The Master of the Rolls has introduced a new protocol for the recovery of debts owed by individuals and sole traders to businesses (the “Protocol“). It came into force on 1st October 2017 and a full copy can be found here.

This is an important change to the debt recovery process and it is important that businesses are aware of the changes. It has the potential to have a considerable impact on businesses’ ability to recover outstanding debts owed to them by individuals and sole traders.

Aims of the Protocol for Debt Claims

The aims of the new Protocol are to:

  • encourage early engagement and communication between the parties;
  • enable the parties to resolve the matter without the need to start court proceedings;
  • encourage the parties to act in a reasonable and proportionate manner in dealing with one another; and
  • support the efficient management of proceedings where they cannot be avoided.

Letter of Claim and Reply

The start of the process is for the creditor to send the debtor a Letter of Claim. Although there is no specific debt recovery protocol at present, the courts already require a Letter of Claim to be sent in accordance with the general pre-action protocol. However, more information needs to be provided under the new Protocol.

Full details of the information that needs to be included in the Letter of Claim can be found at paragraph 3.1 of the Protocol, which can be accessed by the link above.

As a summary, the Letter of Claim should include details of the debt including interest or charges and an explanation of how the debt has arisen. It should also contain details of how the debt can be paid (for example the method of and address for payment).

When sending out the Letter of Claim, creditors will be expected to include a copy of the information sheet and reply form and a financial statement form, both as annexed to the Protocol. The debtor should use these enclosed forms for their response and the debtor has a period of 30 days in which to respond. If the debtor does not reply to the Letter of Claim within 30 days, the creditor may commence court proceedings.

If the debtor uses the reply form to indicate he or she is seeking legal advice, the creditor has to allow the debtor a reasonable period of time to take advice and should not commence court proceedings less than 30 days from receipt of the completed reply form.

Where the debtor uses the reply form to indicate that the debt is admitted, but requires time to pay, the Protocol encourages the parties to try and reach an agreement for the debt to be paid in instalments, based on the debtor’s income and expenditure. If the debtor only partially completes the reply form, the burden is on the creditor to contact the debtor to discuss the reply form and obtain any further information needed to properly understand the debtor’s position.

Where the debt is disputed, the Protocol encourages the exchange of information and disclosure of documents to enable both parties to understand each other’s positions. The Protocol states that both parties should take “appropriate steps” to resolve the dispute without starting court proceedings and, in particular, should consider the use of an appropriate form of Alternative Dispute Resolution.

If agreement cannot be reached, the creditor should give the debtor at least 14 days’ notice of their intention to start court proceedings, unless there are exceptional circumstances (such as a risk the limitation period may expire).

Consequences for failing to comply with the Protocol for Debt Claims 

If creditors disregard the Protocol, the courts may sanction them by applying costs penalties. For example, they may be ordered to pay the debtor’s costs or be unable to recover their own costs. It’s important to remember that the courts have a broad discretion when it comes to awarding costs and compliance with the Protocol will be one factor which influences their discretion.

Failure to comply with the Protocol may also cause delay, as any proceedings commenced in breach of the Protocol may be held in abeyance while the Protocol is followed.

Finally, failure to comply with the Protocol may mean the creditor is unable to claim interest, or that recovery is limited to a reduced rate.

However, it’s important to note that the Protocol states “The court will consider whether all parties have complied in substance with the terms of the Protocol and is not likely to be concerned with minor or technical infringements, especially where the matter is urgent”.

Effect of the Protocol for Debt Claims

The introduction of the new debt recovery Protocol will make it more onerous for businesses to recover unpaid debts from individuals and sole traders. More information is required to be provided to debtors in specific formats and debtors must be allowed more time before proceedings can be commenced, which can delay payment considerably.

This can be frustrating for creditors and a review of credit control processes may be necessary for some businesses. The Protocol may also increase the frequency of creditors using statutory demands to recover undisputed debts over the insolvency threshold of £5,000.

With the introduction of the Protocol, it is more important than ever that creditors seek legal advice to ensure that their debt recovery process is as efficient and effective as possible.

Paul Davis is an Associate Solicitor at BHW Solicitors in Leicester and regularly writes and advises on all aspects of debt recovery and commercial litigation. Paul can be contacted on 0116 281 6231 or at

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