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What is the Pre-Action Debt Protocol for Debt Claims?

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When you run a business, it relies on customers to pay for its goods or services. However, sometimes customers fail to pay on time, leaving your company with outstanding debts that need to be pursued. While you may have procedures in place for chasing debtors, some regulations dictate how court action may be taken. One such regulation is the pre-action protocol for debt claims, which outlines the necessary steps to be taken in a commercial dispute. This article will explain the purpose of the pre-action protocol for debt claims.

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What is the Pre-Action Protocol for Debt Claims?

As a business, you need to adhere to the pre-action protocol for debt claims if individuals owe your business money. Other types of litigation, like personal injury and professional negligence claims, also have their own pre-action protocols. The court expects both you and the individual who owes your business money to follow this protocol before initiating commercial litigation. This is because resorting to court for a business debt should be your last course of action.

What is Involved in the Pre-Action Protocol for Debt Claims Involve?

As a business owner, you probably have your own informal procedures for chasing debts when someone owes you money. If these procedures do not work, you can either hire a solicitor to take the debtor to court or do it yourself. If you choose the second option, you need to follow the pre-action protocol for debt claims. This means you have to send a ‘letter of claim’ to the debtor containing specific information. Along with the letter, include:

  • an information sheet;
  • a reply form; and 
  • a financial statement.

In addition, make sure to send copies of these documents by post. If the debtor does not respond within 30 days, you can start legal proceedings. However, if they reply within that time and ask for more time to get professional debt advice, you must give them at least 30 extra days. If the debtor needs more time to pay the debt, both parties should try to reach an agreement. If you reject the debtor’s proposal, you must explain why in writing.

Remember, you must not ignore the debtor’s response, no matter how complete it is. It is your responsibility to get in touch with them and gather more information.

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Why Should You Use the Pre-Action Protocol for Debt Claims?

The pre-action protocol for debt claims serves several purposes beyond just being a requirement before court proceedings. It aims to:

  • encourage you, as the business creditor, and your debtor to initiate communication about the debt promptly.
  • facilitate finding a resolution, whether through alternative dispute resolution (ADR) or setting up instalment payments.
  • ensure both you and the debtor behave reasonably and proportionately.
  • provide assistance in effectively managing any court litigation that becomes necessary.

Which Debts Does the Pre-Action Protocol for Debt Claims Apply to?

The pre-action protocol for debt claims applies to debts that individuals owe to your business. It covers repayment of debts by individuals who have failed to pay. However, it is important to note that it applies not only to consumers who are your customers but also to specific business debts, especially those from a sole trader business.

The pre-action protocol for debt claims does not apply to some debts, such as construction and engineering disputes. In these cases, another pre-action protocol is in place.

Key Takeaways

If someone owes your business money, you will likely try informal methods to recover it. If you decide to take legal action, you must first follow the pre-action protocol for debt claims. This protocol applies to individuals, including businesses operating as sole traders. However, it does not apply to individual debts where a different pre-action protocol exists.

It is a specific procedure before going to court. It includes sending the debtor a letter of claim with specific information and documents attached. The debtor then has 30 days to respond, and you must take appropriate steps based on their response.

It also serves various purposes, such as ensuring court action is a last resort and facilitating early communication between you and the debtor to discuss the debt owed to your business.

If you need help understanding the pre-action protocol for debt claims, our experienced disputes and litigation solicitors can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.

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Clare Farmer

Clare Farmer

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