‘To Judge or Not to Judge’

Searching someone’s credit history is now a key component of pre-employment screening in the UK. When this highlights the existence of one or more county court judgments (CCJ), what does this mean, and what does it tell us? Possibly a little more than you would think…

In the first instance, it is important to appreciate the extent of the process and procedure that have followed for the CCJ to be registered against the potential new employee about to enter your workplace.

The economic climate remains a hot topic resulting in a backdrop where insolvency figures hit a new high in first quarter of 2010 with more than 35,000 people becoming insolvent in the first three months and the figure is expected to rise higher as the year progresses. There are more than 2,000 CCJ’s registered every day in the county courts of England & Wales.

A County Court Judgment is a serious black mark on a person’s credit rating, making it difficult, if not impossible in the current climate, to obtain credit in the future.

How do you get one, and what are the obligations and consequences?

Which debts could lead to a CCJ?

All unsecured debts to which you have not paid the contractual payment or the agreed arrangement. Others who can take you to court include any individual or firm that you owe money to.

In essence, CCJ’s are a simple and effective way for creditors to claim the money they are entitled to.

The Process

A CCJ is made when a Judge in the County Court determines that you owe money to someone, and that all other steps taken to recover the money have failed. There is plenty of time in the process for someone to resolve the situation and a CCJ will only be issued after several defined steps have been concluded.

Arrears Letters and Default Notice

Firstly, the creditor must send out a letter confirming that an account is in arrears, and giving notice that legal action will be taken if the arrears aren’t paid or another arrangement made.

If this letter is ignored, or no alternative arrangements are agreed upon, a default notice will be served. This is basically a declaration that there is a debt that is unpaid, and that you have a final chance to make good what you owe. If you don’t do so, the default will be entered onto your credit file - itself, a serious hindrance to one’s future chances of obtaining credit.

The Court Action

It is at this stage that the creditor can apply to the court for a CCJ. The creditor must convince a judge that the debt is real, and that there has been no attempt by the debtor to clear it. The debtor needn’t be present in court, although of course there is the opportunity for them to defend themselves if there is a genuine case, for example the debt is the responsibility of another person.

If the judge is satisfied with the creditor’s argument, the judge will grant the CCJ.

There is then a 28 day period during which, if the debt is settled, the CCJ will be cancelled and will not entered onto the individuals credit file. If you don’t pay within 28 days, the judgment will stand and be recorded on file.

The Paperwork

If someone takes a County Court action against you, you’ll be sent a CCJ Claim Form. This will explain how the outstanding balance is calculated.

There are 5 options open to the individual at this stage;

Pay in full
You can pay the amount in full straight away (plus any interest and court fees shown). If you do, you don’t need to send the forms back. There won’t be a court hearing and you won’t have a CCJ recorded against you.
Ask to pay later or in instalments
Payment proposals (based on income and expenditure) detailing how you are able to pay. A CCJ will still be issued.
Dispute the amount owed
If you think you owe less than is claimed, the forms should still be sent back explaining why. You should pay what you think you owe straight away. The Court will then decide who is right - the debtor or the creditor. If it’s the creditor, they will issue a CCJ.
Dispute the claim
If you don’t think you owe anything, the Defence Form is returned to the court, setting out your side of the argument.
Claim against the creditor
Some might claim that they’re owed money instead (if a builder sues you for non-payment, say, but you think he owes you money for breaching the contract).

Whatever option is chosen you don’t ignore the claim or miss the deadline. If you do, the claimant can request a default judgment. You don’t get to put your case (or explain your financial circumstances), and the Court may order you to pay the money in full at once.

What next? How are the CCJ’s enforced?

If a court has ruled that you owe money and you don’t pay all of it on time (e.g. you miss some instalments), the company who sought the CCJ can return to the court to ask it to enforce the order.

It will have to pay a fee to do this - and this fee is added to the outstanding balance.

