When a creditor is not paid, they may seek to get a County Court judgment (CCJ). Applying for a CCJ is a serious step which creditors can turn to once all other methods of recovering debt have been exhausted. Receiving a CCJ can be very damaging if it is not managed and dealt with correctly, so it’s important to understand the CCJ process and the impact it can have on both you and your business. Ideally, the judgment needs to be removed from the company’s credit rating as soon as possible. If not, it will act as a barrier in the future, affecting your company in many ways.
What is a county court judgment?
A County Court Judgment (CCJ) is a county court order which can be made against a company to enforce debt repayment. If it is left unpaid after 30 days, it can have damaging effects on your business and your position as a director. A CCJ acts as evidence of insolvency and can be used to shut down a business.
How is a CCJ filed?
The CCJ process will begin with the issuing of a County Court Summons. The creditor must apply to the court to issue the claim, and before the claim is received, you will be warned and sent a default notice. Typically, a business has 14 days to respond to the court, however, you are permitted to ask for an additional 14 days if this is required.
If you don’t respond to the summons or come to an alternative arrangement with your creditor for paying the debt, then the court will have no alternative but to issue the CCJ by default and record this against your company. What’s more, if it remains unpaid within one calendar month, the CCJ will stay on your credit file for six years.
How can I stop a CCJ being issued?
To stop a judgment being issued against your company, you must follow the requests on the order. You have 14 days to respond, fill in and return the necessary paperwork, and the claim also gives the company a chance to pay back the debt, request more time to pay or appeal the judgment with supporting information. If you do not respond to the order, the CCJ will be issued as a default judgment by the court and/or bailiff action can occur.
What does it mean?
If you get a judgment, it means the court has formally decided that you owe the money. The judgment will come in the post and will explain how much you owe, how to pay, the deadline for paying and who you need to pay.
Why would a CCJ be ordered against my business?
Courts issue CCJs to companies or individuals who owe money to a creditor. They are typically issued if creditors have tried a number of times to get paid; when this is ineffective and payment hasn’t been given, a CCJ is the next step to retrieve the debt.
Can I reverse an order once it’s been issued?
Unfortunately, you cannot reverse an order once it has been issued. CCJs will drop off your credit report automatically six years after the date of issue, but lenders and Credit Reference Agencies have a legal obligation to ensure they are reporting accurate data at all times.
How does it affect my business credit rating?
If your business credit rating is damaged from a CCJ, there is the option to hive off your business to another company. In effect, this wipes the slate clean and the new company will then be able to tender for new contracts with a new company credit rating. However, this is a complex process and so the Insolvency Rules and Act must be followed.
What effect does a CCJ have on me personally as a director?
As a director of a limited company, a CCJ will not make you personally liable for the debts of your company. However, it can have a detrimental effect on the viability of your business going forward - which could, in turn, impact your personal situation.
One thing you should be aware of is if your personal bank account is held with the same bank as the company account. If so, the CCJ could directly impact your ongoing business with the bank such as refusal for overdrafts and/or credit cards. What’s more, the income you declare from your company may also be viewed as unreliable or unstable, which would affect your ability to access funds for personal use.
What if I can’t pay it?
A CCJ is a serious matter - and if you do not pay it, you could be faced with serious consequences. If you are struggling to pay your debts, you could consider a Company Voluntary Arrangement, administration or liquidation. Failure to pay a debt you admit you owe sends a strong message to your creditors that your company is insolvent, which may lead to a winding-up petition being lodged against your limited company.
Can I get a CCJ removed?
Removing or ‘setting aside’ a CCJ involves submitting application notice N244. Essentially you’re requesting the court to set aside the judgment for a particular reason or reasons, and a hearing may be arranged at which you can put your case. Reasons for CCJs being set aside typically include:
- Being unaware of the creditor’s court action against you
- An error has been made in the CCJ
- The claim procedure wasn’t correctly followed
- You were unable to defend the claim, perhaps due to illness
There are also certain circumstances in which the court must remove a default CCJ, such as:
- You’ve paid the debt in full, including interest and relevant fees, before the judgment was made
- You returned your defence from or asked for more time to pay within the stated deadline
The court may also agree to set aside the claim if they believe you have clear grounds, or there are other circumstances that need to be taken into account.
What happens once the debt has been paid?
CCJs appear on credit records within just a few days of the judgment, but if you act fast enough and the debt is paid within the month, the judgment can be removed from the register. If the court is aware of this, they will act as if no register was issued in the first place. If the CCJ is paid at a later date instead, you can get a certificate of satisfaction, classing the CCJ as satisfied on the public register.
The settled debt doesn’t remove the CCJ, so it will still remain on your credit record - but having it classed as satisfied will make it slightly easier to obtain credit. Unpaid CCJs are shown as unsatisfied, which will result in a poor credit record. From the date of the judgment, the CCJ remains on the register for a period of six years. Once the six years have passed, the judgment will be automatically removed from your credit record – even if it is not paid.
When should I seek advice?
If your business is at risk of being issued a limited company CCJ, the time to act is now. From explaining the CCJ process and negotiating a Company Voluntary Arrangement to ring-fencing your business to protect it from creditors whilst you put a plan in place, there are a number of solutions to company cash flow problems. The longer you ignore any financial difficulties, the worse things will become.
At McAlister & Co, we are Licensed Insolvency Practitioners who provide advice on business insolvency to Directors, Sole Traders and Partnerships, so contact us today for a free, confidential consultation.