Was your company placed under external administration or liquidated?
An insolvent company remains listed on the credit file of the directors, even after it has been deregistered.
So how can the former directors with a blemished credit history apply for home loans or other mortgages?
What are the qualifying criteria?
We can assist you to apply for a mortgage if you meet the following criteria:
- Your income comes from a source other than the insolvent company.
- You can prove your income.
- Your company is not currently in external administration.
- Loans to refinance directors’ guarantees or debts are considered.
- You are borrowing no more than 90% of the property value.
Did you know some lenders only look at your personal credit file?
Please call us on 1300 889 743 or enquire online and one of our specialist mortgage brokers will help you to get your mortgage approved!
Proving your income
Under the NCCP Act it is a requirement for lenders to prove that you can afford the debt that you are applying for.
You can do this in several different ways:
- If you now have a job, you can provide payslips.
- If you have other businesses, then you can provide tax returns or financial statements.
- If you have other businesses, and cannot prove your income, then we can consider a low doc loan.
- If your loan is predominately for business purposes and is for less than 65% of the value of your property, then we can consider a no doc loan.
- If the liquidation is still in progress then a letter from the voluntary administrator may be required.
Defaults in the name of your company
Did you know that not all lenders check the credit file of your companies?
If you have defaults, court judgements or other adverse listings on the credit file of your company then some lenders will assess you, as the director, as having clear credit.
However, if a company that you were a director of has been placed into liquidation then this will remain on your personal credit file. While this is not seen favourably, it is seen in a better light than if you had been bankrupt.
If we can provide evidence of what happened to cause your company to go into liquidation, and that this was a one off event, then we can usually help you to get approved with one of our major lenders at a competitive interest rate.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will call you back.
Borrowing while your company is being liquidated
We cannot help you to borrow in the name of your company while it is being liquidated.
However it is possible for you, as the director, to obtain a mortgage though one of our specialist lenders.
Most lenders require the liquidation to be finalised before approving a loan. This is because unpaid directors’ loans, wages or superannuation may still be sought from the director.
If you can obtain a letter from the liquidator to confirm that the liquidation is still in progress, and if there do not appear to be any claims against you as the director, then we can assist you with getting approved for a mortgage.
If you have significant equity in your properties then we can obtain approval to refinance any liabilities to your company or to creditors that had a personal guarantee from you.
Recovery against the director
If a company is in receivership or liquidation, then in some situations it is possible for the receiver or liquidator to make a claim against the director.
However, if the company is in administration then it is not possible to make a claim against the directors without a court order.
What is an insolvent company?
Your company is insolvent if it is unable to pay its debts by the due date.
Cashflow insolvency is when your company does not have the cashflow to pay its debts.
Balance sheet insolvency is when your company owes more than it owns, in other words it has a negative net asset position.
What is external administration?
External administration is the term used for all types of insolvency arrangements.
The external administrator can be known as the voluntary administrator, liquidator or receiver, depending on their role.
The company is sometimes still trading during this process, if it appears that this is in the best interests of creditors.
The main types of external administration are voluntary administration, liquidation and receivership.
What is voluntary administration?
This is where the directors or a secured creditor appoint an external administator.
Their aim is to make an assessment of the company and either enter into a Deed Of Company Arrangement (DOCA), go into liquidation or return the company to the control of the directors.
In most cases the company either enters into a DOCA or goes into liquidation. Obviously an administrator is not appointed unless the company is in serious financial trouble.
What is liquidation?
Liquidation is the process of selling a company’s assets, winding up and deregistering the company.
A company can be put into liquidation by a court order, creditors or by the directors.
A company in liquidation does not trade out of its position or get returned back to the directors.
What is receivership?
A receiver can be appointed by a secured creditor, for example a bank with a mortgage over a property owned by the company.
In most cases the creditor has a fixed and floating charge over the company and no court order is needed.
The goal of the receiver is to sell assets to repay or reduce the debt to the secured creditor.
A receivership does not always result in the company going into liquidation. If there are sufficient assets then the company may eventually be returned back to the directors.
What happens to your credit when folding a company in dispute?
John Smith is a director of a Pty Ltd in dispute.
The dispute is over a lease it had, and the other party wants $200,000 which he says was never agreed on.
As he’s considering folding the company, John wants to know:
- How will this impact his borrowing now and in the future?
- Can they pursue him? Or is that only if he’s given a personal guarantee?
- Do I need an administrator letter saying there’s no liability if it was folded with a liability?
The impact on John’s credit
- The cost of going to non-conforming or specialist lenders for future loans is less than the cost of the lease issue. So liquidation of his company appears the most prudent strategy in this case. He should make his own assessment of this as we cannot give financial advice.
