Using debentures to secure a company loan

What a debenture actually is

In UK company finance a debenture usually means a written instrument creating security over the company’s assets in favour of a lender. It may be a fixed charge over specific assets, a floating charge over the rest of the business, or both.

Banks, invoice funders and some directors’ loan arrangements use them. The company can keep trading, but the lender’s rights sit on the asset base. That is the point of the document.

Companies House and priority

Most charges must be registered at Companies House within the statutory period or they risk being void against a liquidator or other creditors. Search the company’s charge history before you sign a second facility — you need to know who is already ahead of you.

A personal guarantee is separate. Lenders often want both a debenture from the company and a guarantee from the directors. Signing one does not cancel the other.

• Read which assets are fixed-charged; those often cannot be sold without consent.
• Check whether the charge is all-monies or limited to a stated facility.
• Diary the filing deadline the day the document is dated.

Accounts and advice

Secured debt still appears on the balance sheet as borrowings, with disclosure of the security. It is not an off-balance-sheet trick. If you are refinancing, model cash interest and covenant tests before you complete.

Solaratax is not a law firm. We help directors understand the accounts impact and the tax of any connected interest. Have a solicitor review the charge wording, then speak to us about the bookkeeping and year-end disclosure.

Questions we are asked

Does a debenture mean the bank owns the company?

No. The shareholders still own the company. The lender has security over assets and contractual rights if you default.

Can a director take a debenture for their own loan?

Sometimes, and it can be sensitive in insolvency. Priority, filing and whether the loan was genuine all get examined. Take legal advice first.

Is this the same as a mortgage on a property?

A legal mortgage over land is a form of security, often alongside a debenture. Property also has Land Registry filings. Do not treat them as interchangeable.