The court can enforce the judgment through some pretty painful, and embarrassing methods:

Attachment of earnings order
The balance is repaid directly from their wages. The debtor’s employer is forced by law to deduct money from payroll and pay it to the court who will then send on to the company or person that’s owed it.
Charging order
A charge is placed against your property and in due course, what is owed (plus interest and costs) is taken from the sale of your house.
Third party debt order
This freezes money held, usually in a bank account, which is then used to pay what is owed.
Warrant of execution
This results in a court bailiff visiting your property and attempting to seize your goods, which are then subsequently sold (sometimes at a fraction of the value) to pay the outstanding balance.
Transfer to High Court
This results in a High Court Enforcement Officer collecting the money or seizing your goods to sell and to pay the money to the Court.

In addition, if it is felt the individual is not co-operating or deemed to be withholding something, they can ask the court for an ‘order to obtain information’. This oral examination is an interview at court to discover further information, under oath, about your financial situation.

Removing a CCJ

Because of the affects of CCJs on credit ratings, many people would like to have them removed from their file. Unfortunately, there is no legal way to do this if the proper processes were followed during its issue. You can apply to have it ‘set aside’ if you can prove that something went wrong - for example, if the default notice or court papers were sent to the wrong address and so you didn’t know that a CCJ was being applied for.

You can also have the judgment set aside if you can prove, after the fact, that the debt belongs to someone else - for example, someone with the same surname living at the same address.

Details of county court judgments remain on the register for six years from the date of judgment, unless the judgment is set aside or the amount is paid in full within one month. Despite the promise of some credit repair agencies, there are no other ways to remove CCJ’s from the records.

So, what does it all tell us about our potential new recruit?

As you can see a CCJ follows a structured path with plenty of opportunity for dialogue.

The existence of a CCJ indicates that someone has neglected to meet his or her financial obligations, and perhaps a repeated history of failure to accept responsibility, does not bode well as a statement of character.

It does of course depend on the role being offered, however, it may highlight a lack of discipline, not just in financial planning, but also in communication and administration given the ability to interact with the creditor before court action, and the court direct after the papers have been filed.

It may also throw up concerns about giving an individual a company credit card, or more significantly, the threat of potentially distracting litigation for the new employee in the future. What about future expense claims? Will you be required to scrutinise claims in more detail than other colleagues?

There is then the cost of replacing this person in the business and the loss of confidence in the company by existing and/or prospective clients who become aware of the situation (who in turn might then question your recruitment policy).

Depending on the nature of the business of the employer it may also make staff security risks (such as selling data) or encourage them into committing crime to repay the debts.

There will, of course, be occasions where genuine circumstances have resulted in a CCJ but as you will see there are plenty of steps in the process where one can argue their case and seek to resolve the position. There is also a cost implication in obtaining a county court judgment (which can be as much as £500 if you have used legal representation to complete the formalities) and it is therefore a decision a creditor won’t have taken lightly.

Invariably there might be underlying issues that need to be resolved and this should at least provoke a discussion about its existence and the reasons for it being on the record.

Clearly, a lot depends on the role being offered, however for example, you wouldn’t want to be an employer offering outsourced credit management services to clients only to find your Credit Manager having a host of CCJ’s registered against their name. Hardly an endorsement or good reference of your company’s capability and one your competitors will gladly use against you for a long time to come.

Biography

Graham Higgins is Director of BCW Group plc, the UK’s premier provider of credit management and debt recovery services. Three times winners of the ‘Sunday Times Top 100 Companies to work for in the UK’ in the last six years, most notably this year ranking 12th in the UK for their treatment of its employees.

Dealing with a host of blue-chip clients who trust them to protect their household brand names, Graham earned entry into the coveted ‘Who’s Who Business Elite listings for 2009’ as one of the Top 1% of Directors in the UK for business growth.

He is a highly respected figure in the UK outsourcing and debt collections market with over 15 years experience in the design, sale, delivery and operation of Credit Management and Debt Collection solutions across a range of industry sectors.

He is also experienced in the MBO process and an integral part of the management buy-out team in a £26M transaction in 2006.

Graham is also used by a number of the clearing banks to successfully manage turnaround situations dramatically improving the profitability of loss making businesses.

Graham, an Associate of the Chartered Institute of Bankers, is a select member of the Institute of Credit Management’s ‘Think Tank’ and also sits on the Financial Services Skills Council’s working group on National Occupational Standards for both credit management.

“A background check is not only for the benefit of the company as a sound business practice, but also for the benefit of all employees. It is not reflection on an applicant.”