If a business owes money which it cannot or will not pay, the creditor may decide to apply for a County Court Judgement (CCJ). If you’re a small business owner, it’s important to understand how a CCJ could affect your business and personal standing. For example, if you’re operating as a sole trader, you will certainly be held personally liable for a CCJ debt. Furthermore, even as the director of a limited company, you may be affected personally by a CCJ.
What Is a CCJ?
County Court Judgements are normally issued for non-priority debts such as credit cards, overdrafts or non-essential suppliers. If a creditor has taken reasonable steps to recover payment of an outstanding debt – for example, through its internal collections team or an external debt collection agency – it may seek a CCJ as a further recourse. After applying, the court will decide whether there is a debt to be repaid and issue a CCJ spelling out repayment terms.
If your business receives a CCJ, you will need to complete the necessary paperwork within 14 days or seek a 14-day extension. If you don’t respond within this time period, the court will almost certainly issue the CCJ, which could seriously affect your business as well as your standing as company director.
How CCJs Can Affect a Limited Company
If your business is a limited company, you won’t normally be held personally liable for an unpaid debt unless you have given a personal guarantee. However, company directors often underestimate the long-term damage that a CCJ can impose on a business. For example, having a CCJ issued against your business can make it difficult to trade in future. As the judgement will be recorded on your company’s credit rating, trade creditors may be reluctant to extend company credit.
Similarly, having a CCJ will make it harder to secure additional finance for your business from a bank or other financial institution. As your company’s bank will likely become aware of the CCJ issued against you, they may naturally become concerned over your long-term business prospects. The consequences of a CCJ could be even worse if your personal account is held with the same bank as your business account. In this case, the bank may consider your source of income to be unstable and use this as grounds to reject a personal application for credit.
The Road to Winding-up
As well as affecting access to future business and personal credit, a CCJ may also be taken as evidence of insolvency – the inability of a company to repay its debts. This may be enough to begin winding up proceedings against the company. As soon as formal insolvency proceedings are initiated – either voluntarily or through a court order – the company directors are legally obliged to act in their creditors’ best interests. If they do not do this, they may be held personally liable for the debts under a charge of wrongful trading.
Starting a New Business
Having a CCJ registered against you – either personally or as the director of a previous company – will not prevent you from establishing a new business. As the CCJ would only be shown on the report of the company that the judgement was originally registered against, it should also not affect the rating of your future company. However, if your previous business failed subsequent to the issuance of a CCJ, this will be taken into account by credit agencies when rating a future business.
Having a CCJ issued against you can have far-reaching consequences for your financial standing – both personally and as a small business owner. If you’re concerned about the prospect of receiving a CCJ, you should act quickly to improve your chances of a favourable outcome. In the first instance, seek expert legal advice and be sure to complete and submit any forms to the court within the appropriate time frame – especially if you’re challenging the existence of the debt or the amount involved. It may be possible to prevent the court from issuing a CCJ against your business – but only if you act without delay.
If you are worried about anything to do with CCJs, give us a call on 0161 907 4044.
The sooner you deal with the issue of a CCJ the better it will be for you.