Disputes solicitor, Catherine Mathews shares her tips for businesses trying to overcome the disadvantages of the new Pre-Action Protocol for debt claims.
The pre-action protocol for debt recovery (the ‘Protocol’) came into force on 1 October 2017. The Protocol applies to any business (limited companies, partnerships, sole traders and public bodies) when seeking payment of a debt from an individual (this also includes sole traders). It does not apply in the case of a business seeking payment of a debt from another business.
The purpose of the Protocol is to encourage communication between the parties, in the hope that the dispute can be resolved without the need for court proceedings. There are some disadvantages for businesses, particularly the extended timescales introduced by the Protocol, but here are some tips to overcome them:
Top tips for Pre-Action Protocol for debt claims
- Due to the additional times frames that you will now need to comply with, this may have an impact on your cash flow and patience will be required when collecting outstanding debts. It may be wise to consider who you provide credit to and to review your internal credit control procedures. We can help you with this.
- Ensure that you retain the relevant contract documents and information relating to the debt, in order that you can comply with the Protocol.
- In situations where time is of the essence (for example where you are seeking to secure the debt before an insolvency situation arises) and commerciality is key, you will need to bear in mind the impact of the Protocol and weigh up the risks of non-compliance versus the risk caused by the extended timescales of the Protocol. If you don’t comply with the Protocol you may be subject to a costs sanction in any subsequent proceedings or the proceedings may be stayed while particular steps are taken to comply with the Protocol. The court can also refuse to award interest on the debt for a specified period, or it may be awarded at a lower rate. As a degree of judgment is involved, it is advisable to seek legal advice from a solicitor.
The Protocol encourages the parties to attempt ADR (Alternative Dispute Resolution). In situations where you cannot agree about the existence, enforceability, amount or any other aspect of the debt, you should consider ways of resolving the dispute without starting court proceedings, e.g. mediation. If successful, mediation can be a quicker and more cost effective form of recovery.
If you would to discuss Pre-Action Protocol for debt claims or any other dispute issue, please contact our disputes resolution team on 01392 210700 or drx@stephens-scown.co.uk.