As is already the case, a letter of claim must be sent to the individual, however, from 1 October, this letter must include the following:
- The amount of the debt and whether interest or other charges are continuing;
- The basis of the debt (whether it relates to a written or oral agreement and details of that agreement);
- If the debt has been assigned to a third party, details of the original creditor and the date it was assigned and to whom;
- Details of how the debt can be paid;
- An up-to-date statement of account for the debt;
- An information sheet and reply form (these are in a prescribed form);
- A financial statement form.
Once a letter of claim has been sent, the creditor must give the debtor 30 days to respond. If no response is received, the creditor can then issue a claim through the courts.
A debtor must respond to the creditor using the reply form mentioned above. Receipt of the reply form marks the beginning of the 30 day period, during which the creditor cannot start court proceedings. If the debtor indicates that they are seeking debt advice, the creditor should allow a reasonable period of time for that advice to be obtained. Additionally, the creditor cannot start court proceedings less than 30 days from the creditor providing any documents to the debtor, as requested in the reply form.
The enforcement of the protocol will be through the court’s assessment of whether or not both the business and the individual, or sole-trader, have complied with the requirements in any subsequent legal proceedings. Naturally, compliance with the new protocol will be balanced against the urgency of the matter, however, the court will take into account any non-compliance when giving directions and managing proceedings. This could include a party being punished with a costs order.
The protocol is being introduced to encourage early communication of issues surrounding the dispute between the parties and to enable the parties to resolve the matter, without starting court proceedings, using payment plans or agreeing to Alternative Dispute Resolution. In addition, it will encourage parties to act in a reasonable and proportionate manner and if proceedings cannot be avoided, support the efficient management of the proceedings in debt claims.
The effect that this will have on businesses will be to greatly lengthen the time given for credit control procedures. Whereas businesses can currently request payment of a debt from an individual within 7 or 14 days, from 1 October 2017 they will have to allow at least 30 days – if not longer. Accordingly, many businesses should look to update their current credit control procedures to be able to promptly begin communication with the debtor.
If you would like to know more about the impact the protocol could have on your business, or have any other issues you wish to discuss, please contact Denise Traube.