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The Pre-action Protocol for Debt Claims - Why Debt Recovery Could Become a Virtue

on Wednesday, 30 May 2018.

The Ministry of Justice released the Pre-action Protocol for Debt Claims ("the Protocol") on 1st October 2017.

While patience maybe seen as a virtue, it's also now true that recovering debts from individuals will take more time and businesses need to factor the extra time caused by the new protocol and information gathering into their cash flow models. So what's new and what action can/should you take?

Here's our simple guide:

Who is Affected?

The Protocol applies to all business (including sole traders, partnerships and public bodies) claiming payment of a debt from an individual debtor (including a sole trader). The Protocol does not apply to business-to-business debts unless the debtor is a sole trader, nor does it apply:

(a) where the debt is covered by another Pre-Action Protocol such as Construction and Engineering or Mortgage Arrears; or

(b) to claims issued by Her Majesty’s Revenue and Customs that are governed by Practice Direction 7D (Claims For The Recovery Of Taxes And Duties).

What Does This Mean for Creditors?

The steps are more onerous and time consuming for creditors including the need to serve an "enhanced" 'Letter of Claim', which sets out details of the basis of claim extending to: dates, copies of all documents, all financial statements to full details on how the debt can be paid. A creditor will also have to include within its letter of claim, a template information sheet and a reply form in all cases. So for creditors - get your processes updated to reflect this and make sure your teams are properly trained.

Providing Extra Time

The creditor must allow 30 days for a response (rather than the usual 14 days) and the debtor should respond by using the reply form. If the debtor does not reply to the letter of claim within 30 days, the creditor may commence court proceedings. However, this period may be extended if the debtor indicates that he or she is  seeking debt advice, requests further documentation or requires more time to pay. You can't stop a debtor taking debt advice or asking for more information but creditors can make sure you provide all relevant information from the offset, to address one key arm of a debtor seeking more time to pay.

Seeking Debt Advice

If the debtor indicates that he or she is seeking debt advice, the creditor has to allow the debtor a reasonable period for the advice to be obtained and should not commence court proceedings less than 30 days from receipt of the completed reply form or 30 days from the creditor providing any documents requested by the debtor, whichever is the later. A good tip is therefore to make sure creditors have a robust diary system to prevent slippage.

Further Documentation

Should the debtor request copies of any documents it wishes to see, these must be provided within the following 30 days. If the debtor requires more time to respond, a reasonable time must be given. The creditor should also allow reasonable extra time for the debtor to obtain further debt advice where it would be reasonable to do so in the circumstances. Having clear terms of business and processes is highly recommended (including how you deal with terms that are "negotiated" in emails and make sure you follow up phone calls in writing) - that can reduce the number of documents that may be relevant.

More Time to Pay

If the debtor requires time to pay, the Protocol requires the creditor and debtor to try and reach an agreement for the debt to be paid by instalments, based on the debtor’s income and expenditure. If the creditor does not agree to a proposal for repayment of the debt, it should say why in writing. Again, creditors need to have a clear process in mind and make sure you do your due diligence at the outset: if this debt was not paid, how would your business cope?


If the debtor fails to fully complete a reply form, the onus is nevertheless on the creditor to contact the debtor to discuss and obtain any further information needed to properly understand the debtor’s position. If the debt is disputed the parties should exchange information and disclose documents sufficient to enable them to understand each other’s position and the creditor must provide any document or information requested or explain why the document or information is unavailable within 30 days of receipt of the request. By now, it's clear there is an issue but better to head off getting this far with clear and unambiguous terms (including how to make a payment). If a debtor is unlikely or unwilling to pay without a fight, much better to make your processes as swift and as clear as possible, thereby minimising lost management/admin time. 

If settlement still cannot be reached the parties are obliged to take appropriate steps to resolve the dispute without commencing court proceedings and, in particular, should consider the use of alternative dispute resolution (ADR). 

VWV's Top 5 Tips

Evidently, the recovery of debts from individuals is becoming more time consuming for creditors. It is clear that the Protocol demands more patience when collecting outstanding debts from either consumers or sole traders and court proceedings should be avoided at all costs. So our Top 5 Tips are:

  1. Think about to whom you give credit,
  2. Ensure you have all customer information up to date so they can be contacted easily from the start,
  3. Undertake credit checks on individuals and sole traders, 
  4. Have a good and clear record of all documentations and financial statements and,
  5. Act quickly and decisively when debts arise.

For more information, please contact Dee Kundi in our Debt Recovery team on 0121 227 3720. 

This article originally featured in Downtown in Business Birmingham.

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