Company Mortgage and Rent Debt Arrears

What are Arrears

Arrears is a term used when you have not paid invoices/made payments on debts which have built up and need to be paid, if you do not pay, the debt holder may take action to claim the money back.

Ways to Deal with Company Mortgage Arrears

Mortgage arrears occur when the business owes money due to falling behind on mortgage payments. This is one of the most serious types of priority debt because in some cases it could lead to the businesses premises being repossessed.

The first thing that a business should do whenever faced with mortgage arrears is to contact their lender.
The lender will always want to know at the earliest opportunity if there are problems paying the mortgage, and
by contacting them early there will be more options available when coming to an agreement.

There are usually a number of options that can be discussed with lenders to help deal with mortgage arrears.

These include:

1. Taking a payment holiday where mortgage payments can be temporarily halted.
2. Increasing the term of the mortgage, therefore making smaller monthly payments for longer.
3. Paying just the interest on the mortgage for a set period of time in the case of a repayment mortgage.
4. Adding the debt to the mortgage, known as capitalising the arrears.

In more serious cases, companies can join a mortgage rescue scheme where lenders buy back all or part of the property, allowing the business to stay there as a tenant. In any case, much will depend upon the lender and the track record of the business. If this is the first debt problem encountered by the business, lenders are more likely to be flexible.
One golden rule is to always pay back what you can to your lender, even if it is a small amount. This shows that you are committed to paying your debts and as a result you are likely to receive more sympathetic treatment.

Company and Business Rent Arrears

This type of debt can result in eviction from the property and the removal of business equipment or stock.

As with other priority debts, it is recommended to inform landlords of any problems as early as possible and try to come to an agreement. An agreement will usually involve adding arrears onto the rent for each month for a period of time until the debt is cleared. If an agreement cannot be made, the landlord could take court action which could end up in eviction from the premises.

Alternatively, the landlord might be able to remove company equipment and stock without the need for a court order, or they may hire bailiffs to carry out this task.
Companies should always go to any court hearings to ensure that they get the chance to put their case forward. They should also make sure to stick to any payments agreed through the courts to prevent the landlord from taking further action.

Even if a business stops trading, it may still have to continue to pay rent for the business property; this will depend on the conditions of the lease. With a long-term lease, they may have to pay rent until the lease expires or a new tenant is found. Businesses should always seek professional advice if they are unsure about their responsibilities which can prevent any problems from getting worse.

Priority Debts and Secondary Debts

What are often considered by some as priority company or business debts?

• Mortgages
• Rent
• Business Rates
• Utility Bills
• VAT
• Income Tax
• Court Fines
• Secured Loans
• National Insurance

What are often considered by some as secondary company or business debts?

• Company Credit Cards
• Overdrafts
• Unsecured Loans
• Suppliers
• Other secondary creditors

What are Secondary debts

Secondary debts are debts that are owed to creditors who do not have the same powers to force you to pay as priority creditors. They include:

• Company credit cards overdrafts and unsecured loans
• Suppliers
• Other trade creditors

How to Deal with Secondary Creditors

Always deal with your secondary debts after you have already made arrangements with your priority creditors. The best way for a business to start to deal with secondary debts is to first work out how much they can afford to pay.

Working Out How Much You Can Afford Each Creditor

If you haven’t already, you should create a budget of all of your incomings and outgoings and come up with a figure for how much you can realistically pay to each of your secondary creditors. Take this figure and divide it between your secondary creditors in proportion to how much you owe each one (known as pro rata).

Coming to an Agreement with your Creditors

Once you have worked out how the business can afford to pay back to each of the secondary creditors each month, you should contact them all with a copy of your budget and a cover letter to explain your situation and try to come to an agreement.

The best course of action normally involves asking creditors to accept your offer and to stop charging interest. Even if all you can afford to pay back is a very small amount, you should still try to pay back a token offer because most creditors will prefer you to pay back at least something.

If you don’t have any money left over to pay your secondary creditors then you should make this clear. Send them a copy of the budget to show that you have no money left to pay them and accompany this with a letter explaining your situation. Your best option is to ask for a suspension of payments for a period of time such as three or six months.

Dealing with Responses

If your secondary creditors accept your offer then you should start making your payments straight away and begin to clear your debts. However, they may not all accept your offers, and some of them may carry on charging interest.

If some of your creditors accept your offer whilst others do not, write back to these creditors and mention that
other creditors have accepted your offers or stopped interest from being added to see if this has any effect.

In any case, begin making repayments to your creditors even if they do not accept your offer because you will be showing that you are committed to repaying your business debts.

How to Deal with Creditor Harassment

When the business cannot afford to repay its debts it may begin to be harassed by creditors, and it’s important to know what action they are legally allowed to take. In any situation, your secondary creditors cannot:

• Be misleading.
• Be dishonest.
• Apply charges that are unreasonable.
• Threaten to inform other people about the businesses debts.
• Refuse to negotiate completely.
• Phone an unreasonable amount of times.

What Happens if Creditors Take Court Action?

If you cannot come to an agreement with your creditors then they may take court action.
The first thing you will usually receive is a claim form which will contain all the details of the money that you owe, and this will come with a defence form in case you don’t agree with the amount.

If you agree then you should fill in the admission form to offer a monthly payment that the business can afford, and send this back to the creditor within 16 days. If they accept this amount then you just have to make the payments, but if they do not then it will be up to the court to decide what the business should pay. Again, if the court decides on an amount that the business cannot afford then you should ask them to re-evaluate the figure within 14 days. It is a good idea to seek professional advice in this situation.

Work out the full extent of your company debt

Discover the full extent of your debts. Collate bank statements; track down all missing information and make lists of how much is owed, and to whom. Remember that creditors are more likely to be flexible if you communicate with them and offer whatever you can, however littel

Once you feel that you are clear of your debts,take pre-emptive methods to ensure that they do not occur again in the future.