Debt Recovery: The Importance of Complying with Pre-action Protocols

Year Published: 2020

Whilst businesses are keen to pursue amounts that are owed to them in the quickest possible time, pre-action protocols for the recovery of unpaid sums are in place to ensure that various obligations are met before Court or Insolvency action is considered.

Pre-Action Protocols for Business to Business

When a sum of money is due from a business to a business, the Practice Direction – Pre-Action Conduct and Protocols applies. There are various aspects to this protocol, which include the following:

  • A Letter before Action is issued outlining concise details of the claim – the minimum response time for which is 14 days.
  • The Letter before Action must include: the basis on which the claim is made, a summary of the facts, what the claimant wants from the defendant, and how the amount is calculated.
  • Before any form of proceedings are commenced, the Courts expect the parties to have exchanged sufficient information to understand each other’s position and make decisions about how to proceed, to try to settle the issues without proceedings and to consider a form of Alternative Dispute Resolution (ADR) to assist with settlement.

Pre-Action Protocols for Business to Individual

When a sum of money is due to a business from an individual or sole trader, a slightly more enhanced approach needs to be adopted, and the 2017 Debt Recovery Pre-Action Protocol is necessary to be considered in conjunction with the above-mentioned Practice Direction – Pre-Action Conduct and Protocols. The main aspects of this protocol are as outlined above, but with the following variations:

  • A Letter of Claim is issued to your opponent, as opposed to a Letter before Action.
  • The minimum response/payment period is 30 days instead of 14.
  • Should your opponent make a response in line with the Reply documentation contained within this protocol, a further 30 day consideration period would then commence and have to be exhausted before action could be taken.

The objective and inclusion of this particular protocol is to encourage early engagement and communication between the parties, including the exchange of sufficient information about the matter to help clarify whether there are any issues in dispute. This should 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. This protocol also encourages the parties to act in a reasonable and proportionate manner, for example, avoiding running up costs that do not bear a reasonable relationship to the sums in issue.

Both protocols put obligations upon both parties to adhere to the appropriate requirements. It is therefore paramount to provide as much information as possible that evidences the contractual basis of the debt that is due.

What Happens If the Protocols Are Not Complied With?

If a party fails to comply with either or both protocols, there can be cost sanctions later down the line. It is always our advice to comply with the protocols in order to reduce this risk.

In the event of a defended claim, the pre-action process is scrutinised by a Court to ensure that their pre-action requirements have been satisfied. With this in mind, the Debt Recovery service that we offer is in line with these obligations, to ensure both the quickest and legally compliant way to recover outstanding sums.

For further information regarding pre-action protocols, please contact Jodie Sumner on 0161 475 7606 or email [email protected]

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