Debenture

In UK business-finance language, a debenture is the instrument that creates and records security between a company borrower and a lender. It is not the bond instrument the word means in older finance literature. Once executed, the debenture is registered at Companies House within 21 days, which puts every other lender and trade creditor on notice that the named lender has a prior claim against the assets covered.

Most modern UK debentures contain a fixed charge over identifiable assets — typically book debts, plant and machinery, intellectual property and any real property the company owns — plus a floating charge that crystallises into a fixed charge over remaining assets if the company defaults or enters insolvency. The floating charge is what allows the company to keep trading and using its stock and cash in the normal course of business until something goes wrong.

Debentures rank ahead of unsecured creditors in an insolvency, behind only certain preferential claims and the costs of the insolvency process itself. For a borrower, signing a debenture is a significant step — it limits the company's ability to take additional secured finance from other lenders without consent, and it gives the existing lender substantial enforcement powers.