Debentures are used in a range of financing transactions where it is desirable for the lender to take security over all or some of the assets of the borrower. They are a form of umbrella document, incorporating many types of security over a broad range of assets. Debentures are often used by lenders who are making loans with large principal amounts over longer periods, but they may also be used in mergers and acquisitions where part of the consideration is being deferred.
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Lenders will often require a debenture where the principal loan amount is substantial and/or monies are being loaned over a significant period of time. In the context of secured lending, the term ‘debenture’ means a form of security agreement that grants security over a broad range of the assets of the borrower (or other security provider) as collateral for either the security provider’s own obligations or the obligations of a third party (for example, a subsidiary or other group company). However, the term ‘debenture’ can also be used to refer to any document that either creates a secured debt or acknowledges an existing debt.
Debentures typically include legal mortgages over real property, the assignment of certain intangible assets (such as intellectual property rights, material contracts and insurance policies); fixed charges over specific assets; and a floating charge over all of the other assets that are not covered by the fixed security.
Given the all-encompassing nature of a debenture, it is important to take specialist legal before entering into any financial transaction involving security. Our team of dedicated business law solicitors has demonstrated experience acting for both lenders and borrowers or other security providers in respect of debentures and is able to provide simple, clear advice on the risks and benefits of debentures and other financial documents.
A debenture is an ‘umbrella’ security document that incorporates many types of security over a broad range of company assets. Debentures are often used by lenders who are making loans with large principal amounts and who require reassurance that they will be able to recover monies owed.
Yes, it is possible for a company to provide security to one or more lender by way of multiple debentures. These may be against different specific assets, multiple floating debentures, or a mixture of both. Usually, when the initial lender places a debenture over a company, the lender will seek to prevent any further lenders from adding another debenture over that same company without specific consent. Where there are multiple lenders with debentures over the same assets, the lenders may agree on priority of payments between themselves. This is usually documented in an agreement called a deed of priority.
Secured charges are against a company that will be registered at Companies House and this includes debentures. Failure to register a charge with Companies House may render the charge unenforceable and so it is imperative that the documents are registered properly so if. Charges are filed at Companies House using form MR01 and the deadline for registration is 21 days from the date of the security document (except in some limited circumstances where the period for filing may be longer). If you miss the deadline, you will need to apply to the court to have the charge registered which takes time and money.
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