The Implications Of A Business County Court Judgment (CCJ)

If you run a business as a sole trader, in partnership or as a limited company and have got into financial difficulty such as not being able to meet bank loan repayments or pay one of your suppliers then an option open to a creditor is to apply for a county court judgment (CCJ) against you. Unfortunately this can have far reaching consequences for both you and your business that we will come onto later.

What is the procedure a creditor must go through before obtaining a CCJ?

Your creditor is obliged to inform you in writing that, if you do not clear the liability or come to a suitable repayment arrangement within a reasonable timescale then legal action can be commenced. This either involves a "letter before action" or a "default notice" depending upon the type of liability. If the debt was subject to a credit agreement within the Consumer Credit Act then a default notice would need to be issued at least 14 days before the creditor takes legal proceedings.

You will be notified in what way you can resolve the matter and what action could be taken against you if you are unable to satisfy your creditor who will also give you Financial Conduct Authority information about the default.

If you fail to agree a satisfactory repayment proposal or do not clear the debt in full within the specified period of time then your creditor is able to apply to the County Court (usually these are dealt with centrally at the County Court Business Centre in Northampton) with a view to the court intervening. A claim form will be send by the court to your business detailing the amount owed to the creditor which will also include a response pack containing a defence form, an admission form and an acknowledgement of service document.

When must you reply to the claim form by?

You are initially given 14 days to reply to the claim form by the court.

What options are available when replying to the claim form?

If you agree that your business owes the amount claimed then the admission form would be completed and returned direct to the creditor. This form provides certain information about your business's financial situation. You can offer to repay the debt by paying regular installments. If the creditor accepts the repayment proposal the creditor will request that the court arrange to register a County Court Judgment (CCJ) detailing when, where and how repayments are to be made in the Register of Judgments, Orders and Fines. However, if the creditor is not in agreement with the repayment proposal then the court can be asked to intervene and decide upon a suitable amount for your business to repay on a regular basis.  

If your business disagrees that it owes any money then it can complete the defence form returning it directly to the court together with the acknowledgement of service form so that the court can make a decision.

If your business feels that only a part of the money is owed then the completed admission form and the defence form are returned to the court so that it can make a decision. 

It is also worth noting that the decision of the court can be challenged.

What implications could a CCJ have?

It would have a negative impact on your business's credit rating and may have a negative impact on your personal credit rating with the credit reference agencies.

If you are a sole trader or in partnership then you would be liable on a personal basis for the debt and this could affect you obtaining credit in the future. It is also worth noting that a company director could be affected personally by a CCJ taken out against the limited company. For instance, if the director happens to maintain their personal bank account with the same bank as they hold the limited company account then the bank may be reluctant to provide the likes of a personal loan or overdraft facility on a personal basis to the director(s) as they may be concerned about the ability to clear those liabilities. If you provided a personal guarantee in respect of the company's debts then the CCJ may impact on you personally.

A CCJ taken out against a business could make it difficult for the business to obtain finance in the future and could present problems with suppliers and other trade creditors who may be reluctant to provide the likes of stock on credit terms making it difficult to trade. If the business can still obtain finance then the interest rate may well be higher than it would normally expect to pay. Furthermore, it could lead to insolvency proceedings being brought against the company resulting in the company being wound up.

It should be noted that if the debt is paid off within 1 month the judgment will be removed from the Register of Judgments, Orders and Fines and the business's/your personal credit rating will not be affected. If the CCJ is not cleared within 1 month of the judgment being received then it will stay on the above register for 6 years. However, if the debt is paid off after 1 month then the business can request that the register show that the debt has been "satisfied".

What could happen if the repayment terms of the CCJ are not maintained?

Following a request from the creditor, the court may decide to issue a Warrant of Execution. This may lead to a bailiff visiting your business premises to cease some of the business's goods and collect funds. A Charging Order could be secured against a property that you or the business owns or the court could issue an Attachment of Earnings Order meaning that funds are taken from any of your own earned income for the benefit of the creditor.

Consider obtaining some advice

If one or more of your business's creditors is looking to obtain a CCJ then advice may be available from the likes of the Citizens Advice Bureau, a debt charity or a solicitor with some specialist knowledge.