County Court Judgements (CCJ’s) against businesses may have decreased over the past 7 years but unfortunately there is still a huge amount of companies that are being issued with CCJ’s, with 19,739 of them being handed out in the third quarter of 2016 alone.
If a business falls into financial trouble and is unable to repay arrears, or they choose not to pay, a final resort for the creditor may be to apply for a CCJ against the debtor. A CCJ can affect you and your business, depending on your legal entity. If you are a sole trader you can be held personally responsible for the debt and even as a director of a limited company, you can still be affected personally.
A CCJ is generally issued for “non – priority” debts such as credit cards, overdrafts or non-essential suppliers. A CCJ is not the first port-of-call. Many attempts will have been made by the creditor, from an internal collections team or an external debt recovery agency, when no resolution can be agreed upon, a CCJ may be applied for. After an application has been made, the court will decide if there is a debt to be repaid and issue a CCJ making the repayment terms clear.
As a limited company, a director or owner will not usually be held responsible for unpaid debt unless they have given a personal guarantee. The long-term damage that a CCJ can do personally however, is usually underestimated.
Having a CCJ issued against a business can make it difficult to trade in the future, the CCJ will be recorded on the company’s credit report, meaning that creditors may not want to provide company credit or favourable payment terms. A CCJ may also cause problems when trying to secure finance for a business from a bank or other financial authority. A bank may see a CCJ as a cause for concern and they may question a business’s long-term prospects. If a personal account is held with the same bank as a business account, the bank may consider your source of income as unstable and use this as a reason to reject an application for personal credit.
Consequences of a CCJ can be long-term, both for personal finances and as a business owner. Acting fast can reduce the impact and improve chances of a better outcome. Ensure that paperwork is completed will within the given time frame. It can be beneficial to seek legal advice especially if a business is challenging the existence of a debt or disputing the amount. It can be possible to prevent a CCJ, but only if action is taken quickly, the sooner the issue is dealt with, the better it will be.