The Pre-action Protocol

And what it means for Creditors

The new Pre-Action Protocol (PAP) came into force in October 2017 and it affects ALL businesses who are dealing with sole traders or private individuals. The Protocol does not affect Limited Companies or Partnerships.

What is the objective of the Protocol?

The objective of the protocol is to encourage creditors and debtors to attempt to resolve matters or at least attempt to narrow down any issues, before bringing the matter before the Court so ensuring that litigation is a last resort.

So how is the Protocol different?

Prior to October 2017, if you were struggling to get your invoices paid, it would have been sufficient to simply send to the debtor a letter before action giving them 7 days to pay, or you would issue a claim against them, at Court. Since the implementation of this new legislation, it is no longer sufficient to do this and you now have to send a fairly detailed letter before claim and give a minimum of 30 days notice before issuing a claim at Court.

So what documents have to be sent to the debtor under the Protocol

Your letter before claim has to set out your claim and the reason that you are making it. You will need to enclose with your letter, a copy of the agreement that you made with your debtor or if there was no written agreement, as much detail as possible about what was agreed. Copy invoices and details of any interest and compensation that you are claiming and how you have calculated these costs. You also need to enclose a copy of your contractual terms and conditions, a reply form, an information sheet telling your debtor how to complete the reply form and a list of local debt counselling companies, with addresses, telephone numbers and email addresses who they can approach for advice on the debt and an income and expenditure sheet that they should complete if they want to make a proposal to pay by instalments.

Once you send your letter before claim to the debtor, you then need to give them 30 days to respond and it is suggested that you wait a further few days after this deadline, in case the debtor replied to you on the 30th day. If your debtor replies and asks you for more information, you must then wait a further 30 days from the date that you send the information to them. If your debtor then states that they need to take legal advice about the debt, then you need to give them a reasonable amount of time to do that (say 14 days) so it can now take up to 74 days before you would be in a position to issue a claim at Court.

In between this time, you may have to deal with third parties, such as debt counselling companies or solicitors who are acting for the debtor and this can all take extra time and money to administer.

What if I don’t follow the Protocol and just issue a claim at Court

This is certainly not recommended. If you fail to follow the Protocol then it is likely that your claim will be set back and you will be instructed to start the Protocol from the beginning and there is likely to be penalties against you on a costs basis.

Is there any alternative to the Protocol?

Yes there is but you need to have firm evidence that the debt is owed to you and it depends on the amount owed to you. If the debt is more than £5,000 then you can issue a Statutory Demand on the debtor which gives them 18 days to pay the debt or come to an arrangement that you are happy with, otherwise you can issue a Bankruptcy petition against them after 21 days of the service of the Statutory Demand. You need to be careful when issuing a Statutory Demand and we would not recommend going down this route unless you have either an admission in writing from the debtor acknowledging the debt, a bounced cheque or a County Court Judgment (CCJ). The danger being that if the debtor disputes the debt, then their solicitors can apply to set aside the demand and you would be liable for their costs, payable within 14 days.

This seems like a nightmare, is there any other way I can deal with this?

The good news is yes. At MSB Solicitors we have looked long and hard at the protocol and we believe that there is a way that we can attempt to circumvent the process and by doing this, we would save quite a bit of time and money in the process. To do this, we would first calculate any interest and compensation that may have accrued on the debt. We would then write to the debtor to tell them that we would be prepared to waive these costs if they were to make payment within seven days. Because this letter is a request for payment and not a threat of litigation, this does not trigger the Pre-Action Protocol. Sometimes this will work and sometimes it won’t but if it does work it will save a lot of time and money and we will have achieved a fast result.

What if the request for payment doesn’t work

Then unfortunately, we will have to trigger the Protocol. As you will imagine, this can involve a lot of administration work, collating documents, sending them to the debtor then dealing with any further requests for information and perhaps dealing with third parties such as solicitors or debt counselling agents. This would usually run up significant time costs but the good news here is that we have developed a fixed fee basis which covers all administration costs over the Protocol period. The fees are very cost effective and are based on the amount of debt owed.

We have a broad range of expertise that can help you