A County Court Judgment against a limited company is essentially a court order, issued by a county court, the order will enforce the payment of a debt.
If a creditor has taken reasonable steps to recover a debt, they may then apply for a County Court Judgment. The court will then decide whether there is a debt to pay and, if the debt can be proven, the court will issue a CCJ. A business will have 14 days to respond to the CCJ by completing the claim form and response pack. If more time is needed, it is also possible to ask the court for a 14 day extension.
If you fail to respond to the court, it will undoubtedly issue the CCJ via default. This can have a dramatic effect on your business and your position as a company director
How Does a CCJ Affect a Limited Company?
Applying for a CCJ is a serious step for any creditor, it is usually the last resort for payment, as it has depleted all other methods of recovering the debt you owe them. A CCJ can have long-lasting ramifications on your business so it is important to know what a CCJ means and how having one can affect your company and also you as its director
How creditors obtain a CCJ against your Company
Generally a creditor will not apply to the court for a CCJ unless you are severely delinquent in paying your debts and they have tried repeatedly to get you to pay but to no avail. If they are not satisfied that you want to or intend to pay your debts, they have the right to ask the court to issue a CCJ.
The CCJ process will begin with the issuing of a County Court Summons. Typically, a business has 14 days in which 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 otherwise 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.
Will a CCJ affect my Limited Company’s Credit Rating?
If you pay, or ‘satisfy’ the CCJ within 30 days of the judgement’s issuing, the CCJ won’t appear on your company’s credit file. However, if you are unable, or fail to pay the amount within the specified time limit, the CCJ will appear on your company’s credit file for the next six years. During that time, your credit rating will suffer, making it more difficult to apply for business loans or other financial arrangements. Lenders will be reluctant to deal with businesses with a poor credit rating as, in their view, it reflects your ability to repay what you’ve borrowed.
Details of county court judgements registered against a company are not listed on the Companies House register. However, they are readily available to prospective lenders and suppliers. All they have to do is to search the Registry Trust, which provides access to the statutory Register of Judgements, Orders and Fines. They can also be viewed by running a check with a credit agency.
The presence of an unpaid CCJ on your credit file will make it difficult to access competitive lines of business funding. Although you may not plan to borrow any money at the moment, in the future, you may need to update vital machinery, purchase other key assets or boost your business’s cash-flow, and without access to competitive external finance, that could be very challenging.
What could be even more problematic for your business is the impact the CCJ has on the willingness of existing and new suppliers to work with you, and the credit terms they’re willing to offer. Suppliers may only work with you if you agree to pay for goods and services upfront, which will almost certainly affect your ability to grow the business.
What effect could a CCJ have on your Company?
Unfortunately, if your creditor has made several attempts to recoup what is owed, and you have either been unable or unwilling to meet their demands, they may take further action.
The following is a general outline of what could happen if a creditor involves the courts:
- A County Court Summons is issued by your creditor in an attempt to recover their debt
- You have 14 days in which to respond, and can request a further 14-day extension period
- If further attempts at negotiation are unsuccessful, or no response is made and the court agrees that the debt is valid, a County Court Judgment will be issued against your company
- At this point, you have 30 days in which to pay the debt in full, otherwise the court will officially register the CCJ and inform credit reference agencies
- Not paying within the 30-day period validates the creditor’s claim for their money and provides proof that your company is in an insolvent position
- This may result in them taking further action in the form of a winding up petition, which could quickly lead to compulsory liquidation and closure.
Clearly, there is a need to act quickly if a CCJ is threatened. You need to complete and return the court paperwork as soon as possible. If informal negotiations with your creditor are unlikely to be successful within the 14-day period, or you are going to dispute the debt, you should seek professional advice. A range of formal insolvency solutions exist that could save your company.
To stop a judgement being issued against the company, you must follow the requests on the order. You have 14 days to respond, fill in and return the necessary paperwork. The claim gives the company a chance to pay back the debt, request more time to pay or appeal the judgement with supporting information. If you do not respond to the order, the CCJ will be issued as a default judgement by the court and/or bailiff action can occur. This is not good and will be marked on the business’s credit report.
Unfortunately, you cannot reverse an order once it has been issued. However, there is still time for you to stop a winding up petition. i.e. pay once you receive the CCJ or else a winding up petition will be ordered (for debts over £750).
I’m Unable to Repay the CCJ
If you can’t repay the full amount ordered within 28 days of judgment, the CCJ will be registered on the business’ credit file. The creditor will also be able to apply to enforce the debt by way of a warrant for a bailiff / enforcement officer to attend your premises.
You can delay any bailiff action, and also request that the judgment debt be payable over a period of time by completing Form N245, and paying a court fee, currently £50. The court will then decide whether to accept your suggested instalments or not.
The benefit of Form N245 is that it will give you breathing space from bailiffs until your creditor considers your offer, and the court makes a final decision. Once the court issues a decision, unless they agree to installments, you will again be at risk of further enforcement action.
How can Repayment Enforce take Place?
There are various methods of enforcing a CCJ which a successful Claimant can employ, but first the company debtor must have been given the opportunity to pay the judgment debt and either have failed to pay the whole amount by the date specified in the CCJ, or have failed to pay an instalment due under the terms of the CCJ. Unless a particular time for payment is specified, the general rule is that it should be paid within 14 days of the CCJ being given.
Is there a Time Limit for Enforcement?
Not as such, no. However, delay can have consequences and typically the sooner enforcement action is taken on an unpaid judgment debt, the better. For some methods of enforcement, you will need the permission of the Court to enforce if six years have passed since the judgment was given.
A judgment creditor will act quickly in order to ensure that assets are not dissipated by the debtor. Freezing injunctions are often a useful tool to ensure that an individual or company’s assets are not put out of a creditor’s reach.
How is Enforcement Used?
Popular enforcement methods where the debtor is a company include (but are not limited to):
Third Party Debt Orders
Where the judgment debtor is owed money by a third party, those funds can be seized from the third party for your benefit. This method is particularly useful where there is a supply chain and your judgment debtor is owed money by a company further up the chain. It means that you can essentially cut out the middle man and go straight to the top of the chain.
We looked previously at insolvency proceedings as a method of recovering debt from a company. They can also be used as an effective enforcement method where the judgment debt is £750 or more. If a winding up order is made, the judgment debtor’s assets will be realised by a liquidator and the funds distributed to the creditors. One effect that a winding up order has is to freeze the assets (including the bank accounts) of a debtor company.
Taking control of goods
If a debtor company has goods of a significant value (for example, machinery, computers or stock), you can issue a warrant (or writ in the High Court) of control, which directs an enforcement officer to take control of and sell a judgment debtor’s goods to raise funds to satisfy the debt. These goods must not be exempt goods or belong to a third party.
A charging order is a way of securing a judgment debt by imposing a charge over a judgment debtor’s land, securities or certain other assets. In terms of land, a charging order would usually prevent the judgment debtor from selling the land without paying what is owed to you. If the company does not sell the land, you can apply for an order for sale of the property.
Does this situation Affect you Personally as a Company Director?
If you are running a Limited company, a CCJ will affect your business’ credit rating, but your personal credit rating should remain intact unless:
- you have made a personal guarantee against the amount
- your personal funds are held in the business account
In these cases, your income will be deemed unreliable, creating subsequent personal issues.
Also, County Court Judgements stay on a publicly available record called Companies House, so the situation is liable to damage your company’s reputation and possibly your trustworthiness as a director of future ventures.
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