What is a debenture? Security charges explained for company directors

Fixed charges versus floating charges

A debenture typically contains two types of charge. A fixed charge attaches to identified assets at the point of creation — usually land, buildings, or specific plant and machinery — and the company cannot dispose of those assets without the lender's consent. A floating charge, by contrast, hovers over a class of assets (stock, debtors, cash) that change day to day; the company trades through them freely unless and until the charge crystallises.

Crystallisation converts the floating charge into a fixed charge, freezing the assets in place. It is triggered by events such as a receiver appointment, a winding-up order, or a trigger event specified in the debenture itself.

Registration at Companies House

Any charge created by a UK company must be registered at Companies House within 21 days of creation using form MR01. Failure to register on time renders the charge void against a liquidator and any unsecured creditor — meaning the lender drops to unsecured status in an insolvency, losing the priority the charge was meant to provide.

Lenders almost always handle registration themselves, but directors should verify the charge appears on the company's register of charges. You can check this on the Companies House public register at any time. If you are refinancing, the outgoing lender's charge must be formally released via a Memorandum of Satisfaction (MR04).

Qualifying floating charges and administration

A lender holding a qualifying floating charge (QFC) — one covering substantially all the company's property — has the right to appoint an administrator out of court under the Insolvency Act 1986. This is a powerful remedy that places the company into administration rapidly, often within hours of the appointment document being filed at court.

Directors should understand that a debenture containing a QFC gives the lender significant control over restructuring outcomes. When a business is in financial difficulty, the lender may use this right to protect its security rather than allow the company to pursue its own rescue plan.

Practical effect on the company while solvent

Day to day, a debenture places covenants on the borrower: typically requirements to maintain insurance, keep assets in good repair, provide annual accounts, and notify the lender of material adverse changes. Fixed-charge assets cannot be sold or charged to another party without lender consent. Breaching these covenants can constitute a default even if loan repayments are current.

Before taking on a debenture, directors should read the covenant schedule carefully and confirm with their solicitor which operational decisions will require lender approval. Some debentures are more restrictive than others, and negotiating headroom upfront avoids friction later.