UK: Pre-Action Protocol: What Is It And What Do Creditors Need To Do?

Last Updated: 22 August 2017
Article by Richard Gwynne

As of 1st October 2017, debt recovery and collections in both the commercial and consumer world is going to see a big change with the introduction of the debt recovery Pre-Action Protocol ('PAP').

There has been a previous pre-action protocol, introduced in 2014, which was in many ways accepted as a sensible approach to collection of all debts.

The PAP set for introduction on the 1st October on the other hand, affects debt collectors in many different ways. Despite being written for both consumer and commercial debts, there is a bias towards the individual rather than businesses.

The PAP applies to any business, from sole traders to public bodies, claiming payment from an individual. The new wording doesn't specify that a partnership is part of this body of individuals. Does that mean partnerships are excluded? This remains to be seen.

The protocol is intended to allow debtors a fair opportunity to raise queries within a protected time frame. The Ministry of Justice suggests the PAP is to compliment any other regulatory regime which the creditor is currently subject to.

The essence of the incoming protocol is to encourage parties to communicate at a very early stage, exchanging sufficient information to help clarify when there are issues in dispute (no different to the previous PAP). Where they do differ, is the aim of the 2017 version is to try and avoid court proceedings, possibly using reasonable repayment plans or considering alternative dispute resolution procedures to resolve issues.

The 2017 PAP concentrates on procedure prior to litigation, dictating how and what path the creditor should follow in anticipation of litigation. Specifically, it details what the creditor is required to do i.e. sending a detailed letter of claim to the debtor, containing the following information:

  • The amount of debt (with interest) where charges are continuing from an oral agreement, including who made the agreement, what was agreed and when it was agreed.
  • If the debt arises from a written agreement the creditor must detail the date of that agreement, the parties to the agreement, while enclosing a copy and stating that a copy can be requested from the creditor.
  • Statement of account for the debt including the amount of interest and any other charges imposed since the debt was incurred.
  • Details of how the debt can be paid and what the debtor can do to discuss payment options.
  • Enclosing an information sheet and reply form found at Annex 1 of the Protocol.
  • Enclosing a financial statement for the debtor to complete, an example of which can be found at Annex 2 of the Protocol.

The procedure after the 'letter before action' has been sent would be the following:

  • The customer would use the reply form enclosed with the letter to respond.
  • If the customer indicates that it is seeking legal advice, the creditor must allow the customer reasonable time to do so. The parties should exchange and disclose documents as early as possible, i.e. within 30 days of the request.
  • If the parties cannot come to an agreement about repayment they should consider using ADR or a without prejudice meeting.
  • If there is no response or no agreement after 30 days and all reasonable negotiations have been exhausted then the creditor is at liberty to issue court proceedings. However, the creditor must be sure they have complied with the above before contemplating proceedings and give a further '14 day' letter before action advising of their intention to issue proceedings.
  • The creditor cannot issue proceedings for at least 30 days from the date of the letter and the court will expect the parties to have completed and complied with the protocol. If the matter goes to litigation then the court will consider any non-compliance with the protocol and the successful creditor who has not complied with the protocol could be penalised on costs.
  • If the customer responds to the letter claim but an agreement is not reached, the creditor can commence court proceedings but should give the customer at least a further 14 days notice of intention to do so unless action is required.

What does all this mean to you?

The PAP is coming and all commercial creditors will have to comply with it. But, it will only apply to individuals and sole traders - not companies limited by their liability or public bodies.

It applies to all qualifying debts outstanding and overdue which are potentially being pursued in contemplation of litigation.

But what if the credit manager isn't considering litigation at the early stage? Does the PAP still have to be complied with?

If litigation is not considered at the early stages of collections then credit managers do have options (set out below). Our advice comes with the caveat that "if you are considering litigation, then you will have to comply with the PAP at some stage of the collections process – it can't/shouldn't be avoided".

The choices for credit managers could be as follows:

  • Ignore the PAP: This is not recommended, as the consequences would be paying costs for both sides and potentially restarting the case (if allowed).
  • Incorporate the PAP for all Cases: You could incorporate the PAP for all cases that are passed to your agents for collection. This would have the effect of:

    1. Extending the collections period by 30 days for debt.
    2. Identify and separate Individuals from those Limited entities, i.e. those caught by the PAP and those which are not. If individuals and sole traders can be identified by you at the instructions stage then separate them for inclusion in the PAP procedure and exclude non-qualifying contracts. At least the non-qualifying debts can follow the current collections regime.
    3. If unable to identify and separate out PAP qualifying cases, or it causes too much additional work, it may be beneficial to delay the incorporation of the PAP and simply adopt a collections process by you or your agent which does not threaten litigation i.e. no PAP required. In our view, this non-threatening method of collection will derive quicker payment from most and will allow the credit manager to collect debt which may otherwise have been delayed by the PAP.

The adoption of procedure "(c)" is that the credit manager can choose a third party for collections and derive any benefits a third party might bring. Further, the credit manager may outsource responsibility for identifying whether a customer is a qualifying debtor or not and allow the third party to pursue the non-qualifying customer as before and only pursue the qualifying customer when litigation is pending, i.e. only go down the PAP route when you know it's necessary.

The advantages: the credit manager can employ a third party which has its own benefits of increased collections rates and avoid the need for compliance with the PAP.

The disadvantages: the PAP is inevitable and cannot be avoided for all qualifying debts. A 30-day period has to be observed somewhere in the collections process and the option we are recommending could defer some collections by 30 days.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.