Will a CCJ Make Directors Personally Liable for Their Company Debts?

January 19, 2024 / FAQs

If a company allows a debt to go unpaid for a prolonged period of time, it risks its creditors making an application for a County Court Judgment (CCJ). This document often comes as a result of several unsuccessful attempts by creditors to recover a debt, and often marks a change in approach by creditors. By applying for a CCJ, creditors intend to make use of court authority to enforce the payment of a debt, rather than attempt to collect it voluntarily.

In some cases, this results in companies acknowledging mistakes and making repayments. However, a full repayment is not always possible, and some struggling companies will simply not be able to adhere to the CCJ. If your company has been served a CCJ it cannot pay, you might be wondering what effects the order can have, and whether directors can be made personally liable for the debt that the company owes.

In this article, Clarke Bell will answer these questions, breaking down County Court Judgments, how they impact limited companies, and whether the debt can be transferred to directors.

What is a CCJ?

A County Court Judgment often marks the first major escalation in debt collection. Creditors can apply for a CCJ after initial attempts at debt collection have failed. If successful, a CCJ application will result in the courts serving a debtor with an order to repay. Upon receipt of a CCJ, the debtor must either make a full repayment of the outstanding debt or reach a repayment agreement with their creditor.

Debtors will usually receive multiple letters prior to the issuance of the order. This will give advance notice of the CCJ, allowing debtors to take pre-emptive action. If you believe a CCJ might have been registered against your company, but haven’t received any notices, you can check various online databases to see if your company has a CCJ.

Also Read: What Is The CCJ Process?

How can a CCJ affect a limited company?

A CCJ can have a number of effects on a limited company depending on when, or if, it is repaid. If you receive a CCJ and make a full repayment within thirty days, it will not be registered against your company. This will prevent it from appearing on public record, ensuring that future creditors and potential business partners will not discover the CCJ. While prompt repayment of a CCJ order might place a strain on your company’s cash flow, it will not have any further effects.

If you cannot make a full repayment of your CCJ within thirty days, you must instead make a series of monthly repayments or reach an agreement with your creditor. This will result in several effects beyond the immediate increase in pressure on your company’s finances. After the thirty-day period has expired, the CCJ will be registered against your company. As a result, the CCJ will be held in various databases that record a range of information on limited companies. These databases are publicly viewable, and many creditors, stock suppliers, and other such parties make it a protocol to search companies on these databases before entering into any contracts. If evidence of a CCJ is found, it can result in these parties offering less than favourable deals to your company, or outright refusing to work with you in the first place.

A registered CCJ can also result in reputational damages to both your company and you as a director. Members of the public can interpret a CCJ as a failure on the part of directors and as evidence of the company’s decline. This can have a knock-on effect on how people interact with your company. Similarly, your other creditors can, and likely will, see the registered CCJ, interpreting this as a sign of financial trouble. Such creditors may decide to apply for their own CCJ, starting an avalanche of issues. If your creditors, rightly or wrongly, believe that your company is on the brink of failure, a cascade of CCJs can be what makes that belief a reality.

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Can a CCJ make directors personally responsible for company debt?

In general, failure to repay a CCJ will not result in the transferral of company debt to directors, nor will it otherwise impact a director’s personal finances. This is because the limited company is a separate entity. However, there are exceptions to this rule, including if directors are found guilty of misconduct.

Also Read: Directors Guide To County Court Judgements

How you can deal with a CCJ

There are quite a few options available to directors with an outstanding CCJ. While a full repayment within thirty days is often the best option, it is not always possible. In such cases, you may need to consider alternatives such as the following:

  • Use alternative forms of finance, such as invoice financing, to rein in financial problems. This should be done before the CCJ is issued.
  • Dispute the CCJ, if possible. A valid dispute can be mounted if, for example, creditors do not follow the proper procedure or include factual inaccuracies within the application.
  • Bring an insolvency practitioner on board to implement a business rescue plan, or undergo company administration. If your company has a viable business model, these procedures can help you realise its potential.
  • Close the company down with a Creditors’ Voluntary Liquidation (CVL). If your company is suffering financial issues without any clear solutions, this can be a great option to deal with your company’s debts and uphold your obligations as a director.
  • Enter a Company Voluntary Arrangement (CVA) with your creditors.

Let Clarke Bell help

County Court Judgments can pose a serious problem to companies and their directors. They can place an immediate strain on a company’s finances and result in serious reputational damage. Furthermore, leaving a CCJ unchecked can create a cascade effect, potentially forcing your company into a downward spiral.

If your company has been served a CCJ and you want to close your company with a Creditors’ Voluntary Liquidation (CVL), Clarke Bell can help you do this.

We have more than 29 years of experience in helping companies find solutions to their financial problems, and we can do the same for you.

Our fees are affordable, and we will help you throughout the liquidation process.

Contact us today for your free, no-obligation advice.