The Duke and Duchess of York have "reluctantly" been forced to sell a luxury Swiss ski chalet they jointly bought after the owner launched legal proceedings against them.
The disclosure was made as the pair faced a threat to seize the chalet and auction it off, and pursue them in the courts in the UK if the sale failed to cover their debts.
A source close to the couple last night admitted that "income streams had dried up" after the Jeffrey Epstein scandal, and they had asked for more time to make the final payment on the NZ$26 million property in Verbier.
It emerged yesterday they had allegedly missed a deadline on December 31 to pay £5 million that had been due on the seven-bedroom chalet, which has now risen to £6.7 million with interest.
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The original owner has started legal proceedings in Switzerland to recover the money.
It comes after the Duchess, who yesterday posted an Instagram picture of herself surrounded by VE Day bunting, was linked to another failed business venture.
New Companies House documents show Gate Ventures, a theatre investment company which lent her more than £500,000, is being wound up with £10.3 million of debt.
Last night, a friend of the couple revealed they had asked the chalet owner for "more time" and were shocked to read they had gone to the press.
Admitting that they had run out of income, the friend added: "They are reluctantly having to sell their share of the chalet. They were quite clear with the owner that they needed more time because of everything that has happened but the owner just went ahead and played hardball anyway.
"They are wondering whether the owner is trying to publicly embarrass them hoping that the Royal family might cough up the money, Times have changed for them unfortunately.
"The proceeds of the sale were intended to clear any outstanding debt but Etude du Ritz, a law firm, has been instructed by the owner, a female Swiss resident, to launch legal proceedings.
A spokesman for the Duke said: "We can confirm there is a dispute between the two parties in this matter. The contractual details remain the subject of a confidentiality agreement and prevent further discussion.
"But Philippe Loretan, the previous owner's Swiss lawyer, said there was "no dispute" as the Duke and Duchess had sent messages in which they "never contested the fact that they owe this money" but have simply failed to pay up without explanation.
"My client is extremely disappointed and angry," he told the Daily Telegraph.
"She couldn't imagine that people of this quality would not be able to pay their debts."