1 October 2017 saw a new pre-action protocol come in to force that applies to claims brought by a business against individuals.

It does not apply to claims against a company, LLP or partnership (unless payment is being sought from the individual partners).

It does apply to personal guarantees given in relation to a company’s debt as it is the individual who is being asked to pay.

This also includes sole traders in relation to business debts and will therefore require creditors to consider changes in their processes and more frustration in trying to get a delinquent customer to pay.

Seeking payment in writing within 7 days “or legal action will be commenced” is no longer possible.  The individual must be allowed 30 days to respond before legal proceedings can be commenced.

Whilst this potentially means it will take longer for creditors to be paid, actually what creditors should do is commence action sooner.  This may seem like a tough stance to take against individuals, but this is the only way of the credit period not being extended by these new rules.

Want to know what you must provide to the debtor?  Click here


Can we just ignore the new protocol?

The protocol is not law so yes on the face of it can be ignored, but you would be ill advised to do so.  Protocols are issued to be followed in their entirety.  Therefore the protocol should not be ignored.

Failure to comply with the protocol could mean further delays in recovering the debt as any legal proceedings may be stayed whilst the failures are remedied.  The new protocol aims to encourage early engagement and avoid the use of the court.

There could also be sanctions in terms of payment of the debtor’s legal costs or a failure to recover costs and an inability to recover interest on the debt.

Consequently, any creditor should ignore the new protocol at their peril


So what happens if a response is received within 30 days?

Assuming payment is not forthcoming, then it depends what the response says.

  1. Advice is being sought – if the debtor responds and says debt advice is being sought, the creditor must allow a “reasonable period” for the advice to be obtained.

The protocol states “the creditor should not start court proceedings less than 30 days from receipt of the completed reply form”.  It is unclear whether 30 days is a “reasonable period”.

  1. Advice is being sought but it will take longer than 30 days – the debtor must be given “reasonable extra time”.

What is reasonable extra time?  Also is “reasonable” ‘general’ (i.e. it applies to call cases) or should it be ‘case specific’?  Sadly it would be far too simple to clearly outline what this is, but in other areas timescales of between 2 and 4 weeks are considered reasonable.

  1. Can I have more information – the creditor then has 30 days to provide it or explain why it is unavailable.
  2. Can I have time to pay – debtor and creditor should try to reach agreement based on the completed income and expenditure form.
  3. Partially completed form – the creditor is expected to engage with the debtor to assist them
  4. It is disputed – The protocol makes clear that Alternative Dispute Resolution should be utilised to resolve any dispute that remains in respect of the debt.  It is unhelpfully not clear when ADR will not be considered appropriate – i.e. it can be ignored and recovery action can continue. This means commercial considerations such as will mediation be cost effective in relation to the size of the debt being pursued become difficult.


What if we cannot reach a sensible resolution?

If the protocol has been followed and the matter is unresolved, a further review of respective positions should be undertaken to see if proceedings can be avoided.

Ultimately if proceedings are going to be issued a further notice period of at least 14 days should be given being proceedings are started unless there are exceptional circumstances (such as limitation approaching).


For help in maximising your recoveries from delinquent debtors, call us on 0330 900 2000 to see what we can do to help, you might just be surprised.