Can a Director of a Liquidated Company Get a Mortgage?

One question that worries many company directors is whether they’ll be able to get a mortgage after going through a liquidation.

The answer to this question depends on the nature of the company’s debt and the nature of its closure.

In this guide, we’ll explore when directors struggle to get a mortgage, and how you can protect your interests.

Can a Director Get a Mortgage After Having a Liquidation?

In most cases, yes – a director will be able to get a mortgage following the liquidation of their company. There are a few variables to bear in mind, though.

Getting a mortgage post-liquidation largely hinges upon you shutting your company down correctly.

If you don’t handle the liquidation of your company properly, you could be left with a poor credit record and large debts: both of these things will hinder your ability to get a mortgage going forward.

Can Liquidation Affect a Director’s Credit Rating?

Generally speaking, no. You should be protected by limited liability.

A company exists as its own legal entity and has its own independent credit rating, separate from that of its directors.

This means that if a company fails to uphold its debts, its credit rating will decrease, but this liability will be limited to the company itself.

Although some lenders may look at your commercial credit history, it’s doubtful they’ll take this into account. As long as your personal credit is good and you have a reliable source of income, it shouldn’t influence their decision too much.

However, there are some factors which can circumvent the protections of limited liability. This could make you personally responsible for the company’s debts and leave you with a poor credit score.

Why Might Liquidation Prevent Directors from Getting a Mortgage?

There are a few ways liquidation could potentially give you difficulty getting a mortgage. They mostly stem from shutting down the company incorrectly or taking out certain business loans.

Failing to Uphold Your Fiduciary Duties

When your company enters into insolvency, your duties as a director fundamentally change. You must place the interests of creditors first, not those of your company and its shareholders.

Any actions that weaken the position of your creditors – such as continuing to trade – can result in wrongful trading and misfeasance charges.

These are civil charges which carry a range of potential consequences:

You could be made personally responsible for company debts
You could be hit with large fines
You could be disqualified from directing a company for 2-15 years

Being made personally liable for company debts or receiving large fines can cause real problems for directors looking to get a mortgage. They may eat into your deposit or, if you’re unable to pay, could force you into entering a personal insolvency solution, such as bankruptcy.

This will have a major effect on your credit score. Lenders will be able to see you’ve entered into an IVA or declared bankruptcy for 6 years. During this time, it will be very difficult to take on any form of credit – including a mortgage.

Additionally, if you are banned from acting as a company director, you could lose your primary source of income. This can quickly squander plans to take on a pricey mortgage.

Company Is Shut Down Incorrectly

If your company is insolvent, it’s crucial that you don’t allow it to be struck off.

Striking off takes place when a company is removed from the Companies House register, either voluntarily or forcibly. This ceases its existence as a legal entity.

If your company owes creditors money, they will be left unable to pursue it for debts as it no longer exists. However, disgruntled creditors can restore it by court order, opening an investigation into your conduct as a director.

This can result in misfeasance charges, making you personally liable for debts. If you can’t repay these debts, you’ll have to enter into a personal insolvency solution. The negative effect this has on your credit score will make it very difficult to take out a mortgage for the next 6 years.

You’ll need to close the company properly with a formal insolvency solution to avoid this.

Defaulting on Personal Guarantees

Unfortunately, many lenders are very sceptical when it comes to borrowing cash to newly-formed businesses.

They’re worried that these new companies (thanks to their lack of a proven track record) might go bust after they receive the loan, leaving them unable to get their money back.

In order to gain a lender’s trust, many directors sign what is known as a personal guarantee. This states that the company director will personally repay it should the business fail.

You could be forced into entering a personal insolvency solution if you can’t afford to repay the amount in your personal guarantee. This will be visible on your credit score for 6 years, making it very difficult to secure a mortgage during this time.

How Can Directors Protect their Interests?

If you’re worrying about getting a mortgage, fear not – there are some viable options for you to consider.

Creditors’ Voluntary Liquidation (CVL)

A CVL is a liquidation procedure available for insolvent businesses. It is the most common form of company closure in the UK, used to provide directors with a safe exit from their business.

Control of the company is handed over to a liquidator, who then sells all its assets to repay creditors. Any remaining debts are then written off. However, some debts can still be carried over if you’ve taken out a personal guarantee.

Pursuing a CVL allows directors to fulfil their legal duties to creditors, mitigating any financial or legal complications. This will make it much easier to take out a mortgage.

Company Voluntary Arrangement (CVA)

A CVA is a company rescue solution that functions as a payment plan. It’s an alternative to liquidation, allowing insolvent companies to deal with debts without resorting to closure.

Your company makes one regular monthly payment for an agreed-upon period of time. So long as you keep up with these payments, your business will be protected from closure.

A CVA side-steps liquidation, effectively quelling any worries about company closure interfering with your mortgage plans. It can also effectively deal with personal guarantees.

Your business will need to be stable for a CVA to work. This is especially important if you’re considering a mortgage. If you miss your payments, the CVA could fail, leaving you without the income you need to pay your newly acquired mortgage.

Speak to an Expert

If you’re worried about company closure, get in touch with one of our team today.

Our expert insolvency practitioners can assess your situation and guide you to the best solution for you. We’ll make sure your company is shut down correctly, and help you to properly address any outstanding loans, so that you can carry on with your future.