Debenture Agreement UK: Fixed & Floating Charges

What this document is

A debenture is a written instrument by which a company grants security over its assets in favour of a lender. In practice, it sits alongside a loan agreement or facility letter and does the heavy lifting on security. The debenture itself records the charges being created, identifies the assets caught by those charges, and sets out what happens if the borrower breaches the terms.

Most commercial debentures in the UK contain a combination of fixed charges, which apply to specific, identifiable assets such as land, plant, book debts, or intellectual property, and a floating charge that covers the rest of the company's undertaking. The floating charge allows the business to carry on trading and dealing with its stock and everyday assets until something triggers crystallisation.

At that point, the floating charge fixes on whatever assets the company holds, and the lender can take steps to enforce. A debenture is typically granted by a company or LLP rather than an individual, because only entities registered at Companies House can grant a floating charge in the ordinary sense.

How to use this document

1. Agree the commercial terms first. Before any debenture is drafted, the lender and borrower need to settle the loan terms, the facility amount, interest, repayment schedule, and what assets will sit behind the debt. The debenture gives effect to these commercial decisions, so getting them clear up front saves time and legal cost when the paperwork is drawn up.
2. Draft the debenture and identify the charged assets. The document needs to specify which assets are subject to fixed charges and which fall under the floating charge. Book debts, real estate, shares in subsidiaries, and intellectual property are commonly fixed. The floating charge then sweeps up everything else in the company's undertaking, present and future, so the lender's security is comprehensive.
3. Obtain board approval and execute the deed. The company's directors must approve the granting of security, usually at a board meeting, and the debenture is then executed as a deed. This typically means signature by a director in the presence of a witness, or by two directors, depending on how the company's articles deal with execution formalities.
4. Register the charge at Companies House within 21 days. This is the step people most often get wrong. A charge created by a company must be registered within 21 days of creation using form MR01, together with a certified copy of the instrument and the filing fee. Miss the deadline and the charge is void against a liquidator, administrator, and other creditors of the company.
5. Monitor for default and understand enforcement options. Once the debenture is in place, the lender should keep an eye on the borrower's financial health. If a default occurs, the debenture usually triggers the right to appoint an administrator, demand repayment, or enforce against the charged assets. Knowing what the document says about these remedies before anyone needs to use them is sensible on both sides.

Common questions