Our expert team of solicitors can explain to you all the advantages and disadvantages of a debenture for the company. Debentures provide security for funds advanced to the company, with the interest, generally, lower than that of the rate of unsecured lending. The funds can boost growth and prove cost-effective when compared to other lending options.
- granting a debenture does not result in less control of the company, as the company will not be giving up its voting rights over the business but it will be giving up its ability to deal freely with some, if not most, of its assets.
- the primary advantage of debentures for the lender is the protection that it provides – particularly in the case of insolvency. Without a debenture, the loan is unsecured, meaning the lender will be an unsecured creditor. If a lender is positioned as an unsecured creditor, it’s unlikely that the lender will recoup all the money it has advanced. However, a debenture, should it be registered adequately at the companies house places lenders above that of unsecured creditors.
- from a lenders point of view a debenture gives the lender security over the borrower’s assets. A debenture is used by banks, financiers, factoring companies and invoice discounter to take security for their loans.
Our experts will advise that the fundamental advantage of a debenture is that it allows the lender to appoint an administrator to take control of the company if it defaults on the loan under which the debenture is provided. We have often seen that the threat of appointing an administrator by the lender can often be enough to make a company repay the debt, or agree terms to repay it.
If the debenture includes a fixed charge, it is important for the lender to control the use of these assets. The control of the asset is lost if the company is allowed to freely trade these assets; it should only be able to sell such assets with the permission of the lender. This will result in the slight loss in management freedom but finance is received in exchange.
Ultimately, there are many things to consider with debentures, both for the company and investors.
Our expert team of solicitors at Francis Wilks & Jones are here to help you with any issues you might be facing in relation to debentures. Our insolvency lawyers and our banking and finance lawyers have very broad experience of dealing with issues relating to debentures. Our practical daily experience and legal expertise means that we can assist whatever the nature of your enquiry on debentures.