A CCJ or county court judgement indicates a business has been ordered to make a payment by the courts. If you work with a business that has a company CCJ, you need to take immediate action to understand the situation. In this article, we’re going to explain what CCJ means and what action you should take.
The Importance of a Company CCJ Check
When you work with a company in financial distress, it may struggle to make payments. If the business eventually fails due to these issues and can’t pay you, it can have a catastrophic impact on your business.
As a trade creditor, you’ll be at the bottom of a creditor list and often see less than 10% of the money you are owed. Unsecured trade creditors of a failed company are three times more likely to go out of business than companies that haven’t had to deal with bad debt.
It can be challenging to tell the difference between a healthy business and one that is struggling if you don’t have access to the right data. One sign that can suggest a company is having financial difficulty is if it receives a CCJ.
What is a Company CCJ?
A CCJ is a formal judgement by the county courts that a debtor owes a creditor money, that the debt is past due and demand it be paid.
If a court grants a CCJ then it will be recorded on the Register of County Court Judgements at Registry Trust for a period of 6 years. This register is public and used by all credit agencies and are seen as being a strong indicator of financial distress at a company. As such, having a CCJ taken out against your company can have serious ramifications, not only on your ability to access credit but on your company’s reputation.
CCJs are relatively easy for a creditor to apply for should they have a debt past due and it is a very common process, with over 60,000 being issued in the first 3 quarters of 2023 alone.
If a business has a CCJ, it can be a sign that it is struggling to make payments. Knowing when a company you work with has a CCJ is important to protect your financial interests.
What Does it Mean When Your Customer Has a CCJ?
It can be alarming if a company you work with receives a CCJ, especially if this company is also indebted to your business. If it hasn’t paid one debt, will it also fail to pay yours?
You should remember that not every company that gets a CCJ does so because it can’t pay its debts. Sometimes a business will receive a CCJ because it disputed the claim that it owes money, or if it disagrees over the amount it owes.
However, a common reason for a CCJ is that the business cannot afford to pay what it owes. It may be struggling with liquidity, or the CCJ may be too large for the company to pay alongside its other commitments. Subsequently, a CCJ is often a precursor to a company becoming insolvent.
If the company becomes insolvent, you are unlikely to see your debt paid.
Whether or not the CCJ affects your business will mainly depend on the company’s ability to pay off the CCJ and continue trading as usual.
If a CCJ isn’t paid in full within 30 days of the judgement date, it will stay on the company’s credit file for six years. In this case, the company will struggle to access business funding with competitive rates, which can affect its ability to be run successfully.
Process of Obtaining a CCJ
Before CCJ proceeding can commence a creditor must give their debtor a fair opportunity to pay the debt. Creditors will usually do as much as possible to recover their money before submitting a CCJ claim and typically debtors are severely delinquent in payment by the time proceedings begin.
Once they do, the creditor submits an application through the government website and pays for the court fees, these are conditional on the amount being claimed. A court summons will then be sent to the debtor. Typically they will be given 14 days to respond; but an extension of 14 days can be applied for in some circumstances.
In this time the debtor can satisfy the debt, reach a payment agreement or dispute the claim; should the summons be ignored the CCJ will be granted by default.
A debtor may contest the amount or existence of the debt and request the CCJ be set aside. This is done by completing and submitting form N244 and all relevant evidence. Usually the debtor will also be required to attend court to plead their case for having the CCJ set aside.
Regardless of whether or not the debtor contests, so long as the debt is not satisfied by the court date the case will be heard and usually the CCJ will be granted.
Access a CCJ List
At Red Flag Alert we compile CCJ reports on every UK business. A quick CCJ search will show you whether a customer has a CCJ and its severity.
Should You Continue Doing Business With a Customer Who Has a CCJ or Bad Credit Rating?
The important thing here is to work out how much the CCJ is likely to affect the customer. If the company is in a strong position to pay off the CCJ, there shouldn’t be much of an issue and you may be able to continue doing business without any problems.
A large multinational, for example, is unlikely to suffer much damage by a CCJ for a few thousand pounds. Likewise, a company with a high amount of cash assets will be in a good position to pay off a CCJ.
Issues are more likely to occur if the company is not well placed to handle the CCJ—for example, if it has low liquidity or a lot of other debts it must pay.
In cases where you believe a CCJ will have a large impact on a company, it can be a good idea to take pre-emptive measures to safeguard against bad debts.
- In extreme cases, this could be in the form of ceasing to do business with the client altogether.
- Alternatively, you can continue to do business but change the terms of your relationship. For example, you could introduce shorter payment terms or even upfront payment.
- You could introduce Retention of Title clauses to your contract if appropriate.
- To make the risk more worthwhile, you can increase margins—for example, by withdrawing preferential rates or raising prices.
All these steps will negate some of the risk associated with working with a company facing the possibility of insolvency.
How you react will depend on how you think the CCJ will affect the business. You need to be able to understand the potential impact of a CCJ and how it fits in with the company’s other financial metrics.
Effects of a Court County Judgement on a Company
When a CCJ is issued the debtor will be notified in writing that this is the case and that the CCJ has also been recorded on the Register of County Court Judgments. Should the debt be paid within 30 days then the record of the CCJ will be struck from the register along with the fact that it was ever issued, essentially as if it never existed, and any private record of CCJ information (usually credit check companies) must also delete it. As such, it is extremely advisable that this be done.
