Court Decrees and how they can affect your clients' businessesJune 12, 2017
During the first quarter of 2017, the number of decrees against incorporated Scottish businesses rose by 21 percent to 408.
In the light of this increase, I thought it was important to look at what decrees are and the dangers ignoring them can pose to Scottish businesses.
More widely, the number of decrees against all Scottish businesses, including both incorporated and unincorporated businesses, fell by 17 percent compared to the same period last year.
As you can see from the above graph, the number of decrees against all Scottish businesses has been gradually declining since Q3 2016 and the figures for this quarter are significantly lower than last year.
Before I get ahead of myself, though, it's probably wise to rewind slightly and explain what a decree against a business actually is.
In this area, a decree is a court order confirming that the debt is due and the amount which is due. In England, the equivalent is a County Court Judgement (CCJ).
Before a creditor takes court action to obtain a decree, they will normally have had their accounts department and their solicitors chase for payment.
When that doesn't result in payment, a sheriff officer will serve the debtor business, in effect, with notice of the court action.
However, businesses are often not aware — usually because they don't pay close attention to their mail — that one of their creditors is taking this matter to court or even that the court has already granted the decree against them.
Court decrees are recorded and are publicly available. They can, therefore, cause immediate damage to a business' credit rating even if the creditor doesn't take any further action.
What happens if I don’t respond to a decree?
Normally, once a decree has been granted against a business it is too late to deny or disagree that the debt is due. If the debtor wished to argue against the debt, they would have had to submit arguments to the court at the time the notice of the court action was served.
Once a creditor has obtained the decree their next step is to serve a charge for payment on the debtor business. In other words, they will be legally asking for the decree to be paid in full with a deadline. The deadline is often as little as 48 hours.
If the business is unable to pay the full amount, the creditor can immediately commence further recovery action, which may include:
- freezing bank accounts
- obtaining inhibitions
- putting the business into insolvency.
According to Trust Online, the average value of a decree is £7,095*, which many businesses would struggle to pay under such short timescales.
* This figure is for 2016 and excludes one abnormally high decree. The unadjusted average is £12,999.
What should I do if my business receives a decree or notice of court action prior to a decree?
First and most importantly, don't just ignore it. If you genuinely believe the debt isn't due then have that conversation with the creditor at the very start of the process.
However, if you are struggling to pay your debts and your creditors are losing patience then court action by one of your creditors may not be very far away. In this case, it is essential that you seek immediate advice from a suitable professional like an insolvency practitioner.
If the decree has already been granted, don't just ignore it or think that you can simply say you don't agree you owe the debt.
It's too late for that.
As we mentioned above, the timeframes for action after decrees have been obtained can be incredibly short and can result in an otherwise healthy and buoyant business being put into insolvency in the blink of an eye.
If you receive service of court documents to begin the action for a decree or find out that a decree has actually already been awarded, it is essential that you seek immediate advice from a suitable professional like an insolvency practitioner.
At 180 Advisory Solutions, we have many years' experience in business recovery and restructuring. The earlier you contact us, the greater the chance we have of securing a positive outcome for you following a decree against the business.