If my company continues to trade with a county court judgement is this fraudulent?

Allowing a company to continue to trade while insolvent can lead to the directors being accused of wrongful trading and held liable for company debts. Being issued with a county court judgement could be evidence of this.

If a company owes money to one of its creditors which it cannot or will not pay, the creditor may ask the Court to issue a county court judgement (CCJ). A CCJ is a court order requiring an outstanding debt to be paid.

If a CCJ is issued, the Court will normally require the debt to be paid in full. However, staggered payments may be allowed if the company has shown that it cannot afford immediate payment in full.

Is the company insolvent?

The fact that a country court judgement has been issued does not necessarily mean that a company is insolvent and should stop trading.

Many businesses are issued with CCJs because of debts which are in dispute or even a simple administrative oversight. If the debt is question is legitimate but can be paid over a reasonable time this arrangement is normally perfectly acceptable.

However, if your business has received a CCJ because a debt cannot be paid, this should be a warning that there may be underlying financial difficulties and could raise questions about whether the business is solvent.

You need to be aware that evidence of an unpaid CCJ can be used by a creditor to help start winding up proceedings against the company.

If the court grants a winding up order, a liquidator will be appointed by the court to immediately close the business.

Wrongful trading

An insolvent business cannot be allowed to continue to trade. To allow this would be fraudulent on behalf of the company directors.

As such, if you know that your business is insolvent and you allow trading to continue, particularly if CCJs are issued which cannot be paid, when it is closed either forcibly through winding up or voluntarily through liquidation, you could be accused of wrongful trading.

You would then be at risk of being disqualified as a director and held personally liable for the company’s debt.

It is important to understand that if your company has received a county court judgement, this does not automatically mean that the business is insolvent. Even if the debt cannot be paid immediately, it is often reasonable to agree a payment plan with the creditor while the company continues to trade.

However, if the company simply cannot afford to pay its debts and you are concerned that it might be insolvent, you should immediately take further advice from a company insolvency expert.

For more information visit http://www.company-debt.co.uk/dealing-with-a-county-court-judgement-%28CCJ%29.html

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Company Debt Rescue providing straight forward insolvency advice for business owners with business and personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

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