The Pre Action Protocol for Debt Claims – what does it mean for you?

The new Pre Action Protocol for Debt Claims (PAPDC) is due to come into force on 1 October 2017 and will impact how businesses recover their debts, potentially making it a much more lengthy process. The PAPDC has been developed for use in dealing with volume debt in order to address a perceived imbalance in rising consumer debt. It has been designed so as not to apply to business to business debt.

However, there will be a significant impact on businesses who deal with individuals and to those who contract with sole traders. If your business deals with one of the circa 3.3m sole traders in the UK, you will need to consider the impact that the PAPDC may have on your credit control systems and debt recovery processes.

The changes mean it will be more costly and take more time for creditors to take action against those debtors who 'won't pay' without the threat of court action.

The main changes are:

  • the Letter Before Action must include enclosures and additional documents in a specific format
  • there is greater risk that debtors could take advantage of the new protocol's procedures to cause additional cost to the creditor and delay payment by up to 90 days
  • the onus will be on Creditors to ensure that debtors have provided all relevant financial information
  • creditors will need to give reasons why a repayment plan offered by way of instalments is not acceptable if not agreed
  • creditors will need to manage any debt recovery system more closely to ensure the relevant deadlines are met, and that information about how the debt arose is given where required by the PAPDC
  • there will be additional costs to a business for:
    • dealing with collating and providing information when requested to do so by the debtor
    • engaging with a small claims mediation service where requested
    • ensuring the debtor has been allowed 'reasonable' additional time in order to take independent legal advice.

These additional steps will incur a business cost and could mean that it is more commercially viable to write off a debt than to recover it, especially where there is no likelihood of recovery even after the claim is successful in the small claims court.

Failure to comply

Failure to comply could mean that if you do issue a pre-emptive claim, then proceedings could be stayed until the defects in the PAPDC are rectified; in addition any costs awarded could be limited at the discretion of the judge who may also reduce the amount of any pre-judgment interest recoverable.

How we can help

We have produced a guide to the new PAPDC, outlining the impact this may have on your credit control and debt recovery procedures, as well as providing a checklist of how you can effectively manage the transition to the new system.

Our experienced team would be happy to help with any queries which you may have and would be happy to discuss how we can help you avoid potential pitfalls and support you work towards the change-over to this new system.

Download a copy of our PAPDC guide here