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Creditors issue County Court Judgements (CCJs) via a county court to recover unpaid debt. Often issued following written warnings, a CCJ is meant to encourage the debtor to repay what they owe, and failure to do so within the specified time limit can result in a damaged credit rating, and more extreme creditor action. The most severe of which could result in the closure of the company.
Will a CCJ affect my limited company’s credit rating?
If you pay, or ‘satisfy’ the CCJ within 30 days of the judgement’s issuing, the CCJ won’t appear on your company’s credit file. However, if you are unable, or fail to pay the amount within the specified time limit, the CCJ will appear on your company’s credit file for the next six years. During that time, your credit rating will suffer, making it more difficult to apply for business loans or other financial arrangements. Lenders will be reluctant to deal with businesses with a poor credit rating as, in their view, it reflects your ability to repay what you’ve borrowed.
What happens to a CCJ after six years?
After that six years, CCJs are removed from your credit file. With this in mind, it might seem like a good idea to leave the debt to ‘expire’ after six years. Doing so, however, is ill-advised as your creditors may resort to other means to recover what you owe them. After the removal of the CCJ, your credit rating won’t automatically reset to what it was before, and lenders may be reluctant to do business with your company.
Can a CCJ force my company to repay its debt?
While a CCJ can’t force your company to repay its debts, you should never ignore letters from the court. Failure to repay within the 30 days means the CCJ registers on the company credit file. Again, while a CCJ is on your credit file, it can’t in itself, force you to repay what you owe. However, the judgement opens the door for creditors to take further action to recover what’s owed to them. Bailiffs and High Court Enforcement Officers could visit your premises, as well as debt collectors. In the most severe cases, where you owe more than £750, creditors can petition to wind-up your company.
Can a CCJ make me liable for my company’s debt?
One of the biggest fears for company directors is whether a company’s debt will affect their personal finances. Fortunately, if it’s a limited company, the limited liability means that the business’ debt is separate from your personal funds, which shouldn’t be affected. However, many lenders will insist that the director makes personal guarantees before approving some loans or lending opportunities. Personal guarantees will secure the loan against a director’s high-value assets and bypass the company’s limited liability, effectively meaning the directors could have to pay for the company’s debts out of their own funds.
How do I deal with a CCJ?
The best way to remove a CCJ from your credit file would be to pay the amount within the 30 days. Sometimes, repaying the debt isn’t possible. If you can’t afford the suggested repayment plan, you should speak to the creditor and attempt to come to an alternative arrangement. If that doesn’t work, you should seek advice from a licensed insolvency practitioner.
If your limited company receives a CCJ, it has the potential to cause long-lasting damage. Your company’s credit rating could be negatively affected for the next six years if you don’t work to pay it off within the time limit specified in the judgement. Within those six years, you can try to avoid making payments; however, this is ill-advised as creditors can resort to other debt collection methods to recover what you owe them. Depending on the specifics of your company’s loans or finance, any personal guarantees could be acted upon, making you personally liable for the company’s debt. The creditors can also apply to wind up the company if other attempts to recover the debt have failed.
How we can help
If ignored, a CCJ can have severe ramifications for your company. If you’re issued with a CCJ, you should start work to have it removed, immediately. Whether it’s negotiating with your creditors to arrange a repayment plan, or applying to get the judgement set aside, you shouldn’t avoid the problem for the next six years in the hope that your creditors don’t take further action. Our licensed insolvency practitioners and experienced consultants can advise you on the best course of action to repay your creditors, and where possible, keep the business operating. All advice is free and impartial, with no obligation.
A formal repayment plan: a CVA
Although a CCJ can have a damaging impact on your company’s credit rating, there are ways of paying off the judgement while the company continues to trade. These are called Company Voluntary Arrangements (CVAs); they usually last for five years, consolidating all your debts into a single monthly payment tailored to what you can afford. CVAs bring all creditor action to a halt, and after the arrangement comes to a close, all remaining debt is written off. CCJs can be included in a CVA, although they will need approval from at least 75% of creditors by value of the debt.
Occasionally, your company may have such a large volume of debt, CCJs, or creditor pressure, that continuing to trade isn’t a viable option. In these circumstances, you may be better off exploring the options to either put the company into administration; allowing a third-party to take control to make the necessary changes. Or if the debt is at such a level that continuing isn’t feasible, you can explore closing the company through a liquidation.