UK Legal Update: Is your company "PAP" ready?
PAP or Pre-Action Protocol explains the conduct and sets out the steps the court would normally expect parties to take before commencing proceedings for particular types of civil claims. As of the 1st of October, this is changing for any businesses who are seeking the payment of a debt from an individual, which includes sole traders and partnerships. The changes will not affect debtors that are Limited companies.
Due to the nature of our business, we will only concentrate on business to business as none of our clients deals directly with consumers. Credit insurance is a B2B insurance.
The aim of the protocol
The aim is to encourage creditors and debtors to exchange information at an early stage to encourage both parties to consider alternative dispute resolutions and to act reasonably and proportionately.
What changes will affect you?
The biggest change that will affect you and your company is the timescale of the process. It will take a lot longer as you will no longer be able to send 7 day LBAs (Letter Before Action) to sole proprietors or partnerships. You will have to provide more information and documentation to attach to or include in the LBA as detailed below:
- The amount of the debt.
- Whether interest and other charges are continuing.
- Whether the debt arises from a written agreement (date of the agreement, affected parties and the fact that a copy of the written agreement can be provided if requested).
- Whether the debt arises from a verbal agreement (who agreed it, what was agreed, and where and when it was agreed).
- Details of any assignment of the debt (when it was assigned and to whom).
- If regular part payments are being made, an explanation as to why the offer is not acceptable, request a raised offer, etc.) is required.
- A Reply Form and a Financial Statement Form (for the sole trader to complete).
- The address to which the above forms should be returned to.
It does not state that you will have to attach your agreement to the LBA but it has been recommended to us that you do as the debtor can request to see this. This would speed up the process slightly.
The debtor would then have 30 days to respond to the letter and if they did not you can issue the claim. However, if the debtor returns the reply form, a further 30 days should be allowed and potentially a further 30 days if the debtor asks for further information. Timescales can overlap, but we expect that some may play the system in order to drag the process out as long as they can. If, after the time allowed, no agreement has been reached, and the client wishes to issue legal action, then they must give the debtor a further 14 days notice of their intention to proceed. On the other hand, if the debtor does not reply to the LBA within the 30 days, then you can issue Court proceedings and request judgment.
To put it simply, sole traders (including partnerships) are being protected as an individual. This means that PAP will take a lot longer and it, therefore, will cost you more. Please note there is no change for Limited companies. For more information, please do not hesitate to contact Krystina Faria on k.faria@cmris.co.uk.
Pros
- Less contractual disputes (in theory).
- Reduced back and forth correspondence with the debtor, as ideally all supporting information will be provided at LBA stage.
- A clearer procedure.
Cons
- Much longer timescales.
- Increased solicitor and administration costs.
- Some individuals may abuse the new deadlines.
- The Court may impose sanctions for non-compliance, such as cost sanctions, possibly a reduction in interest, or perhaps staying the claim.