For any director or business owner, receiving a County Court Judgement (CCJ) can be a daunting and stressful time, especially if it’s unexpected.
A formal declaration from a court stating that your business owes a debt might feel like the end of the road but once you understand the repercussions, you can still act promptly to prevent things escalating and protect the business and your personal finances.
How a CCJ impacts your business
Specific to England and Wales, CCJs are often seen as a “last resort” for creditors to recover outstanding money owed.
If accepted by a court, they have serious repercussions for a company’s financial health and credit rating.
- Operational issues and enforcement actions: If a CCJ is ignored, the situation will only worsen. Creditors may escalate to enforcement actions including petitioning bailiffs or High Court Enforcement Officers (HCEOs) to visit your business premises (or home address if a sole trader) to legally remove equipment and goods. They also have the right to freeze business bank accounts, making trading virtually impossible.
- Reputation and supplier relations: An unpaid CCJ can negatively affect both sales and a company’s reputation if it attracts any bad publicity – which it may as CCJ’s are displayed on public registers. Suppliers could go further and withhold further credit facilities which could force you to pay in advance to secure services or worse, have to seek alternative suppliers and less favourable deals as a result. The downward trend started by a CCJ can quickly accelerate and become even more stressful for previously profitable businesses.
- Risk of insolvency: While a CCJ itself doesn’t directly compel your company to repay debt, it opens the door for creditors to take further action. A CCJ is the first step if a creditor wants to wind-up a company and often precedes a winding-up petition, which likely means the closure of a business if it’s successful – if the debt is over £750, creditors can petition to wind a company up.
Impact on finance and credit
A CCJ can severely damage a company’s credit rating making future financial arrangements challenging.
- Credit file record: The most immediate effect on a company receiving a CCJ will be on their credit file. If the CCJ debt is not repaid in full within 30 days of the judgement date then the CCJ will appear on a company’s credit file for six years. Even if the debt is repaid after this initial 30-day period (but within the following six years), the CCJ will still appear on the credit file, marked as “satisfied”. And while “satisfied” is better than “unsatisfied”, it can still have negative implications on future funding.
- Increased difficulty securing funding: A compromised or damaged credit rating makes it more difficult to apply for business loans, secure credit and maintain or obtain favourable terms with suppliers. Lenders are increasingly reluctant to deal with businesses with poor credit ratings as it reflects on their perceived ability to repay borrowed funds. This makes future borrowing more difficult to obtain and more expensive.
- Public record: CCJs are publicly available to view (via the Register of Judgments, Orders and Finds. This means any creditor, customer or supplier can easily find it. You can check your record on this register, usually for a small fee, or review your credit report.
- Long-term effects: After six years, a CCJ is typically removed from a credit file, even if the underlying debt hasn’t been fully paid. However, the credit rating may not automatically reset to its previous state and lenders might still be hesitant to engage with the company. Furthermore, the debt itself does not disappear and creditors may still pursue payment through other enforcement actions such as an Attachment of Earnings Order or a Charging Order on property, even after six years.
Personal impact on directors
The personal impact of a CCJ primarily depends on the structure of the business.
- Limited companies: Generally, if a CCJ is issued against a limited company, directors are not personally liable for the money owed unless they are found guilty of wrongdoing. The concept of limited liability means the business’s debt is separate from your personal funds.
- Personal Credit Rating: A CCJ against your company should not directly affect your personal credit rating. However, if your personal and company accounts are held at the same bank, the bank’s awareness of the CCJ might compromise your ability to secure new personal lending, such as mortgages or fixed-term loans or restrict your credit limits. The bank may also consider the potential instability of your personal income, especially if it’s solely derived from the business.
- Personal Guarantees: A significant exception to this limited liability i s when directors have provided personal guarantees for company loans or financial arrangements. These guarantees bypass the company’s limited liability, meaning they could be personally responsible for those specific company debts. Many lenders insist on personal guarantees before approving certain loans.
- Investigations: If your company is liquidated following an unpaid CCJ, investigations into the directors’ conduct will take place. Personal liability might arise at this stage if wrongdoing is uncovered.
- Sole traders: Sole traders lack the specific legal protections that limited companies enjoy regarding business debt. If a sole trader receives a CCJ, they are expected to settle outstanding debts from their own personal assets or bank accounts, barring in mind that HCEOs and bailiffs have the legal right to visit the sole trader’s home if it serves as the business premises.
Receiving a CCJ is not the end for a business but time is of the essence to act. Ignoring the judgement will only make the situation worse as you will typically have a limited window of 30 days to act.
The best course of action, no matter your individual circumstances, is to be proactive and get professional, impartial advice.
We offer a free initial consultation to talk through your options and how you can best regain financial stability for your business and to protect your personal finances and position as a director.
The sooner you get advice, the sooner you can take action.