Debt claims against individuals account for a huge proportion of cases in the civil courts. In order to help creditors and debtors to resolve claims and reduce the burden on the courts, a new Pre-Action Protocol for Debt Claims (debt PAP) was produced.
This will come into force on 1 October 2017 and aims to encourage early settlement and communication between the parties, to enable parties to resolve matters without starting court proceedings, and to encourage the parties to act in a reasonable and proportionate manner in all dealings with one another.
We look here at the three-stage process required by the debt PAP of which bursars, financial controllers and heads need to be aware in order to assess the potential impact on fee recovery processes.
Stage One: Letter of Claim
Before proceedings are started for unpaid fees, a school must send a letter of claim to the parent(s) or paying party that includes:
- information about the debt and any interest and/or other charges applied to it
- a copy of the parent contract or details of the agreement under which the debt arises, including details of any assignment of the debt
- details of any instalments currently being offered or paid, an explanation of why the offer is unacceptable and why a court claim is still being considered
- details of how the debt can be paid and how to proceed if the parent wishes to discuss payment options and
- the address to which the completed reply form should be sent.
It is also necessary to send:
- an information sheet detailing where and how to get assistance with managing debts
- a reply form
- a standard financial statement form for the debtor to complete and
- an up to date statement or most recent statement of account for the debt.
Stage Two: Debtor’s Response
The parent has 30 days from the date of the letter of claim to respond by completing and returning the reply form which will indicate if they agree the whole sum claimed, but need time to pay, or if they are disputing the whole sum.
The reply form also enables parents to request copies of any documents they wish to see. The school is obliged to supply the documents within 30 days or otherwise explain why these cannot be supplied on time.
Where the parents have indicated they are seeking debt advice, the creditor must allow reasonable extra time for this advice to be obtained. Where the parents have indicated they require time to pay, the parties are required to try and reach an agreement for payment by instalments, based on the parent’s income and expenditure with reference to the financial statement they should have completed. The school is at liberty to reject the parents’ proposals for repayment, but must provide reasons in writing.
If the parents fail to respond to the letter of claim, the school can issue proceedings after 30 days from the date of the letter of claim, providing it has given the parents at least 14 days’ notice of its intention to do so.
Stage Three: Attempts to Settle
If the parties are unable to resolve the dispute, they are encouraged to consider alternative dispute resolution. The parties are also required to take stock and review their respective positions to see if proceedings can be avoided or, at least, narrow the issues between them.
If a settlement agreement is reached, the school will not be able to commence court proceedings whilst the parents act in compliance with that agreement. However, if court proceedings become necessary at a later date, due to the parents’ failure to comply with the terms of the settlement agreement, a fresh letter of claim must be sent and the debt PAP starts over again.
Failure to comply with the debt PAP
As the PAP sets out the conduct that the courts expect of the parties to have complied with before proceedings are issued, the courts will consider non-compliance with it when giving directions for the management of the case. This could result in a stay of proceedings to give the parties another opportunity to try to resolve matters, or the imposition of costs sanctions. In making this assessment, the courts will be concerned with whether the parties have complied with the substance of the PAP and not minor or technical infringements of it.
Generally speaking, the PAP will help reduce the burden of debt claims on the courts by facilitating an early settlement in cases involving debtors who wish to resolve their issues with creditors. Given that all relevant information will be included in the letter of claim, debtors are more likely to be able to understand the claims made against them and engaged with the creditors. This will enable them to consider seeking legal advice or resolve the dispute at an early stage.
On the other hand, it increases the scope for some parents to abuse the process by requesting documents and further time for obtaining debt advice in an attempt to delay the commencement of court proceedings and payment of the debts. It is therefore advisable to be less accommodating of non-payment in accordance with your terms as this will simply increase the delay for payment.
Clearly, the PAP will make the fee recovery process more cumbersome and potentially more costly for schools. Adopting a process now which gives parents detailed information on debt at the initial stage will help mitigate the impact. Providing that your parent contract permits recovery of costs associated with non-payment of fees, you may also wish to consider incorporating a fixed charge levied at the start, designed to cover the administrative burden the debt PAP represents.