Creditors Beware! Debt Collection may become more difficult after 1st October 2017

27 Sep 2017

On 1st October 2017 a new Pre-Action Protocol for Debt Claims comes into force and appears to have potentially serious implications for creditors and the way they manage their credit collection process in future.

The Protocol does not apply in cases of business to business transactions but it does apply in all other situations where the creditor is in any form of business, including as a sole trader.

Before commencing any proceedings to recover a debt, the creditor will now have to send a Letter of Claim containing a significant amount of specified information and must also accompany that with an Information Sheet and Reply Form (both of which are in a specified form annexed to the Protocol).

The debtor must be given 30 days to reply and, if the debtor asks for further time to obtain advice, a reasonable time must be given for this.

The debtor also has the right to request the creditor to provide relevant documentation and, if a request is made, the creditor must supply the documents within 30 days and the time period for the debtor to deal with the matter is suspended until the documents are supplied.

At the end of this period, if the parties have been unable to reach agreement, they are expected to take appropriate steps to use Alternative Dispute Resolution (e.g. such as mediation).

Only once all of these steps have been complied with and having failed to provide a resolution can the creditor consider issuing proceedings.  Even then, it must give 14 days notice to the debtor of its intention to do so.

If the creditor issues proceedings without complying with the Protocol it faces sanctions on costs and interest and the likelihood of the proceedings being stayed.

It is too early to say what effect the Protocol will have in practice however many have already expressed the fear that this process will simply allow debtors to cause delay and will have serious implications for cash flow.

It therefore seems clear that, in future, creditors would be well advised to begin the formal process of seeking recovery of debts sooner than perhaps they would otherwise have done in the past, particularly where there may be concerns about the ongoing solvency of the debtor.

Colman Coyle’s Dispute Resolution Team have substantial experience of pursuing matters of this nature and will be happy to assist clients in pursuing collection of debts or reviewing their credit control processes and suggesting appropriate changes.

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