What does the Pre-Action Protocol for Debt Claims mean for the public sector?

Mia Plume, Browne Jacobson

The Pre-Action Protocol for Debt Claims (the ‘PAPDC’) came into force on 1 October 2017. The PAPDC applies to public bodies (including businesses) seeking to recover payment of a debt from an individual (including sole traders).

The PAPDC does not apply to business to business debt unless the debtor is a sole trader. Public bodies, including local authorities, will need to comply with the requirements of the PAPDC or potentially face financial consequences. This article will highlight what the position was prior to 1 October 2017 and will provide an overview of the PAPDC and how it applies to the public sector.

The position prior to 1 October 2017

Prior to 1 October 2017 there was no specific pre-action protocol which applied solely to debt claims. However parties were expected to comply in substance with the existing Practice Direction – Pre-Action Conduct (the ‘Practice Direction’).

The aim of the Practice Direction was to ensure early exchange of correspondence and information and to try and settle the matter without having to issue proceedings.

Under the Practice Direction, public bodies and local authorities who intended to claim outstanding debt from an individual or business were required to write to the debtor providing concise details of the claim. The debtor was then required to respond within a reasonable time, that is, 14 days in a straight forward debt claim.

Public bodies and local authorities are still required to comply with the Practice Direction in relation to claims against business debtors. For debt claims against individuals, the requirements set out in the PAPDC will need to be followed.

Post 1 October 2017

What are the changes to the current situation?
The PAPDC describes the conduct the court will normally expect of parties involved in debt claims against individuals (including sole traders) prior to the start of proceedings.

There are a number of important changes from the Practice Direction.

The PAPDC requires a much more detailed letter of claim to be provided to the individual debtor before proceedings are started.

The PAPDC provides a prescribed list of initial information which must be provided by the public body or local authority within the letter of claim. This information includes:

  • the amount of debt claimed (including details of any interest/charges claimed)
  • details of any oral or written agreement where the debt arises from
  • details of any assignment of the debt
  • if regular instalments are being offered or paid by or on behalf of the debtor, an explanation of why that offer is not acceptable and why a claim is being considered
  • details of how the debt can be paid (such as the method of and address for payment) and how to proceed if the debtor wishes to discuss payment options
  • an address to which the completed Reply Form should be sent to.

A series of documents must be attached to the letter before claim including:

  • an up to date statement of account for the debt which includes details of interest and charges added, or if no statements have been provided, state in the letter of claim the amount of interest incurred and charges imposed since the debt was incurred
  • a copy of the Information Sheet and Reply Form
  • a Financial Statement Form.

For the letter of claim to be compliant with the PAPDC the following must be done:

  • date the letter clearly at the top of the first page
  • it must be posted on the day it is dated, or if that is not reasonably possible, the following day
  • the letter must be sent by post unless the debtor has made an explicit request that correspondence should not be sent by post (a condition in any standard terms does not constitute an explicit request – this must come from the debtor)
  • if there are additional contact details for the debtor such as an email address the letter of claim can be sent using those details.

What is the individual debtor required to do?
The PAPDC does not only describe the requirements which the public body must comply with but also details what action the debtor must take. This includes the following.

The debtor must respond to the letter of claim within 30 days of the date of the letter. The reply must be made using the Reply Form and the debtor must state whether they agree that the debt is outstanding or not.

There is an entitlement to start proceedings (provided that 14 days’ notice is given to the debtor of the intention to do so) if the debtor does not reply.

If the debtor advises that they are seeking debt advice, then a reasonable amount of time should be allowed for the advice to be obtained.

Other points which should be considered
There are a number of points which must be taken into account including:

  • court proceedings should not be commenced less than 30 days from receipt of the completed Reply Form or 30 days from the party providing any documents requested by the debtor, whichever is later
  • the possibility that the reply was posted towards the end of the 30 day period should be taken into account
  • where the debtor indicates in the reply form that they require time to pay, the parties should try and reach agreement for the debt to be paid by instalments
  • a partially completed Reply Form should be considered as an attempt by the debtor to engage with the matter. There should be an attempt to contact the debtor in this instance to discuss the Reply Form or obtain any further information.

The aims of the new protocol
The PAPDC’s aims are broadly similar to the Practice Direction:

  • it puts the focus on attempting to resolve outstanding debt claims rather than resorting to litigation proceedings. Litigation should be the last resort
  • it encourages parties to communicate and exchange information and documents early
  • it also directs the parties to act reasonably and proportionately
  • the protocol encourages debtors to contact their creditors regarding their debts and if at all possible agree a repayment plan.

What does this mean for public bodies and local authorities?
Without doubt, the process of recovering debts from individuals will be lengthier:

  • greater patience will be required when collecting debts from individuals
  • more documentation must be provided to debtors and in specific formats
  • it will potentially have an impact from a cost and time point of view – especially if alternative dispute resolution is used. This should be reviewed in light of any budgets which may be in place for such debt collection matters
  • there is a need to be more pro-active when engaging with debtors to ensure that information is properly exchanged and the relevant time periods met
  • the protocol may result in more cases being settled before getting to the proceedings stage
  • debtors could attempt to use the timescales within the protocol as a delaying tactic for payment of the debt
  • more debtors are likely to make contact in order to try and reach a repayment plan to comply with the PAPDC.

What will happen if the PAPDC is not complied with?
Failure to comply with the PAPDC may result in:

  • further delay in collecting debts from individuals if legal proceedings are stayed to allow for remedy of any failure to comply with the PAPDC. This is likely to increase the costs of dealing with such matters
  • potentially being penalised in respect of costs for failing to comply with the protocol
  • the court has the power under section 7 of the PAPDC to order a sanction against a party who has not complied and this could include reducing their right to interest or not allowing interest on cost orders.

None of the points mentioned above are good news for public bodies and to avoid such consequences there must be compliance with the requirements of the PAPDC. There is a need to ensure that any current debt recovery process which is in place in relation to individuals is up to date and in line with the PAPDC.

For public bodies and local authorities dealing with individuals or sole traders, the new protocol requires a greater degree of patience when collecting outstanding debts. Public bodies and local authorities will have a much higher level of responsibility under the PAPDC due to the requirement to provide much more detailed information to debtors. Prompt action should be taken when debt arises.

If debt arises every effort should be made to resolve matters without the need for proceedings. There is a very clear message under the PDPACP that litigation should be a last resort. If proceedings are necessary the PAPDC should be complied with prior to issuing court proceedings as the court will expect this of both parties. It will also provide cost protection.