Debt Recovery – New hurdles for creditors proposed

Wednesday 4th November 2015

Since the Jackson reforms were introduced in 2013, the courts have been moving towards the introduction of a protocol to be followed by creditors pursing debts before a court claim is issued. The protocol will affect businesses chasing payment from individuals, but will not apply to trade debts (other than between sole traders).

Following consultation, a revised draft protocol was issued earlier this week. The protocol sets out what information must be given to debtors and when, using a two-stage approach with some information to be provided to debtors as of right with a letter of claim, and other information and documents to be made available on request. Debtors must also be given an information sheet setting out their rights and obligations.

Under the new proposals, the emphasis is on encouraging parties to resolve disputes between themselves instead of using court proceedings for debt collection. The idea is that this will be facilitated by an early exchange of information to clarify disputed debts, the main aim being to ensure that enough information is given about the alleged debt to enable debtors to seek advice.

However, there has been resistance to the introduction of a pre-action protocol for debt claims, with criticism being that the front loading of legal costs will harm business efficiency and give persistent debtors more chances to delay payment. Meanwhile, creditor businesses with large numbers of debts to collect will be required to shoulder the financial burden of following the pre-action steps before recovery or risk cost sanctions. This could see businesses needing to increase prices to cover potential costs of pursuing debts, which would ultimately have a knock on impact on consumers.

It is only a draft for now, so we will wait to see in what form it ultimately comes into play, but change is clearly coming. Consultation is open until 11 January 2016 and responses can be put in writing to the Ministry of Justice.

For further information or advice on how the protocol might affect you or your business, please contact commercial litigation solicitor Samantha Bell on 0113 227 0213 or at samantha.bell@gordonsllp.com.