- We cannot guarantee that future loans will be approved however based on current policy we expect a letter from your liquidator will mean we can get approval with a specialist lender during liquidation, the rate will be higher than normal.
- Debtors generally will only chase him if a personal guarantee was given. Once the administrator can confirm that they are not chasing you personally for any of the company’s debts then depending on the strength of your application, we expect we can get approval with some major lenders. This is based on similar applications that we have approved. Minimum one year should have passed since the liquidation. Again there are no guarantees. The loan must be less than 80% LVR, and income must be from another source, preferably PAYG for this to work. It is okay that the company has not paid the debt, and it is written off.
- Typically we go to a specialist lender, then 1 – 2 years later refinance to a prime lender. A perfect repayment history in this time is essential to prove that you are not a risk to the lender.
We recommend that you keep a good relationship with the external administrator as this is the key to getting the letter we need.
Liquidator letter template
You can forward this template to your liquidator/administrator to fill on their company letterhead. Please ensure the letter is signed, dated and contains the name of the person who signed the letter.
This liquidator letter template is generally accepted by most lenders.
To whom it may concern
John Smith Pty Ltd (in Liquidation)
ACN 000 000 000
We are the Liquidators of John Smith Pty Ltd (In Liquidation).
John Smith’s business has been sold and the primary ongoing matters as part of the liquidation are the recovery of debtors under the sale agreement and pursuit of recoveries under an insurance claim made by the company prior to our appointment.
The Liquidators remain unfunded and have not sought to pursue any legal action at this time, including as against John Smith.
Please let us know if you have any queries.
Should you require any additional information please do not hesitate to contact our office on 02 0000 0000.
Liquidator Pty Ltd
If a Home Loan Experts mortgage broker is arranging your home loan, please email your signed letter through to them.
Is a specialist lender my only choice?
Even specialist lenders tend to pick and choose, that is to say, they’ll look at every deal on its merits. Ideally, the case/ dispute should have been finalised, or the business has been cleared of any wrongdoing.
If still undergoing liquidation, it will be considered on a case by case basis.
If a letter from the administrator is obtained, we may be able to go to a bank.
Not long ago, we settled a mortgage with a major bank where a client had a Telco shop liquidated due to Vodafone suing his business for $1m due to unauthorised activity on resold sim cards. We were able to do this as he was PAYG and 12 months has passed. Please read the explanation letter below for more info on this deal.
However, be wary that lending policies change constantly.
Client explanation letter to lender template
Lenders often ask for an explanation on why the company was liquidated.
Here’s a client explanation letter template you can follow.
Please ensure that the letter is signed, dated and contains the name of the person who signed the letter.
To whom it may concern
- Telcom Pty Ltd
- XYZ Liquidators Ltd
- XYZ Insurance Pty Ltd
- ABC Pty Ltd (in Liquidation)
The issue was discovered in June 2015 when an alert email was generated by Vodafone Australia and sent to Telecom Ltd to report unusual activity for some of the sim cards that were activated for roaming calls. The total bill over 7 days for 70 sim cards was $2.9 million.
When this was then forwarded to me. I personally replied at the time (within minutes) advising that it looked unusual and to block the sims immediately to mitigate any risk and exposure and to allow an investigation into what had happened. I quickly checked the portal for who the customer was and saw it was a new customer from abroad, that had not been approved any access to roaming and I immediately made sure that the sims were barred for roaming and that any other sims on that were also barred.
The matter was first reported to ABC Pty Ltd’s insurers XYZ Insurance Pty Ltd for professional indemnity and cyber fraud insurance. As well as the police.
Later on, it was discovered the cost to Telcom Ltd was only $150,000 roughly which they claim that they have paid, and the second amount of $250,000 which they have not provided any evidence of it being paid and only an invoice was provided. It could not make progress with the insurer other than some small without prejudice offer of $100,000 which would not have settled the matter. With rising legal bills ABC Pty Ltd put itself into Voluntary Administration in May 2016 to XYZ Liquidators.
The liquidator is working with the parties (insurer, lawyers for ABC and Telcom Ltd) to extract the correct cover the incident should have received and to attempt to negotiate a settlement and it is taking longer than expected due to the insurance company being slow in responses and Telcom Ltd not agreeing on an amount. What is likely to happen from here is that the insurer will agree on a settlement with Telcom Ltd.
From here I want to move on with my life, buy a home and continue to work as an employee where I don’t face these risks.
Thank you for considering my situation.
Apply for a mortgage
Do you need help to get approved for a home loan, business loan or investment property loan?
We know which banks and specialist lenders can consider your situation, even if you need to refinance company debts.
We also know how to present your application to get the best possible chance of approval and interest rates.
Please call us on 1300 889 743 or enquire online and one of our specialist mortgage brokers will let you know your options.