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A Guide to the Debt Recovery Protocol

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Last October, the Pre-Action Protocol for Debt Claims (the “Protocol”) was introduced by the Government.  The Protocol applies to any business (including sole traders and public bodies) claiming payment of a debt from an individual (which can also include a sole trader). The business will be referred to as the “creditor” and the individual will be referred to as the “debtor”.  The Protocol does not apply to business-to-business debts (unless the debtor is a sole trader).

Purpose of the Protocol

The aim of the Protocol is to encourage early engagement and communication between the parties to try to resolve matters without the need for court proceedings.  It encourages parties to act in a reasonable and proportionate manner to help avoid running up costs disproportionate to the sums owed and also supports the efficient management of proceedings that cannot be avoided.

Required steps to take

Before court proceedings are started, the creditor should send a Letter of Claim to the debtor which will need to include specific information, including:-

  • the amount of the debt;
  • whether interest or other charges are continuing;
  • the basis of the debt (whether it relates to a written or oral agreement and details of that agreement);
  • if the debt has been assigned to a third party, details of the original debt and creditor and the date it was assigned and to whom;
  • if regular instalments are currently being offered by or on behalf of the debtor, or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered;
  • details of how the debt can be paid;
  • an up-to-date statement of account for the debt;
  • an information sheet and reply form (these are in a prescribed form); and
  • enclose a financial statement form.

If the debtor does not reply to the Letter of Claim within 30 days, the creditor can start court proceedings. In reality, the main concern is that the length of time to respond may adversely affect cash flow for businesses.

The debtor should use the reply form for its response.  The debtor should request copies of any documents it wishes to see and enclose copies of any documents it considers relevant, such as details of payments made but not taken into account in the creditor’s letter of claim.

If the debtor indicates that it is seeking debt advice, the creditor has to allow the debtor a reasonable period for the advice to be obtained and should not commence court proceedings less than 30 days from receipt of the completed reply form or 30 days from the creditor providing any documents requested by the debtor, whichever is the later.

The creditor should also allow reasonable extra time for the debtor to obtain that advice where it would be reasonable to do so in the circumstances.

If the debtor needs time to pay, the Protocol requires the creditor and debtor to try and reach an agreement for the debt to be paid by instalments, based on the debtor’s income and expenditure. If the creditor does not agree to a proposal for repayment of the debt, they should say why in writing.

If the debtor fails to fully complete a reply form the onus is on the creditor to contact the debtor to discuss and obtain any further information needed to properly understand the debtor’s position.

If the debt is disputed the parties should exchange information and disclose documents sufficient to enable them to understand each other’s position.  Within 30 days of receipt of the request, the creditor must provide any document or information requested or explain why the document or information is unavailable.

If settlement still cannot be reached, the parties are encouraged to take appropriate steps to resolve the dispute without commencing court proceedings.  The use of Alternative Dispute Resolution (ADR) should be fully considered.  In cases where the debt is large, mediation (a third party facilitating a resolution) may be appropriate.

If a matter proceeds to litigation, the court will expect the parties to have complied with the Protocol and will take into account non-compliance when giving directions for the management of proceedings and costs.

Implications for creditors

Inevitably, the process of recovery of debts has become more cumbersome for creditors.

Creditors are required to provide more documentation to debtors in specific formats and there is increased scope for delaying collection by intransigent debtors who can delay payment by up to 90 days.

Creditors need to ensure they are pro-active when engaging with debtors to ensure information is properly exchanged and time periods met.

Sanctions for creditors in failing to comply with the Protocol

Businesses are faced with implementing the Protocol and for many a considerable change in process and approach has been required.

The enforcement of the Protocol takes place through the court’s assessment of whether or not both the business and the individual, or sole-trader, have complied with the requirements in any subsequent legal proceedings.

Should creditors fail to comply with the Protocol, it may result in:

  1. Costs sanctions in terms of payment of the debtor’s legal costs or a failure to recover costs; and
  2. Inability to recover interest from a debtor or recovery at a reduced rate.


Any business dealing predominantly with consumers or sole traders and providing credit will have felt the impact of the Protocol which requires a considerable degree of patience when collecting outstanding debts.

If you require any further information about reviewing your credit control processes in the light of the changes or require any assistance with collection of your debts, please get in touch with us on 01603 611370.  Alternatively, please email jansell@isadoregoldman.com with your contact details and we will arrange for you to be called back. There is no charge for this initial contact.

Disclaimer: this article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.

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