Debenture

Under English law, a debenture is the written instrument, registered at Companies House, by which a borrowing company grants its lender security over its assets. The usual form is the all monies debenture, which secures all sums owed to the lender. It combines fixed charges over identifiable assets (land and buildings, machinery, shares, intellectual property rights) and a floating charge over the rest of the company’s assets, including inventory, receivables and cash. The company continues to deal with the assets under the floating charge in the ordinary course of its business until crystallisation as provided in the instrument, following a payment default or a liquidation. The floating charge then attaches to the assets the company holds at that date. For charges created since 15 September 2003, the holder of a floating charge may appoint an administrator. The particulars of each charge are delivered to the registrar within a period of 21 days beginning with the day after its creation (section 859A of the Companies Act 2006). Without this delivery, the charge is void against the liquidator, the administrator and the company’s creditors. The secured sum then becomes immediately payable (section 859H). When several lenders hold a debenture over the same assets, a priority deed sets their order of payment. In the United States, the same word refers to an unsecured bond. A French group signs a debenture when its English subsidiary guarantees a group financing.

A French group borrows €200m from private debt funds. Its English subsidiary, which generates €60m of revenue, guarantees the debt and signs a debenture: a fixed charge over its warehouse and over the shares of its subsidiaries, and a floating charge over its inventory, receivables and accounts. The lenders’ counsel register the charge at Companies House within 21 days. After this period, and without an extension granted by the court, the security would be void against the liquidator.

• Check the list of assets under fixed charge, which the company cannot dispose of without the lender’s consent.
• Negotiate the events that crystallise the floating charge.
• Check that each charge is registered at Companies House within the 21 day period.
• Have a priority deed put in place if a second lender takes a debenture over the same assets.