What is a "Debenture"?
“If people are doubting how far you can go, go so far that you can’t hear them anymore.” – Michele Ruiz
Debenture remains legally binding agreements between a willing lender and a borrower. The “Debenture” requires registering at “Companies House” noted against your Company’s assets.
Debentures may be called a ‘Floating charge Debenture’ and includes all your Company assets. The charge floats as some of the assets may change daily.
A “Registered Debenture” secures assets for the lender in the event of it becoming “Insolvent”.
In a “Liquidation”, the charge remains ‘Fixed‘ on the value of the assets of the company.
As a director of your own company, you can file a floating charge debenture at companies house over your company, when you lend it money. The Floating charge document requires submission at the same time and protects your position if your company becomes insolvent.
Banks and other financial institutions, issue debentures, to secure their interests when granting finance (if they believe they are exposed). Debenture registered with a “fixed and floating charge”, offering additional security to the bank or financial institution. Therefore, known as “Secured Creditor” in the event of “Insolvency” due to the inclusion of “FIXED”.
The risk to directors and the company
A “Registered Debenture” implements security to a bank. Essential as a director that you understand the power afforded to the bank. Once the “Debenture” registered, the bank can appoint its “Administrators” in the event the company runs into financial distress.
Can my company have more than one debenture registered?
Debentures, requiring dating on the day filed. Then they rank on the date filed (created) unless a lender has arranged a deed of priority.
A negative pledge happens when you wish to give a debenture on your company to another.
Can a debenture have a personal guarantee included?
When a high street bank or another business lender involved. Your lender will advise you they require a guarantee before executing the debenture, and filed at the company house. When this takes place, you need to seek independent advice, before signature.
Debentures may be enforced and realised typically due to insolvency, the floating charge assets usually are set aside for unsecured creditors by an agreed amount.
This ensures unsecured creditors remain included, so the debenture does not encapsulate all the assets.
The power to appoint an administrator.
Once a debenture has been attached to a company, and a floating charge registered on the company’s assets. Then the holder, usually in many cases, has the power to appoint an administrator, upon the company defaulting and unable to pay its debts as and when due.
The holder requires no sanction from the court’s to appoint an administrator.
An administrator attempts to rescue the company, as to liquidate it initially.
The administrator manages the company for the benefit of creditors and may sell it to ensure it’s rescued.
If the company in administration may not be rescued, then the administrator may consider selling all or part of the assets to pay the creditors.
Registration Of a Debenture in the UK.
When you have accepted a debenture charged on your company, you must ensure the charge has been registered at companies house. The law requires that registration takes place within 21 days from when created. If you fail to do this, then void.
Therefore if your business enters into liquidation, then the duly appointed Liquidator may ignore the charge and deal with the entity as “Unsecured”.
A charge void means money secured by the charge, now becomes repayable by the company immediately.
When a fixed charge has been applied over land, it has to be registered at the HM Land Registry.
Details of all charges requiring noting in the companies register maintained at the registered office.
Can You Invest in Debentures?
Investing in debentures has grown in the UK. Though you should be aware, associated risks involved. Debentures do though offer more security than say investing with the purchase of shares.
Debentures compared to shares offer guaranteed payments, additionally, they offer normally higher interest until the debenture matures. So, by comparison, a debenture makes you money by interest compared to shares which make money on share value increase.