Last Updated: 27/08/2026
What is a debenture?
A debenture is a written loan agreement between a borrower and a lender that is registered at Companies House. It creates a legal charge and gives the debenture holder, the lender, security over the borrower assets. If the borrower defaults, the debenture lets the lender enforce that security, which is why a debenture matters so much when a company runs into difficulty.
What is a debenture in simple terms?
In the UK, a debenture is the document a company gives a lender to secure a loan against the company assets. It records the debt and the security for it, and it is registered at Companies House so that other parties can see the lender has a charge. A bank, a factoring company or an invoice discounter will typically take a debenture over a limited company, but a director who has lent money to their own company, or a private lender, can take one too.
A debenture usually contains two types of charge over the company assets: a fixed charge and a floating charge. The distinction between them decides what the lender can control and how much they recover if the company becomes insolvent.
What is the difference between a fixed and floating charge?
A fixed charge is security over specific, identifiable assets that the company cannot sell without the lender consent, such as property, plant or, under an invoice finance agreement, the company debtors. A floating charge is security over a changing pool of assets that the company uses day to day, such as stock, equipment, furniture and computers, which the company can deal with in the ordinary course of business until the charge crystallises.
- Fixed charge assets: specific items the borrower cannot dispose of freely, for example land and buildings, machinery, or book debts under a factoring or invoice discounting arrangement.
- Floating charge assets: a shifting pool the business trades with, such as stock, raw materials, equipment and office contents.
The classification matters on insolvency because fixed and floating charge realisations are treated differently when creditors are paid.
What can a debenture holder do if a company defaults?
If the company breaks the terms of the loan, the debenture holder can call in the loan and, if it is not repaid, enforce the security. In many cases the lender has the right to appoint an administrator to take control of the company. The threat of appointing an administrator is often enough to prompt a company to repay the debt or agree fresh terms.
Where an administrator or liquidator is appointed, they must account to the debenture holder for the assets caught by the charge. You can read more about the process on our company administration page.
What happens to a debenture when a company becomes insolvent?
When a company is insolvent, the assets caught by the debenture are used to repay the debenture holder, but not before certain other claims. The broad order in which realisations are applied is set by law, and it is not simply first come, first served.
- Fixed charge assets are used first to repay the fixed charge lender, after the costs of realising them.
- From floating charge assets, the costs of the insolvency are met, then preferential creditors are paid.
- Preferential creditors include employees for certain unpaid wages and holiday pay, and HMRC as a secondary preferential creditor for taxes the company collected, such as VAT, PAYE and employee National Insurance.
- A portion of the floating charge assets, known as the prescribed part, is set aside for unsecured creditors.
- The floating charge lender is then paid from what remains of the floating charge assets.
This is why a floating charge is weaker security than a fixed charge: several classes of creditor, including HMRC for collected taxes, are paid from floating charge realisations before the floating charge holder. An insolvency practitioner can also be paid fees and expenses from floating charge realisations, but not from fixed charge assets without the lender agreement.
Who takes a debenture and why?
Lenders take a debenture to reduce their risk. If the borrower fails, secured lending stands a better chance of being repaid than unsecured lending, because the lender can look to the charged assets. Banks providing overdrafts or loans, and invoice financiers advancing money against a company debtors, almost always take a debenture.
Directors can also use a debenture. A director who lends money to their own company can take a debenture to secure that loan, which places them ahead of unsecured creditors for the charged assets if the company later fails. Because a director will usually have to sign the debenture personally, it is worth taking advice before giving or relying on one.
Is a debenture the same as a bond?
Not in the UK sense used here. In UK company and insolvency practice, a debenture is a document that creates a charge, that is, security over a company assets. In some other contexts, particularly in the United States, the word debenture is used to mean an unsecured corporate bond. When directors and insolvency practitioners in the UK talk about a debenture, they almost always mean the secured lending document registered at Companies House.
Where a debenture fits in an insolvency
A debenture is one of the first things an insolvency practitioner checks when a company is in difficulty, because it determines who has security and how any realisations will be shared. If your company has given a debenture, or you hold one, and the business is under pressure, it is worth understanding where you stand. Our guide to what company liquidation means and our Director’s Guide to Company Insolvency put the detail in context.
If you have a question about a debenture or a company facing insolvency, the first conversation with us is free and confidential. To speak to a licensed insolvency practitioner, book free initial advice or call 0800 331 7417. This page is general information and not advice about your own situation, which always needs a conversation with a licensed insolvency practitioner.
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