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New Pre-action Protocol for Debt Claims - What Can You Do to Prepare?

on Tuesday, 19 September 2017.

A new Pre-Action Protocol for Debt Claims comes into force on 1 October 2017.

The Protocol applies to all businesses claiming payment of a debt from an individual debtor and it will therefore apply to the collection of all school fee debts


Main Changes 

More information is required in and with letters of claim, standard forms have been introduced and debtors should be given more time to respond and an opportunity to make payment proposals throughout the pre-action process.


 The Aims of the Protocol Are 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
  • 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
  • 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)
  • support the efficient management of proceedings that cannot be avoided

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The Detail

The new procedure requires 'enhanced' letters of claim, which set out the following information:

  • the amount of the debt
  • whether interest or other charges are continuing
  • the date of the agreement, the parties to it and confirmation that a copy of the written agreement can be requested from the school
  • where the debt has been assigned, the details of the original debt and creditor, when it was assigned and to whom (following a merger, acquisition or change of legal entity, for example)
  • if regular instalments are currently being offered by or on behalf of the parent/debtor, or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered
  • details of how the debt can be paid (for example, the method of and address for payment) and details of how to proceed if the parent/debtor wishes to discuss payment options
  • the address to which the completed reply form should be sent

In addition, the school needs to enclose:

  • either an up-to-date statement of account for the debt (including details of any interest and administrative or other charges added); or the most recent statement of account accompanied by sufficient detail about additional charges to bring it up to date; or a statement in the letter of claim with all of this information
  • An information sheet and reply form (in a prescribed form)
  • financial statement form (in a prescribed form)

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Providing Extra Time

Please note that schools are now required to allow parent/debtors 30 days to respond to a letter of claim. They should respond on the reply form provided.

If a parent/debtor does not reply within 30 days, the school can usually commence court proceedings. However, the 30 day grace period may be extended if the parent/debtor indicates that he or she is seeking debt advice, requests further documentation from the school or requires more time to pay.

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Seeking Debt Advice

If the parent/debtor indicates that he or she is seeking debt advice, the school is required to allow the debtor a reasonable period to obtain such advice.

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Further Documentation

Should the parent/debtor request copies of any relevant documents from the school, these should be provided within 30 days.

If the parent/debtor then requires more time to consider them before responding to the claim, a reasonable extension should be given.

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More Time to Pay

If the parent/debtor requires more time to pay, the Protocol requires the school and the parent/debtor to try to reach an agreement for the debt to be paid by instalments, based on the parent/debtor’s income and expenditure. If the school is unwilling to agree this, it should say why in writing (for example if an previous instalment arrangement has been broken without reasonable justification).

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ADR

If the parent/debtor fails to complete the reply form fully, the onus is nevertheless on the school to contact them to obtain any further information needed to properly understand their 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 school must provide any document or information requested or explain why the document or information is unavailable within 30 days of receipt of the request.

If settlement 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 some form of alternative dispute resolution (ADR).

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Proceedings

The school should give the parent/debtor a minimum of 14 days’ notice of its intention to commence court proceedings (unless, for example, the limitation period is about to expire).

As a result of the changes, the issue of proceedings can now be delayed by up to 90 days.

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Risks of Non-Compliance

Failure to comply with the new Protocol for debts where letters before action have not been sent before 1 October may result in:

  • reputational risk

  • the stay of court proceedings to remedy failures to comply with the Protocol and delayed collection of debt

  • additional cost sanctions (such as payment of the debtor’s legal costs or a failure to recover the school's own costs)

  • an inability to recover interest from a debtor (or recovery at a reduced rate)

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What Can You Do to Prepare?

The Protocol demands more patience when collecting outstanding debts and an acknowledgement that the recovery of school fee debts will be more time consuming in the future. Court proceedings should be an option of last resort.

In order to mitigate the effect of these changes on cash flow, we recommend that:

  • your admission arrangements are robust

  • you consider undertaking credit checks against parents before a place is offered

  • you react swiftly to default, using exclusion procedures where appropriate, to avoid the unnecessary escalation of debt

  • you seek a written record of a debtor/parent's:

    • income and outgoings before entering instalment plans

    • admission of their liability to pay the debt if it is allowed to accrue

  • debts are referred to us earlier for action

  • action sheets are accompanied by copies of relevant contractual documents and an up to date statement of account and additional charges in all cases

  • you consider issuing standard instructions to us about means checks, ADR and the issue of proceedings for referred cases

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For further advice and support please contact Nick Murrell on 0117 314 5627, Charlotte Williams on 0117 314 5219 & James Garside on 0117 314 5639.

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