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Pre Action Protocol for Insolvency Litigation

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It is common sense to try and resolve issues before taking Court proceedings. The Courts have supported this approach through Pre Action Protocols.

Pre action protocols have been around for 10 years. Over that time the Courts have taken into account whether the parties to litigation have complied with the relevant pre action protocols. There are 10 specific pre action protocols in force including protocols for a wide range of litigious matters such as personal injury and construction and engineering.

On 6 April 2009 the Courts introduced a new practice direction on pre action protocols (the new protocol) which tries to be all encompassing and specifically sets out guidance on pre action procedure where no pre action protocol or other pre action procedure applies.

For example, the new protocol applies to such matters as insolvency litigation and debt collection.

There are some limited cases to which the protocol will not apply such as consent orders, applications where there is no other party, most applications for directions by a fiduciary and applications when telling the other potential party in advance will defeat the purpose of the application, such as freezing orders.

The aims of the new practice direction are to enable parties to settle issues between them without the need to start proceedings and to support the efficient management by the court and the parties for proceedings that cannot be avoided.

Unless circumstances make it inappropriate, before starting proceedings, the parties should

  • Exchange sufficient information about the matter to allow them to understand each others position and to make informed decisions about settlement and how to proceed
  • Make appropriate attempts to resolve the matter without starting proceedings
  • Act in a reasonable and proportionate manner.

Indeed, starting proceedings should usually be a step of the last resort and the parties should consider whether some form of alternate dispute resolution procedure might enable them to settle the matter without the need for proceedings.

Some key points to note are that:

  • As a general guide the Court will consider a "reasonable period of time" for a defendant to respond to a letter before claim to be 14 days where the matter is straight forward
  • Such a letter should include detailed information concerning the claim and set out essential documents upon which the Claimant relies

Where the creditor is a business and the debtor is an individual the creditor should:

  • Provide details of how the money can be paid (for example the method of payment and the address to which it can be sent)
  • State that the debtor can contact the creditor and discuss possible payment options and provide the relevant contact details
  • Inform the debtor that full independent advice and assistance can be obtained from certain organisations that are set out in the protocol

The information set out above may be provided at any time between the person first intimating the possibility of Court proceedings and the letter before claim.

Sanctions may be imposed when there has been a failure to comply with the practice direction. The Courts are not likely to be concerned with minor or technical short comings; however the parties are expected to comply "in substance".

When deciding whether to impose sanctions the Court will look at the overall effect of the non compliance by the other party. Sanctions may include costs and interest penalties. For example the Court has the power to award payment of interest of up to 10% above base rate against a defendant at fault who has a monetary judgment granted against him.

The above is a general over view of the protocol. Prior to issuing proceedings the protocol will have to be reviewed to ensure compliance with it where appropriate.

If the protocol does result in fewer proceedings having to be issued then it will be a cause for celebration.

For further information contact the Insolvency team on: 0113 3993401.

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