If a company receives a CCJ this could be evidence that it is insolvent. Ignoring the Judgment and allowing the company to trade could then lead to director disqualification
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What is a County Court Judgment (CCJ)?
If a company owes money which it cannot or will not pay the creditor can take action to enforce the debt. This will first be in the form of an application for a County Court Judgement (CCJ). If issued by the Court the Judgment confirms the debt is owed and requires it to be paid.
A CCJ normally demands that a debt is paid in full. However staged payments may be allowed if the company has shown that it cannot afford immediate payment in full.
But if a company cannot afford to pay its debt is this evidence that it is insolvent? If this were the case and the directors allow ongoing trading it could be considered fraudulent. They could then be at risk of being disqualified.
Can a Company trade with a CCJ?
If a Country Court Judgment has been issued it does not necessarily mean that the company is insolvent. Many businesses are issued with CCJs because of debts which are in dispute or exist due to a simple administrative oversight.
If the debt is question is legitimate but can be paid over a reasonable time this arrangement is seen as perfectly acceptable. In these circumstances the company is not insolvent. It is therefore perfectly acceptable for it to continue trading.
However if a company simply cannot make payment towards the debt this is a warning that it may be insolvent. In this situation the Directors must consider closing the business or using a rescue solution. Taking action to prevent the position of the company’s creditors becoming even worse is one of their fundamental duties.
If a CCJ is received directors must take action if they believe the company is insolvent. This is to protect both the creditors and themselves.
What if a Company trades when Insolvent?
An insolvent business cannot be allowed to continue to trade. If this happens and the position of the creditors is made worse then the directors are likely to be guilty of wrongful trading. This could then lead them to be disqualified and even held personally liable for company debt.
In this situation there are various options available. The first is for the directors to simply close the company. However if they believe the business could be saved they could consider a Company Voluntary Arrangement (CVA) or Pre Pack Liquidation.
Implementing one of these options as soon as they believe a company is insolvent will show the directors are taking their responsibilities seriously. In so doing they can protect themselves from the risk of wrongful trading or disqualification.