All new debt recovery protocol
orded to the financial statement. If a repayment proposal is rejected, written reasons must be provided to the debtor.
If a debtor fails to respond, proceedings may be issued 30 days after the letter of claim. If a response is received but no agreement reached, the protocol states that the parties should ‘take stock’ of their positions. In any case, in these circumstances, creditors are expected to provide a further 14 days’ notice of their intention to commence proceedings.
The protocol’s clear intention is to protect debtors from claims made by creditors where there is insufficient information provided about the debt and introduces a number of new requirements which creditors and debtors are expected to follow before court proceedings are commenced.
Compared to existing practices, the passage of time from letter of claim to the commencement of court proceedings is likely to increase from an average of two weeks to 30 days, but possibly up to 74 days or more in some cases where debt advice is sought, or discussions are entered into.
Although the protocol states that the courts will not be concerned with minor and technical breaches, particularly when the matter is urgent, they do have the power to consider breaches of the protocol and impose potential sanctions. These could include orders relating to the payment or rate of interest claimed, costs orders, unless orders and other case management orders provided to ensure compliance with the protocol.
The protocol has been through a lengthy consultation process and has met with significant criticism, mainly from creditor representatives who argue that the protocol places a disproportionate burden upon them to provide historic information, some of which may not be readily available in the case of a debt sales or assignments. Critics also suggest that the protocol disproportionally increases operating costs on low value debts.
What is clear is that the protocol is designed to further protect the rights of debtors by encouraging the sharing of information and promoting settlement wherever possible. What remains to be seen is the overall impact of the protocol. Debtors will undoubtedly be better protected but consumers may see the costs of goods and services increase if debts can no longer be pursued economically.
If you require further information on the practical effects of the new pre-action protocol and how this will affect your business or if you require specific advice, please call us on 08456 808 251 or you can visit:
Credits: Law Society