Our Plans for The New Debt Pre-Action Protocol
As you will now be aware the new PAP comes into effect on 1st October 2017 and applies to any business claiming payment of a debt from an individual.
The PAP will require far more information to be provided to debtors in the initial Claim letter, together with an Information Sheet and Reply Form.
The main impact of the PAP will be the fact that it potentially has a very detrimental effect on debtor days as it sets out timescales to which we have to adhere before taking recovery action through the Courts.
If the Protocol is not adhered to there will no doubt be penalties imposed by the Courts. At present the nature of any such penalties is unknown but they could strike out the claim, reduce or disallow interest or disallow costs.
Initial Information to be Provided in Letter of Claim:
The Letter of Claim should contain the following information where it arises from a Lease:
- Amount of debt.
- Whether interest or other charges are continuing.
- The date of the Lease, the parties to it and the fact that the debtor can request a copy.
- If instalments are being paid, an explanation of why the offer is not acceptable and why a court claim is being considered.
- Details of how to make payment (methods, address for payment) and how the debtor should proceed if he wishes to discuss payment.
- Address to which Reply Form has to be sent.
In practical terms this means that the Land Registry title will be required before the initial letter is sent to identify the date and parties to the Lease.
The Letter of Claim will be far more detailed in terms of the information provided and it has to be accompanied by the Information Sheet and Reply Form. These are standard form documents. The Information Sheet sets out what steps the Debtor has to take upon receipt of the Letter of Claim and the timeframes for doing so and the Reply Form gives various options for responding to the Letter of Claim, offering payment or raising a dispute.
This is the part of the PAP which is likely to cause most difficulty to our clients in terms of recovery of arrears.
The time frames which apply are as follows:
- The debtor has 30 days in which to reply to the Letter of Claim. No proceedings can be started until this 30 day period has expired.
- If the Debtor replies and indicates that he is seeking debt advice, he is permitted 30 days from the date of receipt of the Reply in which to do so. If he replies on the 29th day after the Letter of Claim, this, in effect, gives him 59 days before any further action can be taken. There is also a mechanism for the Debtor to request extra time and this should be permitted if it is a reasonable request, but there is no absolute requirement to allow extra time.
- If, after receipt of the Reply Form, the parties are still at odds as to the existence of the debt, the amount due or any payment plan, they should take steps to engage in Alternative Dispute Resolution. This applies currently to all court proceedings so this alters the current position very little. In many small debt matters this is simply impractical or disproportionate to the amount being claimed.
Our Proposals as to Recovery Process:
We are seeking to put in place the PAP by the end of August so that there is a seamless transition to this process within our existing process.
The main issue here is how the PAP affects each client’s debtor days and recovery process.
Our suggestion to minimise the impact of the PAP is as follows:
- You send one chaser to the leaseholder 7 days after the debt falls due, adding on their first administration charge.
- If payment is not made following this chaser (within a maximum period of 7 days) the matter is referred to SLC, with your referral charge added.
- SLC review Lease, obtain Land Registry title and send out the Letter of Claim and accompanying documents.
- After 14 days we will also contact the mortgagee if payment has not been received.
- We will not send an LBA 2.
- If no Reply Form is received we will look to issue a claim on the 31st
- If a Reply is received, we shall refer to you for instructions with our recommendation of how we think we can best recover.
This process should minimise the impact on debtor days. Obviously, where we receive a dispute at present this increases debtor days so we do not consider that the receipt of a dispute will increase debtor days above their current level.
The PAP states that we should give a further 14 days notice to the debtor of our intention to issue a claim if no agreement has been reached after a Reply has been received. We do not yet know whether the Court would penalise the creditor if this 14 days final notice is not given. It is not, at this time, our intention to give this further 14 days notice prior to issuing a claim but we are happy to do so if you would prefer to give the debtors a final notice before issue.
These are our initial thoughts as to how the new PAP can be implemented with the least impact on debtor days fro clients but we will be working closely with all our clients to ensure that a process is in place which suits their requirements.
If you have any queries or comments, please do not hesitate to contact Charlotte Collins on 01743 260121.