A debenture is an instrument of security granted by a borrower to a lender, and if granted by a corporate borrower, is registered at Companies House against the borrower’s name.

A debenture provides to the lender security over the borrower's assets. The debenture should be registered within 21 days of being granted, otherwise, the company will remain liable for the repayment of the debt; but the security lender is exposed because the charge will be unsecured.

The lender (holder of the debenture) will have the right to appoint an administrator or receiver to take control of the company if the borrower defaults on the loan if the lender has called in the loan for repayment.

A debenture can include a fixed charge or a floating charge or both, in each case over assets. Often a debenture is an "all assets" debenture which means it encompasses all the assets of the borrower in the security.

A fixed charge is normally taken out against a tangible asset such as real property or plant and equipment. It enables the lender to take ownership of the borrower's assets and sell them off in the event of a payment default. Whilst the debenture is in place and if it includes a fixed charge, the borrower would not be able to sell the secured assets without the lender's consent.

A floating charge is usually attached to chargeable classes of assets such as the debtor’s raw materials and intellectual property. A floating charge means that the company can continue to use the secured assets and can buy and sell them in the ordinary course of business without the lender's intervention. Floating charges however can become fixed (when they crystallise) if the borrower defaults, or when the lender enforces the charge.

It is possible to have more than one debenture or other security registered against the company. The security then usually ranks in order of the date created, unless lenders have entered into a deed of priority, in order to prioritise which lender is to be repaid first.

Debentures are a common aspect of raising money for a business. Lenders are unlikely to lend above a certain amount without some form of security.

If you or your business require information regarding anything in this blog or generally about your business or any other corporate matter, please call Sarah Ward, head of our corporate team, on 07889 589596 or e-mail Sarah at sward@georgegreen.co.uk for advice and assistance.