Chris is an Insolvency Practitioner regulated by the ICAEW since 2014,.
He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.
If your limited company is struggling to meet its commercial mortgage payments, you’ll need to act promptly. As a priority debt, failure to pay could lead to legal action and potentially the loss of your business premises.
It’s also important to consider whether the inability to pay your mortgage indicates insolvency, a state where your overall liabilities outweigh your assets.
As a director, you must be certain of your company’s financial position. If you’re insolvent, you have a legal duty to prioritise your creditors’ interests over those of the company or shareholders and must act accordingly.
Given these high stakes, here are the immediate steps you should take:
Contact your mortgage lender immediately. Don’t wait for them to contact you. Most lenders have specialised teams to assist businesses with financial difficulties.
Prepare a clear, concise summary of your company’s current financial situation. Your lender will want to understand why you’re struggling and what you’re proposing to address it.
Seek professional advice from an insolvency practitioner such as ourselves. We can provide expert guidance on your options, including potential restructuring or insolvency procedures.
How to Talk to Your Commercial Mortgage Lender About Arrears
As with all commercial lenders, mortgage companies are well used to dealing with arrears and will have clear protocols in place for dealing with it. Generally, they respond well to honesty and professionalism. In most cases, you’ll find they would prefer a workable solution rather than pursue repossession, which is costly and time-consuming for them.
My advice is to prepare a clear, concise summary of your situation. Include:
The reason for your payment difficulties
Your current financial position
Projected cash flow for the next 3-6 months
Steps you’ve already taken to improve your finances
You should also be prepared to discuss potential solutions. These might include:
A temporary reduction in payments
A payment holiday
Extending the mortgage term
Restructuring the debt
Remember to keep detailed records of all communications with your lender. Note dates, times, and the content of conversations. This can be crucial if disputes arise later.
If your lender offers a new repayment plan, ensure you fully understand the terms before agreeing. Consider having an insolvency practitioner or solicitor review any proposals.
Selling Assets to Raise Capital
Along with considering alternative finance, selling assets can help generate immediate cash or reduce your monthly outgoings, but this approach comes with important considerations.
Selling assets might involve identifying non-essential equipment, property, or even parts of the business that could be sold quickly. Consider whether sale and leaseback arrangements could work for critical equipment. However, be mindful that selling assets may impact your operational capacity and future earning potential.
Remember, these actions should be part of a broader strategy to address your company’s financial challenges. Quick fixes without addressing underlying issues rarely provide long-term solutions.
Crucially, if your company is insolvent, you must ensure that any asset sales are at fair market value. Selling assets below market value when insolvent could be seen as misconduct and lead to personal liability further down the line.
When to Seek Help From Insolvency Experts
If you can’t agree with your lender and are in danger of losing your business premises, it’s time to speak with an insolvency expert.
Seeking advice from an insolvency practitioner isn’t admitting defeat. Instead, it’s a proactive step that can open up a range of options you might not have considered.
An insolvency practitioner will first assess your company’s financial position thoroughly. We’ll consider your assets, liabilities, cash flow, and future prospects. Based on this analysis, we can advise on the most appropriate course of action. This might be a company rescue or restructuring procedure, or perhaps to close the company responsibly via liquidation.
The likely insolvency processes might include:
Company Voluntary Arrangement (CVA): This allows you to reach an agreement with creditors to repay debts over time, often with reduced payments. It can provide breathing space while you continue trading.
Administration: An administrator takes control to restructure the business or realise assets. This can protect your company from creditor action while a rescue plan is formulated.
Creditors’ Voluntary Liquidation (CVL): If rescue isn’t viable, this process winds up the company in an orderly manner, ensuring fair treatment of creditors.
Pre-pack Administration: This involves arranging the sale of company assets before appointing an administrator, potentially allowing the business to continue under new ownership.
Frequently Asked Questions: Limited Company Mortgage Issues
What legal action could the lender take if we don’t pay?
The lender may issue a formal demand, apply for a court order to repossess the property, appoint a receiver, or pursue personal guarantors. Early action can often prevent these outcomes.
What happens if we sell the mortgaged property?
You’ll need to repay the mortgage from the sale proceeds. If the property sells for less than the mortgage value, you’ll need to address the shortfall.
What’s the impact of missed mortgage payments on our company’s credit rating?
Missed payments can significantly damage your company’s credit score, making future borrowing more difficult and expensive. It may also affect your relationships with suppliers and other creditors.
