What happens if my business receives a CCJ or Decree in Scotland?

As we’ve said, the Scottish equivalent of a CCJ is called a Decree. Like a CCJ, a Decree is a court order issued against a company or an individual when they fail to pay a debt. It shows a court has ruled that you owe someone money and must pay it back.

The process of obtaining a Decree is relatively simple. A creditor will usually make multiple attempts to recover a debt themselves. However, if they are unsuccessful, they can apply to the local Sheriff’s Court or the Court of Session, depending on the size of the debt, to get the court to order the debtor to repay the money.

Depending on the size of the debt, you will either receive a summons or an initial writ. If you do not reply to the court forms within the correct timescales or ignore them completely, you may end up paying more in court expenses and the court could grant a decree against you.

Once you receive the Decree, you usually have 14 days to pay the outstanding balance, apply for more time to pay the debt or respond with your intention to defend the claim. If you do not satisfy or respond to the Decree, the creditor can take action to enforce it.

Creditors don’t apply for a Decree lightly due to the time and effort involved. They will be committed to collecting the money they are owed, and Decrees are an effective debt collection model that can seriously impact your business. The potential consequences include:

Damage to your credit record

A Decree typically stays on your company’s credit record for six years after its issue due date. That can make it difficult to obtain business loans, credit cards and other forms of commercial finance.

Harm to your reputation

Decrees made against limited companies are recorded on the Register of Judgments, Orders and Fines, a public record that is accessible to anyone. That means suppliers, lenders and clients will be able to see a Decree has been granted against you. That may adversely affect your ability to obtain credit from suppliers and limit business growth. 

The risk of enforcement action

If you do not pay what you owe, the creditor can take enforcement action against your business. In Scotland, this process is called diligence. There are different forms of diligence creditors can use, including:

• Arrestment – This debt recovery procedure prevents the business from disposing of assets without repaying the creditor. Cash in the bank, moveable assets and debtor balances can all be subject to an arrestment order.
• Attachment over goods – A sheriff officer can enter your premises to make a list of goods they can seize. If you do not pay what you owe within 14 days, the goods will be seized and sold at auction to cover the debt and the sheriff officer’s fees.
• Money attachment – Similar to an attachment of goods, this order allows a sheriff officer to enter your premises in search of money. Any cash or cheques payable to the company can be seized to pay off the debt. Officers can also open cash registers and lockable boxes.
  

• Inhibition – If your company owns lands or buildings, the creditor can seek an inhibition order that prevents you from taking out loans on the property or selling it without paying the outstanding debt first. An inhibition order expires after five years but can be renewed. 

The forced liquidation of your company

If you continue to refuse to pay what you owe, the creditor can use the Decree as the legal basis to issue the company with a Winding Up Petition. If you still do not pay the debt, the court can grant a Winding Up Order that forces the company into Compulsory Liquidation. A licensed Insolvency Practitioner will be appointed to wind up the company’s affairs, sell its assets and repay the creditors using the proceeds. Once the debts have been repaid as far as possible, the company will be removed from the Companies House register and cease to exist.

If your company is forced into liquidation, the Insolvency Service will investigate your conduct and the reasons for its failure. That could lead to serious financial and legal consequences, such as becoming personally liable for company debts or being disqualified from acting as a director for up to 15 years.

If your business receives a Decree, you must act quickly to reduce the risk of serious consequences such as debt enforcement measures. These are the steps you can take:

• Pay the debt in full – A decree will appear on your credit file for six years but will show as ‘satisfied’ once it has been paid. 
• Negotiate a payment plan – If you cannot pay the full amount upfront, you can apply for a Time to Pay Direction to make a plan with the creditor to settle the debt over time.
• Challenge the Decree – You typically have 14 days to file an appeal with the court that issued the Decree. Grounds for appeal include legal or procedural errors, or having new evidence that was not available at the original hearing.

If the debt is genuine but you cannot afford to pay it, you can explore formal insolvency options. A Company Voluntary Arrangement (CVA) is a legally binding repayment arrangement with your creditors that gives you three to five years to repay what you owe via monthly instalments while you continue to trade. Alternatively, if you’re under intense creditor pressure, Company Administration could give you the time and space you need to restructure the business.

On the other hand, if your company can no longer afford to pay its debts and has no realistic prospect of a recovery, putting it into Creditors’ Voluntary Liquidation (CVL) could be the best course of action. You will appoint an Insolvency Practitioner to liquidate the company. They will sell its assets to repay its creditors, and any debts it cannot repay will be written off.

If your business has been threatened with or received a Decree it cannot pay, you should seek professional advice immediately. At Scotland Liquidators, our licensed Insolvency Practitioners will assess your company’s finances, discuss your options and plot an appropriate route forward. Get in touch for a free, same-day consultation or arrange a meeting at one of our offices in Scotland.