If creditors have taken out a county court judgement (CCJ) against your company, the next step could be a winding up petition. Pre pack administration will give your business a fresh start free of debt.

Where your company owes money which has not been paid, it is usual for the creditor to apply for a county court judgement (CCJ). This is a court order which will often demand that payment is made immediately and in full.

Because your company is in financial difficulty it is likely that you are already spending your time fire fighting and dealing with creditors rather than focusing on running the business itself.  

A CCJ will increase the pressure you face. If it is not paid, this can be used by the creditor as a reason to apply for a winding up petition against your company.

Legacy debt written off

Pre pack administration is a very effective way of resolving a business debt problem. The process involves setting up a new company which then buys the assets of the old. The new company can then continue to trade without the burden of debt.

The pre pack process also allows a business to re-negotiate unfavourable rent and lease agreements.

Because a new company is set up, it is under no obligation to continue to operate under the same leases as the old. The new business’s cash flow can therefore be significantly improved at the same time as finding more suitable accommodation if required.

Effect on directors

It is important for company directors to understand that the pre pack process will involve the closure of the old business meaning creditors will not receive full payment of their debts. As such, if directors have given any personal guarantees, it is likely that these will be called in.

In addition, the liquidator of the old business will be required to carry out an investigation of the conduct of the directors. If they are found to have allowed the old business to trade while insolvent, this could have serious implications such as directors becoming personally liable for company debts.
 
If you are starting to receive county court judgements, it is important that you act quickly to resolve the financial problem. Where the CCJs cannot be paid, they must not be ignored.

It is more and more likely that the next action that a creditor will take is to apply for the winding up of the business. If prompt action is taken, pre pack administration will protect your business. However specialist advice must be taken as the implications of such a solution must be properly understood. 

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK. http://coopermatthews.com