The short answer
A debenture is a document that creates security over a company’s assets in favour of a lender, registered at Companies House. It usually grants a mix of a fixed charge (over specific assets such as property or machinery) and a floating charge (over changing assets such as stock and debtors). In insolvency, the type of charge largely determines a creditor’s priority — fixed-charge holders rank ahead of preferential and floating-charge creditors.
A debenture is the quiet document that decides who gets paid first when a company fails. Most directors sign one when they take a loan without grasping how powerfully it shapes the insolvency outcome. This guide explains debentures, the difference between fixed and floating charges, and why priority matters.
Debentures at a glance
- What it is Document creating security over company assets
- Registered at Companies House
- Fixed charge Specific assets — e.g. property, plant
- Floating charge Changing assets — e.g. stock, debtors
- Why it matters Sets priority of payment in insolvency
- Common holder A bank or other lender
What a debenture does
A debenture is the instrument a lender uses to secure a loan against a company’s assets. By taking security, the lender turns itself from an ordinary unsecured creditor into a secured creditor, with enforceable rights over specific or general assets if the company defaults or becomes insolvent. The word “debenture” is sometimes used loosely to mean any company loan, but in practice it refers to the security document itself. To be effective against a liquidator, an administrator and other creditors, most charges created by a company must be registered at Companies House within 21 days of being created; a charge that is not properly registered is generally void against an office-holder.
Fixed charge versus floating charge
A debenture typically combines two kinds of charge, and the distinction between them is critical in insolvency because it largely decides who is paid and in what order.
| Feature | Fixed charge | Floating charge |
|---|---|---|
| Assets covered | Specific, identifiable (property, machinery) | Changing pool (stock, debtors, cash) |
| Company’s freedom | Cannot deal with the asset freely | Can trade with the assets until crystallisation |
| Priority in insolvency | Paid first from those assets | Ranks behind fixed and preferential creditors |
A fixed charge bites on a particular asset, such as a building, that the company cannot sell or deal with freely without the lender’s consent. A floating charge hovers over a changing pool of assets — stock, debtors and cash — that the company is free to use and sell in the ordinary course of business until the charge “crystallises” on a default or insolvency event, fixing onto whatever assets exist at that moment. Whether a charge is genuinely fixed or really floating is a question of substance, not just the label in the document: the courts look at how much control the lender actually has over the asset. A charge described as fixed but which leaves the company free to deal with the asset will be treated as floating, with all the consequences that has for priority.
How charges affect priority
When a company is wound up, the order in which creditors are paid is largely set by their security. Broadly, the statutory order is:
- Fixed-charge creditors — from the proceeds of the charged assets.
- Insolvency costs — the office-holder’s fees and expenses.
- Preferential creditors — certain employee claims and, for some taxes, HMRC.
- Prescribed part — a ringfenced slice of floating-charge funds set aside for unsecured creditors.
- Floating-charge creditors, then unsecured creditors, and finally shareholders.
The prescribed part and recent charges
Two further points often catch directors out. First, the prescribed part sets aside a portion of floating-charge realisations — calculated as a percentage of the net property up to a statutory cap — specifically for unsecured creditors, so that floating-charge holders cannot sweep up everything. Second, the timing of a charge matters: a floating charge created shortly before insolvency in return for no new value can be challenged and set aside as invalid under the Insolvency Act 1986. An office-holder will scrutinise any charge granted in the run-up to failure, particularly one in favour of a director or connected party.
Why this matters when a company fails
The type, validity and timing of a charge can decide whether unsecured suppliers receive anything at all when a company collapses. A holder of a qualifying floating charge may also be entitled to appoint an administrator, giving them significant influence over how an administration or liquidation unfolds and who is appointed to run it. Understanding the debenture — what it covers and where it ranks — is the first step to understanding where every creditor and director really stands when the money runs out.
Unsure how a debenture affects your company or your liability?
A licensed insolvency practitioner can read the charges, explain the priority order, and tell you where directors and creditors really stand. A confidential call costs nothing.
Frequently asked questions
What is the difference between a fixed and a floating charge?
A fixed charge is over specific assets the company cannot deal with freely; a floating charge is over a changing pool of assets the company can trade with until the charge crystallises.
Does a debenture have to be registered?
Most charges must be registered at Companies House within the statutory time limit to be effective against a liquidator or administrator and other creditors.
Who gets paid first in insolvency?
Broadly: fixed-charge creditors, then insolvency costs, preferential creditors, the prescribed part for unsecured creditors, floating-charge creditors, then unsecured creditors and shareholders.
Can a director give a debenture to themselves?
A director who has lent money to the company can take security, but charges to connected parties are scrutinised and can be challenged, for example as preferences, in an insolvency.
Sources & further reading
- Companies Act 2006 — registration of charges
- Insolvency Act 1986 — order of priority and the prescribed part
- GOV.UK — Register a charge (debenture) at Companies House
- The Insolvency Service — guidance for company directors
This guide is general information, not formal insolvency advice. Your situation must be assessed by a licensed insolvency practitioner before you act.