debt claims will be coming into force, leaving many in the field wondering what the knock-on effects will be.

What is The Debt Claim PAP For?

Like most of the pre-action protocols in existence, the debt claim PAP was designed to make the process of dealing with late payments and other debts easier. The aims of the protocol state that the main aims are:

1. To encourage early engagement and communication between the parties, including early exchange of sufficient information about the matter to help clarify whether there are any issues in dispute;
2. To enable the parties to resolve the matter without the need to start court proceedings, including agreeing a reasonable repayment plan or considering using an Alternative Dispute Resolution (ADR) procedure; 3
3. To encourage the parties to act in a reasonable and proportionate manner in all dealings with one another (for example, avoiding running up costs which do not bear a reasonable relationship to the sums in issue);
4. To support the efficient management of proceedings that cannot be avoided.

In other words, it’s hoped that by using this PAP, people will be encouraged to communicate early about debts and resolve them without going to court. We won’t go into all of the gritty details today, but if you want to read the full process for yourself, you can find it here.

The key thing to remember here is that while the debt claim PAP only applies to individuals, it also includes sole traders, so some business owners can utilise it as a cost effective alternative to court proceedings. However the concern many people are voicing is that creditors might simple see the PAP as yet another barrier to collecting what they are owed quickly, which is especially poignant when you consider that 95% of debt claims go undefended.

How Will The Debt Claim PAP Work?

Like other pre-action protocols, the debt claim PAP has its own defined process for claimants to follow. The process is initiated by the creditor sending a detailed Letter of Claim to the debtor. Oddly for these digital times, the guidelines suggest this should be sent by post and include several documents, rather than being sent by email. If the creditor does want to send the letter electronically, then they need to get specific consent from the debtor. Once sent, the debtor has 30 days to complete the included documents – a pro forma Reply Form and a Financial Means Statement. If the debtor does not fill in and return these documents within the 30 days, the creditor can then move on to formal court proceedings based on any remaining obligations of the debtor.

However, if the debtor responds and indicates that they are seeking debt advice, the creditor should not start court proceedings for at least 30 days. This does not mean they cannot go to court at all, it simply means that they should grant 30 days from the receipt of the reply before they do so, in order to give the debtor enough time to put things in order or settle the debt. Interestingly there is no reason the creditor can’t start court proceedings earlier if they wanted, but the court will expect both parties to have completed the PAP process. If not, the court will take into account non-compliance on both sides when giving directions for the management of the debt, and may even delay the court proceedings until the full 30 days has been awarded. The court is also liable to impose sanctions for non-compliance, including, but not limited to, cost sanctions.

Ultimately, it is up to the creditors in these cases to weight up the costs and risks of non-compliance with the debt protocol are preferable, or whether they would rather continue chasing debts and dealing with the delay in collections. As we have said, the PAP for debt claims was designed to encourage communication between creditor and debtor, but until we see some real-world instances of this, there is guarantee that the same claims won’t still end up in court. For more information on the PAP for debt claim, or to find out how it could help you settle credit disputes, get in touch with us today.