Understanding Debentures and Fixed vs Floating Charges

What a debenture is

A debenture is a document under which a borrowing company grants a lender a security interest in its assets. It is commonly used by banks and commercial lenders as the legal instrument that records both the loan terms and the security package. The debenture is registered at Companies House as a charge, making it visible to subsequent lenders, trade creditors, and potential acquirers.

Signing a debenture does not transfer ownership of assets to the lender — it creates a priority right over those assets in the event of default or insolvency. The company continues to use its assets normally unless the lender enforces.

Fixed charges versus floating charges

A fixed charge attaches to a specific, identifiable asset — typically land, property, or specific plant and equipment. The company cannot sell or dispose of that asset without the lender's consent. Fixed-charge creditors rank ahead of most other creditors on insolvency, including HMRC's preferential claims on certain assets.

A floating charge covers a class of assets that changes day to day — stock, debtors, cash at bank. The company can deal with those assets freely in the ordinary course of business. On a trigger event (default, administration, or a formal crystallisation notice), the floating charge converts to a fixed charge over whatever assets exist at that moment.

Practical implications for directors

A debenture restricts your ability to grant security to a second lender without consent, and may contain negative pledge clauses preventing disposal of key assets. Before signing, confirm which assets are caught by fixed versus floating charges and whether any are already subject to a prior charge.

• Review the debenture's definition of 'event of default' — some include cross-default provisions triggered by breaches of unrelated facilities
• Check whether the floating charge qualifies as a Qualifying Floating Charge (QFC), which gives the lender the right to appoint an administrator
• Register any charge you create within 21 days; failure to register renders it void against a liquidator or subsequent secured creditor