Registry Trust’s figures for 2017’s first quarter show a sharp increase in County Court Judgments (CCJs) against companies in England and Wales. Typically, County Court Judgments are served against companies when creditors have made all reasonable attempts to recover outstanding debt.
Do the recent figures, therefore, suggest that companies are failing to manage debt effectively, and what are the implications for the health of the UK economy?
Bucking the Trend
Prior to the first quarter figures for 2017, there had been a downward trend in company CCJs for the previous seven years, which makes the recent rise more striking.
Michael Hurlston CBE, chairman of Registry Trust, has commented that while there were obvious technical reasons for jumps in consumer debt, the 36% rise in CCJs against companies had no clear explanation.
“We need to examine the statistics more closely to understand exactly what they indicate,” he said.
While the implications for ongoing consumer debt are serious, with the Bank of England warning about the risks of rapid rising in household spending fuelled by extra borrowing, the implications for companies may have far reaching consequences of their own.
The Business Impact of County Court Judgments
A County Court Judgment can have a long-term impact. More so than many company directors realise.
“Whereas a CCJ cannot force a company to pay its debts, it may nevertheless be the beginning of the end,” Wendy warns. “It can act as evidence to support the start of winding up proceedings.”
“Even if a CCJ does not immediately lead to a company starting to wind up, it can make continuing to trade very difficult, will reflect poorly on its credit rating, and may damage a director’s personal credit score”
“If you have given personal guarantees to secure your company’s credit, then a CCJ is going to make it hard for you to secure future finance from banks and other lenders, and from trade creditors,” Wendy advises.
Managing Company Debt
“If a business is at risk of being issued a CCJ it must act quickly and decisively to avoid the involvement of the court,” Wendy points out. “Sound debt management should mean having processes in place that can help prevent such potentially damaging situations developing.”
“For many businesses, the money they are themselves owed ends up adding to their own debt burden, and it becomes a vicious cycle of spiralling indebtedness”
“Companies should be sure to establish strong credit control procedures and processes, and to bring these into play early in the process of doing business with others,” says Wendy.
“Debt may be an inescapable fact of doing business,” concludes Wendy, “but the thing that differentiates successful companies from those that risk everything is how they manage debt.