What to do after you find a CCJ on a company's credit report
If you’ve found a County Court Judgment (CCJ) on an existing or potential client’s credit report, it can be concerning and a little disappointing, especially if the business partnership looked promising. Does this mean financial instability?
Checking for CCJs is extremely important as this will support your due diligence checks, however, finding a company with a CCJ does not always mean you need to end the partnership right away, but it is best practice to pause on going forward with any agreements to investigate further.
Here, we’ll walk through everything you need to do when you search for a company and find a CCJ.
Don't panic, but don't ignore it
The first thing to do when you realise that a company has a CCJ when doing a search is to remain objective and do your best to find out everything you can about the situation. A CCJ is a court order that has been registered against a company that has not kept up with its financial obligations by paying off its debt. But it’s best to find out what the context is.
Before making a decision, you need to understand when the CCJ was served and the reasoning behind it. If the CCJ was served five years ago and it was settled straight away, you have less to worry about compared to three CCJs from the past six months that have not been dealt with.
Understand the difference between satisfied and unsatisfied CCJs
When you conduct a company CCJ search, you’ll need to pay special attention to the status of the judgment.
Satisfied
If a CCJ is classed as ‘satisfied’, that means the debt has been paid in full. If the debt was paid within 30 days of receiving the CCJ, it can be removed from the company’s record completely. If it has been paid off after the 30 days, it will need to remain on the company’s record for six years. This will then be marked as ‘satisfied’, showing that the company took responsibility for their actions.
Unsatisfied
If a company has an ‘unsatisfied’ mark on their record, this means that the debt has not yet been paid off. This means that the company is unable to pay off its debt, or is ignoring its financial obligations on purpose.
How to check for a CCJ
Now, let’s go through the steps you need to take to check for a CCJ when looking into the trustworthiness and reliability of a company before going into business.
Step 1: Conduct a deep-dive verification
The first thing you need to do is conduct a deep-dive into the business to find out more details. Here’s how you can do this:
Use the official register
Use TrustOnline (the public portal for the Registry Trust) to perform a specific company CCJ search. This will give you the most up-to-date information, including:
- The exact court that issued the judgment
- The case number
- The exact date and amount
Look for trends
Make sure you know if there have been any trends in the company being issued CCJs. Typically, if the company is served a CCJ on more than one occasion or by various creditors, this is a bigger red flag because it proves that the company cannot manage its debts.
Step 2: Fact-finding
Next, if you have found that the company has been served a CCJ, you should have a professional conversation with someone to find out more. Here’s what you should be listening for:
- The "dispute" defence: if they claim that the CCJ was served in a response to a dispute over service quality, you should be asking for evidence of the communication regarding this, or if they are applying to have the CCJ set aside.
- The "lost mail" excuse: if they claim that they never received the summons, this also proves that they have poor administrative skills.
- The evasive answer: Always be suspicious of a company that cannot be transparent with you as to why there is a CCJ on their record when checking for a CCJ.
Step 3: Assess the financial implications of this
Here’s how you can categorise what is associated with a CCJ on a company’s record:
|
CCJ Indicator |
Level of Risk |
Typical Business Implication |
|
Old and satisfied |
Low |
This is likely a historical issue, and you are probably safe to proceed with the partnership. |
|
Recent and satisfied |
Medium |
This may be due to a recent cash flow issue, but you should still monitor closely. |
|
Unsatisfied (single) |
High |
This means the company has an ongoing debt issue, and it may be due to their refusal to pay or insolvency. |
|
Unsatisfied (multiple) |
Critical |
This shows that there is a high probability of the business failing within the next 12 months. |
Mitigating the risk
You may find, however, that the company is a vital partner and that you need this deal to work out. If this is the case, you’ll need to change the rules of engagement. So, if you check for CCJs and find some active ones, you’ll need to protect your business with these safeguards:
- Pro-forma invoices: Ensure that the company pays the whole sum of money upfront before any business is conducted.
- Director’s guarantees: if the business is a Limited Company, you can also ask the directors to sign a personal guarantee. This means they will be personally liable if the company does not pay.
- Stage payments:
- Never let the "work in progress" (WIP) value exceed a certain threshold. Stop work if a milestone payment is even one day late.
- Retention of Title (RoT): Add into your contracts that you own all the goods until everything is paid in full.
When to walk away
There will be times, however, when you need to walk away from the partnership. Especially when:
- The company has multiple unsatisfied CCJs.
- The total value of the CCJs is increasing over time.
- The company was dishonest about the CCJs when asked about it.
- A company CCJ search reveals judgments from HMRC
By taking the time to check for CCJs and following a rigorous verification process, you’ll feel confident in your knowledge of that company’s past behaviour, which will help protect the future of your company.
If you’re looking to implement a business credit check, be sure to get in touch with Creditserve today! We have the knowledge and expertise to walk you through every step of the process.
