Don’t let a county court judgement derail your Christmas

They tend to be more agile in their decision making process and can take advantage of new trends and fashions days and sometimes weeks before bigger and more cumbersome companies can react. 

Online shops, blogs and websites can be created, tested and launched within hours rather than having to go through various layers of sign-offs and approvals.

Ultimately, depending on the business or the industry, moving to limited company status might be the more logical option initially as the flexibility can more than make up for the other advantages legal limited company status confers. 

But what about if things start going wrong and debts begin to build up? This is where being a sole trader can become a hindrance rather than a help. 

One pertinent example of this is when it comes to business debt. 

The legal structure of a limited company gives directors and business owners protection and separation from debt as they are attached to the company not the individual.  

This is not the case when it comes to a sole trader. Here the debts of the business are also the debts of the individual and vice versa.  

They are also limited by the range of options available to them in the event of insolvency. 

A limited company in the exact same position could consider administration, applying for an insolvency moratorium or other procedures. 

A sole trader can choose between an individual voluntary arrangement (IVA) which is similar to a company voluntary arrangement (CVA), an informal payment arrangement with creditors or bankruptcy if no viable alternative can be found.  

For debts of £15,000 or greater a rarer but effective sole trader voluntary arrangement can be entered into but this is more specific. 

These methods can be used to face regular financial difficulties but what about County Court Judgements (CCJs) and why do they pose such a unique threat to a sole trader?

Bounce back loans affect sole traders too

CCJs are rising again – what this means for a sole trader

In the latest set of figures released from the Registry Trust there’s been a huge annual increase in the number of CCJ’s awarded in Q3 2021. 

There were 21,769 CCJs brought against companies including sole traders between July and September this year which is up 139% on the 9,101 recorded for the same period last year. 

There was also a 51% increase between Q2 and Q3 this year alone. 

Chris Horner, insolvency director with BusinessRescueExpert, thinks this is just the latest sign of a tightening economy, especially for sole traders and SMEs. 

“As we saw when we looked at October’s corporate insolvency statistics from the Insolvency Service last month, although there was a slight monthly dip, they were still higher than the same month a year ago for the sixth consecutive month. 

“The Bank of England is also reporting that there’s been a 44% rise in small businesses defaulting on loans in their latest credit conditions survey

“It’s not a coincidence given that no matter what trading conditions have been like for a company, if they took out a bounce back loan then even if they delayed the original repayment date by six months, it will be coming due now.

“We’re already seeing a more aggressive approach from HMRC in recouping these debts including objecting to dissolutions if the business has a bounce back loan or if they have defaulted on a time to pay arrangement.  

“The rise of CCJs and other current circumstances are already difficult enough but for a lot of firms these demands could push them over their breaking point which is why so many are looking at what insolvency solutions might be appropriate for them to give them the best chance of still being here in 2022.

“Even if they are not at this stage yet, having a conversation with an independent and expert advisor now might alleviate their fears and give them the outline of a plan B if they suddenly need one.”

The risk a CCJ brings

Sole traders are especially at risk when it comes to CCJ’s as both personal and business assets could be at risk.

Because they lack the legal protection of a limited company any business debt defaults or other negative impacts will have a direct effect on their own personal credit rating. 

Additionally, a sole trader who receives a CCJ from a county court would be expected to use personal finances to repay these outstanding debts, not just to fund their business so it can be a time of great financial jeopardy for them. 

Depending on the amount owed to creditors, they could look to instigate further action against them including petitioning for bankruptcy although an individual voluntary arrangement (IVA) would prevent this course of action. 

While a CCJ would have a less drastic effect and threat against a limited company, they should still be treated seriously

While not having the capability to force a company to repay its debts, they do grant High Court Enforcement Office and bailiffs the right to visit premises and seize assets up to the value of any outstanding amounts. 

Creditors also have the right to issue statutory demands and bring winding up petitions against the business to force its closure if the debt remains outstanding although this remains restricted until the end of March 2022. 

There are also soft consequences to consider. 

CCJs appear on the “Register of Judgments, Orders and Fines” which are publicly available and could adversely affect relationships with suppliers, creditors and customers if it becomes known the business has a judgement against it. 

There is also the impact on the business’s credit rating which will make future borrowing even more difficult. 

The increasing threats from CCJs are only the latest that sole traders, partnerships and other small and medium sized businesses have to contend with.

This was the year that promised a return to trading normality and a chance to rebuild and achieve even more, but in many ways ended up being just as frustrating as 2020. 

Now businesses are juggling increased health measures to arrest the sudden appearance of the Omicron variant of Covid-19 with increasingly nervous customers reverting to a safety-first approach which could scupper the possibility of a bumper Christmas period for many companies that desperately need one. 

No matter what the next few days and weeks bring, one constant that will remain is our free initial consultation that’s available for any director or business owner to arrange once they get in touch

We can run through what’s actually happened to their business, explore potential threats and other hurdles and plan an effective and efficient way past them.

So if you’re worried about what the immediate future holds for your company – get in touch today and start building some positive momentum.