Recovering a Debt
This legal update is relevant to any business that intends to take formal steps to recovering a debt from an individual or sole trader. Please note this legal update does not apply to business-to-business contracts, recovery of mortgage arrears or construction and engineering disputes.
The Courts expect creditors to follow the new Pre-Action Protocol for Debt Claims (Debt Protocol) before starting court proceedings for recovery of debt.
The Debt Protocol requires a creditor to send by post (and if applicable by email), a Letter Before Claim (LBC) to the debtor, which should be dated and contain:
- the amount of the debt including any interest or other charges;
- where the debt arises from an oral agreement, who made the agreement, what was agreed (including, as far as possible, what words were used) and when and where it was agreed;
- where the debt arises from a written agreement, the date of the agreement, the parties to it and the fact that a copy of the written agreement can be requested from the creditor;
- where the debt has been assigned, the details of the original debt and creditor, when 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 (for example, the method of and address for payment) and details of how to proceed if the debtor wishes to discuss payment options; and
- enclose a copy of the Information Sheet, the Reply Form and a Financial Statement Form (templates are annexed to the Debt Protocol) which should include a recent statement of account and detail of the amount of interest incurred and other charges imposed since the debt was incurred.
If the debtor does not reply to the LBC within 30 days, the creditor may commence Court proceedings. If the debtor does reply or requests further documents, the creditor should not start Court proceedings until after 30 days from receipt of the reply or from delivery of further documents and must give 14 days’ notice to the debtor.
The Debt Protocol requires the parties to try and reach an agreement for the debt to be paid by installments or if settlement cannot be reached to take appropriate steps to resolve the dispute by the use of alternative means, such as a meeting or mediation.
Michelle Dixon, Associate