A debenture is a loan agreement in writing between a borrower and a lender that is registered at Companies House. It gives the lender security over the borrower’s assets.
Typically, a debenture is used by a bank, factoring company or invoice discounter to take security for their loans. A debenture can only be taken on a limited company or limited liability partnership; it can’t to be taken over a sole trader or standard partnership.
A director who has advanced or lent money into their own company could take a debenture to secure the loan. A private lender can also take a debenture.
How does a debenture holder enforce their security?
The lender (debenture holder) has the right to appoint an administrator to take control of the company if it defaults on the loan. This follows the lender calling in the loan for repayment.
The threat of appointing an administrator can often be enough to make a company repay the debt, or agree terms to repay it.
How does the debenture holder get their money back if the company becomes insolvent?
The administrator or liquidator must hand over assets caught by the debenture to the lender. Usually, the lender agrees for the administrator or liquidator to sell the assets for them for a fee.
Assets can fall into a fixed or floating charge category caught by the debenture.
Normally, the types of assets caught by a fixed charge are: book debts under a factoring agreement, freehold or leasehold property, and plant and machinery fixed to the floor.
Floating charge assets are items not caught by the fixed charge of the debenture, and are typically movable assets such as trading stock, equipment, furniture and computers.
Next Steps
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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