What is a County Court Judgement (CCJ)?
A County Court Judgement (CCJ) is a formal judgement by the county courts that a debtor owes a creditor money, the debt is past due, and they’ve demanded it to be paid. CCJs are a clear sign a company is in financial distress, should not be offered credit, and that they have poor internal processes.
Process of obtaining a CCJ
Before the County Court Judgement process can start, 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 claim and typically debtors are severely behind in payments by the time proceedings begin.
The creditor then applies 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. They then have 14 days to respond (an extension of 14 days can be applied in some circumstances).
During this period of time, debtors can either choose to satisfy the debt, reach a payment agreement, or dispute the claim. The ideal situation for both parties is coming to some form of resolution, so the issue does not have to be taken further. However, if this is not possible or if they ignore the summons, the CCJ will be granted by default.
A debtor can 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 – so it’s certainly not an easy way out.
Regardless of whether the debtor contests, if the debt is not satisfied by the court date the case will be heard and usually, the CCJ will be granted.
How long does a CCJ last?
When a CCJ is issued, it is recorded on the Register of County Court Judgements, and the debtor will be notified. If the debt is paid within 30 days, then you can apply to have the CCJ struck from the register, along with the fact that it was ever issued (essentially making it as if it never existed). This means that it shouldn’t have too much of an impact on a company’s financial health, or ability to obtain credit in the future.
However, if the debt is not 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 six years.
If the debt is paid, but after that 30-day period, the CCJ will be recorded as ‘satisfied’ but remain on the register. Whether it is satisfied or not, it will usually have severe effects on the business as every company credit check will take the CCJ into account.
Does a CCJ force a debt to be paid?
A County Court Judgement is a legal recognition of a debt and demand that it be paid but it does not force the debtor to pay the creditor. However, having a CCJ as a mark on your file will certainly impact any future credit applications, and even prevent businesses from wanting to work with you in the future.
They should not be ignored. A creditor that has successfully appealed for a CCJ can submit a winding-up petition to the courts if the debt remains unpaid, which is bad news for any company and can spell the beginning of the end for them. Alternatively, another creditor may also file a CCJ, starting spiral of debt that is hard to survive.
A winding-up petition is extremely serious for any company. It is a statement of intent by involved creditors that forces compulsory liquidation due to significant unpaid debts, and they can shut down companies with little notice. Any company that has an unsatisfied CCJ will almost certainly be at risk of having a winding-up petition granted, meaning that the company will be liquidated and dissolved.
What does it mean when your customer has a CCJ?
It’s important to remember that not every company gets a CCJ 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 its bills. There may be liquidity struggles or the CCJ may be too large for the company to pay alongside its other commitments. Subsequently, this is often a precursor to a company becoming insolvent, and should be viewed as a warning sign for anyone looking to work with this organisation. If the company becomes insolvent, you are very unlikely to see your debt paid.
Should you continue doing business with a customer who has a CCJ or bad credit rating?
It depends on the situation. If a 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 – but perhaps considering monitoring a business for other warning signs. Don’t forget, no business is too big to fail.
For example, a large multinational company 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 e.g., if it has low liquidity or a lot of other debts it must pay.
In cases where you believe a County Court Judgement 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, ceasing to do business with the client altogether.
- Continuing to do business but changing the terms of your relationship e.g., introducing shorter payment terms or even upfront payments.
- Introducing Retention of Title clauses to your contract if appropriate.
- You could increase margins e.g., by withdrawing preferential rates or raising prices to make the risk more worthwhile.
All these steps will negate some of the risks associated with working with a company facing the possibility of insolvency. You need to be able to understand the potential impact of it and how it fits in with the company’s other financial metrics. This gives you the space to react accordingly based on how you think the CCJ will affect the business.
Effects of a Court County Judgement on a Company
The register of businesses with CCJs is public information. This can cause reputational damage and means other businesses and credit reports will take the CCJ into account before deciding whether to do business with these companies or not.
A CCJ is seen as one of the strongest indicators that a company is in distress. Organisations assume 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 Count Court Judgment is historical.
If a business wants to apply for financing, a mortgage, or a loan from a financial institution they may 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.
If it is proven that the holder of a CCJ is in a stable financial position, it highlights poor payment culture within the organisation. Suppliers are very unlikely to offer credit to a company they think they’ll have to spend time and money on debt recovery. Aside from this, many companies are more risk-averse due to the current economic climate, this means they’re unlikely to want to work with a business with a CCJ and will likely hold out for a safer option.
The impact 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 affect 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. If 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.
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.
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.
A trade creditor will be at the bottom of a creditor list and often see less than 10% of the money they 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, this is where Red Flag Alert can come be useful.
How Red Flag Alert can help you
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, minimising risk for your business.
Red Flag Alert users benefit from:
- 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 judgement about risk.
- The data covers over 6.5 million active 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.
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