New Debt Recovery Protocol
The New Debt Recovery Pre-Action Protocol (‘the New Protocol’) came into place on 1 October 2017. What does this mean for you?
Sole Traders will no longer be considered a business for the purposes of the New Protocol. They will instead be considered an individual.
The New Protocol does not apply to business to business debts unless the debtor is a sole trader.
Under the New Protocol, the debtor has 30 days to respond to the letter of claim that would be sent by the creditor. Previously, the debtor would be given 7 – 14 days to respond to a letter of claim so this could be seen as a benefit for the debtor. Given this more than doubles the time for a sole trader to repay a debt, creditors should consider shortening their credit terms, otherwise sole traders may see this as a way of extending their credit terms.
That said, creditors may now seek to place more onerous terms on sole traders, or refuse to give them credit at all.
The New Protocol also requires more information to be provided with a Letter of Claim, with the aim of saving costs and time further down the line. However, this may lead to creditors incurring higher fees initially. In particular, a reply form is now required to be sent with any letter of claim which will allow the debtor to either admit, partially admit or dispute a claim.
A key principle of the new process that creditors are being required to work through, is that matters can be settled without the need for Court Proceedings, as parties should be considering Alternative Dispute Resolution (ADR) from the outset. The added information required within the letter of claim is designed to give the debtor all the necessary information at the start of the claim so that they can decide how to respond on the reply form, which will hopefully bring the matter to an early conclusion.
Furthermore, Creditors should be aware that if the Debtor responds to the Letter of Claim but no resolution is reached, the Creditor must give a further 14 days notice of their intention to issue court proceedings.
For more information please contact us