The Pre-Action Protocol for Debt Claims (PAPDC) came into force recently, changing the way in which businesses interact with individuals prior to taking a debt claim to court. It applies to any business when claiming the payment of a debt from an individual (which includes sole traders), so it will not affect business-to-business debt claims. The PAPDC also doesn’t apply when the debt is covered by another Pre-Action Protocol, such as Mortgage Arrears.
This new Protocol aims to aid the communication between the parties, by ensuring that all the relevant information is shared in a timely manner so that any issues can be clarified. It also aims to avoid the need for court proceedings wherever possible by promoting a reasonable repayment plan or Alternative Dispute Resolution (ADR) procedure.
The biggest changes that the PAPDC introduces are the new time limits on the various communications between the business (the creditor) and the individual (the debtor). The creditor must allow 30 days to pass after notifying the debtor of the sum owed (via a Letter of Claim) before they can start court proceedings. Furthermore, the debtor may reply (using the new Reply Form) that they need time to seek debt advice, after which the creditor must allow another 30 days. The debtor may also request further documentation that was not provided in the Letter of Claim, starting yet another 30 day period for the creditor to provide this information. If the debtor has responded, but no agreement between the parties has been reached, then the creditor should give the debtor at least 14 days’ notice of their intention to start court proceedings, unless there are exceptional circumstances. All in all, this means that creditors may have to wait much longer before starting court proceedings.
The effect of the changes means that businesses will have to be much more patient when claiming a debt from an individual. Additional costs and delays could also be incurred if ADR is triggered after the parties have failed to settle the matter. The Protocol does provide clearly laid out documentation for both the business and the individual to use, ensuring that all the correct information is shared. Any failure to comply with the Protocol will be taken into account when the court is giving directions for the management of proceedings.
The full Pre-Action Protocol for Debt Claims is attached below.