Different Types Of Securities For Limited Companies

This blog will examine debenture and why it may be important for some lenders.

Whilst working for some corporates back in the noughties, I was privileged to have worked with debentures. A Debenture is an instrument that a lender secures onto a company to which they have lent money. It is a written agreement detailed in documents lodged at Companies House. The term floating is usually a form of security that takes hold as it will work according to the changing type of the company inventory, such as its stock which changes on a day-to-day range.

My involvement with debentures would only become apparent when the company would be placed into some form of liquidation / or another insolvency arrangement, resulting in the debenture becoming fixed and no longer a floating instrument, as the debt had crystalised that specific instrument.

In the case where a debenture becomes crystalised and/or fixed means that in a list of creditors, the debenture holders (i.e. the company that lent you the money) would rank superior in the list of creditors, almost like a secure creditor and have a say in how they wish to vote where a liquidator would be present.

When crystallisation happens, then the instrument moves from being a floating asset and moves to be fixed at a point in time when a debt is then due.

Although there are advantages and disadvantages for companies that have debentures, advice should be sought from a licenced insolvency practitioner, please get in touch with Talk to Ron, who can navigate any debtors who are subject to specific loan instruments that owe you money.