New rules set to be introduced next month that are designed to speed-up the resolution of financial disputes and debt recovery, could result in claims in fact taking even longer, says a commercial dispute resolution legal specialist.
The new Pre-Action Protocol for Debt Claims goes live on the 1st October 2017, and is the latest example of the civil justice system taking steps to encourage early resolution of disputes so they don’t make it to the courts.
The new rules will require creditors to demonstrate compliance before instigating court proceedings to recover debts. They will apply to any business claiming a debt from an individual, including sole traders, but won’t apply to business-to-business debts – which remain governed by the Practice Direction for Pre-Action Conduct and Protocols (PDPAC).
According to Michael Wakeling, a partner at Midlands law firm Lodders, its introduction adds another layer to the process of collecting outstanding debt, which has the potential to further slow-down the collection of outstanding monies:
‘The main change is a minimum 30-day period between the date of the Letter of Claim sent to the debtor, and proceedings being issued,’ he explains.
‘This letter will have to be presented with a new and detailed response form, which the debtor must complete and return.
‘The requirement of the extended period is the most controversial feature of the new Protocol as it affords the debtor a significant chunk of time to deal with the Letter of Claim, adding more time for the business to wait for outstanding monies to be paid.’
The Letter of Claim must include key information including the amount of debt; whether interest is claimed or continues to accrue; the basis of the agreement, i.e. oral or written, and evidence of this; details of any assignment of debt; explanation as to why any regular instalment offer is not acceptable; details on how payments can be made; and an up-to-date statement of account.
Wakeling adds, ‘Whilst the civil justice system is to be applauded for taking steps to help businesses, especially small businesses and sole traders, to reclaim any outstanding debts, the new rules in fact give the debtor extra time, adding further delays for the kinds of businesses often most challenged by cashflow issues.
‘More than ever, businesses must ensure internal procedures around overdue invoices are tightened up, as not to do so has the potential for further substantial delays under the new rules and process of the Debt Protocol, which is not good news for their cash reserves and cashflow.’
Lodders is a premier law firm in Warwickshire, the West Midlands, Cheltenham, the North Cotswolds, and Gloucestershire. The firm has 25 partners and over 130 fee earners and support staff across its office network. With its portfolio of sector and market specific legal teams, the firm has recorded year-on-year growth in recent years.