Should the debt not be paid within 30 days of the judgement’s issuance then it will be recorded on the Register of County Court Judgements for a period of 6 years. Should the debt be paid, the CCJ will be recorded as ‘satisfied’ but still remain on the register. Whether it is satisfied or not, it will usually have severe effects on the business as any credit check will take it into account.
Should the company wish to take out financing, a mortgage or loan from a financial institution they may well be refused or charged a much higher interest rate. Similarly, suppliers will be much less likely to offer goods and services on credit and will likely offer a much reduced payment time if they do offer credit.
The effects are not just limited to credit. Businesses are now much more likely to carry out due diligence on potential business partners than in pre-pandemic years. With global economic uncertainty, supply chain issues and a rise in insolvencies, company directors have become much more risk averse. Seeing that a company has CCJs, and therefore a bad payment history, they very well may decide not to enter into a relationship and hold out for a safer bet. Red Flag Alert’s platform enables businesses to perform company credit checks, and understand the companies health, leading to inform business decisions. It should be noted that this view goes both ways in the supply chain as, with long lead times between ordering and procuring goods, having stable suppliers has never been more important.
The reason having a CCJ is so detrimental to a business is that it is seen as one of the strongest indicators that a company is in distress. The obvious assumption is that if they don’t have the money to repay that debt they won’t be able to pay others and are effectively insolvent or on the verge of being so, even if the CCJ is historical. If it can be proven that the holder of a CCJ is in a stable financial position it speaks to a poor payment culture within the organization. Suppliers are very unlikely to want to offer credit to a company they think they may have to spend time and money chasing for a debt.
Effects of a CCJ on company directors
A CCJ, in and of itself, does not make directors personally liable for the money owed. However, the company will be made less viable due to a tarnished credit record and reputation. This will directly effect company directors by making doing business more difficult.
Directors who receive a CCJ must seriously consider the viability of their business. If it can’t pay its debts it is technically insolvent and the responsibility of the directors, under insolvency law, shifts to minimising loss for their creditors. Should they continue to operate an insolvent business, past the point it is clear it is no longer viable, they may become personally responsible for any debts when it is wound up, be it voluntary or compulsory. The liquidator handling the wind up will conduct a thorough investigation into the actions of the directors and continuing operating after receiving a CCJ they can’t pay may be viewed as not meeting their obligations to their creditors.
Does a CCJ force a debt to be paid
A CCJ is a legal recognition of a debt and demand that it be paid but it does not force the debtor to pay the creditor.
This does not mean that it is a toothless decree and should not be ignored, not only for the reasons already listed. A creditor that has successfully appealed for a CCJ can submit a winding up petition to the courts if the debt remains unpaid, or another creditor that is owed money may also submit one.
A winding up petition against a company that has an unsatisfied CCJ will almost certainly be granted and the company will be liquidated and dissolved.
When a CCJ Is an Opportunity
For some businesses, a CCJ can be a sign that it is a good time to start doing business with a company. Subprime lenders, for example, will benefit from knowing when a company gets hit by a CCJ as it may suggest that they will soon need extra cash.
Insolvency practitioners could also benefit from knowing when companies have received CCJs—especially if they have this information alongside other data that shows a company is in poor financial health and might be on the verge of insolvency.
Red Flag Alert Gives You Control Over How You React to Customer CCJs
Red Flag Alert is an essential tool if you want to protect yourself from harm caused by a customer receiving a CCJ.
It does this by informing you when a business receives a CCJ and then placing the CCJ in context with the company’s other financial information. This shows whether the CCJ is likely to impact the business’s ability to pay its other debts, which allows you to make informed decisions about the steps you need to take to protect your business.
Red Flag Alert uses a proprietary algorithm to give every business in the UK a financial health rating. The algorithm has been developed over 13 years and uses detailed financial information like past financial performance, type of business, key financial ratios, fining discipline, debt levels, exposure to bad debt, turnover, employee numbers and of course adverse events like CCJs.
The health rating it produces provides a clear insight into the likelihood of a business falling into insolvency in the next 12 months.
When assessing your clients, Red Flag Alert is the best way to determine the level of risk they pose. Rather than just focusing on whether a customer experiencing a CCJ is likely to harm the business, Red Flag Alert considers a wide range of factors and the financial health rating provides the information you need to make a sound commercial decision.
Beyond this, Red Flag Alert provides several tools that help businesses assess risk:
- Real-time monitoring keeps you up-to-date with the financial risk associated with each of your customers.
- In-depth financial intelligence allows you to look beyond the initial Red Flag rating and make your own judgement about risk.
- The data covers over 6.5 million businesses in the UK. We can help no matter who your customers are.
- The data is updated over 180,000 times every day, ensuring you always have access to the most relevant intelligence.
While you don’t have control over whether a customer receives a CCJ, you do have control over the actions you take following the event. Red Flag Alert helps you avoid being caught unprepared and allows you to make informed decisions about the best way to proceed.
Companies use Red Flag Alert’s insolvency risk services to check which clients and potential clients pose a credit risk.
Avoid bad debt and see how Red Flag Alert can protect your business by requesting a free 7-day trial
Or you can read our Q3 Intelligence Report to understand the scale of insolvency risk facing the UK.