Managing an insolvent company is a difficult task, with the usual stressors of running a company being accentuated by creditor pressure and, in some cases, the looming threat of legal action. If the situation is not handled, this potential threat can become active, with an insolvent company’s creditors filing a winding-up petition, and the courts issuing the company with a County Court Judgement (CCJ). These are the first steps to compulsory liquidation, a procedure that can have far-reaching consequences for both the company and its directors.

In this article, Clarke Bell will discuss County Court Judgements, why the courts might decide to issue a company with one, and what the consequences for company directors can be.

What is a CCJ?

A County Court Judgement (CCJ) is a document issued by the courts to companies or individuals that have yet to pay their debts. It is a court order that essentially acts as an ultimatum; either pay the debt you owe, or appear before the courts to dispute the legitimacy of your debt. Regardless of the decision made, it’s best to act swiftly, as recipients of a CCJ have only 14 days to make their response before further action is taken.

How is a CCJ obtained?

Creditors can spark the issuance of a CCJ by approaching the courts with complaints that their debtor has failed to make repayments in a reasonable timeframe. This is typically done as a last resort, after the creditors have exhausted all other avenues of recovering their debt. Before taking the matter to the courts, a company’s creditors will first attempt to communicate with the company, with a view to recovering the debt amicably. If the company does not respond to attempts at establishing a line of communication, or it does not adequately assure creditors that they will make repayments in a timely manner, then creditors may choose to seek a CCJ.

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Can directors stop a CCJ from being issued?

In some scenarios, a CCJ can be issued erroneously for one reason or another. This could be due to misrepresentation of the situation by a company’s creditors, or because important information has been left out, for example. If you believe that the reasons for issuing a CCJ are illegitimate, you have one method of contesting the order.

To stop a CCJ as a director, you must first lodge an objection to the order by submitting an N244 form, alongside your reasons for contesting the CCJ evidence supporting your case. If you believe that your creditors have misrepresented the amount you owe, the terms of repayment, or you dispute the debt’s existence in totality, then you should file an N244 form swiftly. Although you can contest a CCJ, you may only do so within the timeframe noted in your CCJ, which should be no more than 14 days after receiving the document.

Once you begin contesting the CCJ, the dispute will likely go before the courts unless the filing creditors back down. You must attend this court hearing on the specified dates and make your case. Failure to appear will result in your case being dismissed, and you will be ordered to pay the full amount specified in the CCJ, along with legal fees. Contesting a CCJ is no small matter, and you should think carefully before mounting an objection to avoid frivolous legal proceedings.

Also Read: How To Remove a CCJ From a Company

What are the implications of a CCJ for company directors?

If your company has received a CCJ for legitimate reasons, such that you can’t mount a reasonable objection, then you will have no other option but to pay it in full. Aside from an additional expense for your company, a CCJ will have no further effect on you as a director or your company once paid within 30 days. However, delaying your payment beyond this 30-day timeframe makes you vulnerable to further consequences.

Failing to pay your debt within 30 days of receiving a CCJ will mean it remains on your record for a period of six years. While it will be marked as settled, this could have some impact on your ability to raise additional funding from creditors during this period. Moreover, this could affect your relationship with suppliers, as some could see your company as potentially risky to deal with. However, if you pay the CCJ within the 30-day period, it will not be recorded and will have no further impact.

While the above is certainly worth keeping in mind, the main implications of a CCJ revolve around insolvency. Namely, you must act in the best interests of creditors upon receiving a CCJ; otherwise, the situation will likely escalate. Failing to pay your debts as specified in the CCJ, and failing to take other actions in the interests of your creditors if you can’t make repayments, will lead to further action. In some cases, this could mean visits from the bailiffs, who will aim to repossess your company’s assets to repay the debt. In others, it might lead to compulsory liquidation, which has its own consequences for company directors. If you cannot repay the debts specified in your CCJ, it is important to pursue other avenues quickly.

What if I can’t pay my CCJ?

There are several options available to directors that cannot repay their CCJ. First, they are entitled to apply for additional time to respond to the courts during the initial 14-day response window. If successful, companies can gain a further 14 days to plan how to respond to the order, allowing them to mount a more effective legal objection to the CCJ, or give them time to pursue other methods.

Creditors’ Voluntary Liquidation

If additional time doesn’t help to make repayments, directors should seek the advice of a licensed insolvency practitioner. They can provide valuable insight into the situation, and can help directors find the most appropriate solution for the situation at hand. In some cases, the best solution will be a Creditors’ Voluntary Liquidation (CVL). This is a formal insolvency procedure that requires the aid of a professional liquidator to properly carry out. It affords directors of insolvent companies a series of benefits, and can be an effective way of dealing with a CCJ if it cannot be paid.

Firstly, a CVL allows directors to appoint a liquidator of their choice, contrary to what happens during a compulsory liquidation. Once appointed, the liquidator will take the helm of the company, handling operations while the procedure begins in full. The liquidator will realise company assets and empty accounts, using the proceeds to repay creditors and cover other liabilities. Once all assets are disposed of, the company will be wound up and removed from the Companies House register.

In addition to an efficient method of liquidating the company, a CVL will provide directors with certain legal protections. The company will be protected from any further legal action during the procedure, and any outstanding debt after the liquidation will be written off, assuming a personal guarantee did not secure it. Moreover, pursuing a CVL will show that directors have acted in the best interests of the company’s creditors, and will protect them from allegations of director misconduct. For more information on Creditors’ Voluntary Liquidations, read our complete guide to the process.

Clarke Bell can help

If your company is struggling with its finances, don’t suffer the stress of creditor pressure or a CCJ alone – let Clarke Bell help. We have more than 28 years of experience in helping struggling companies find the past path forward, and we can do the same for you. Don’t hesitate to contact our team today for a free, no-obligation consultation and find out exactly what we can do for you.