A full guide to using the debenture template and which also explains the purpose of each clause and when to edit them is included with the download. The guide below walks you through each clause in the template agreement.
Clauses in Our Debenture Template
Date – Insert just the year at this stage. Handwrite the rest of the date in the agreement once all the parties have signed it.
Party clauses – You will need to insert the names and addresses of party 1 (the borrower/debtor/company) and party 2 (the lender/creditor) and, if companies, the country of incorporation and company number. If the creditor is an individual, then replace the wording for it as applicable using the format: “[NAME] of [ADDRESS]”.
- Interpretation – This clause defines the main terms used in the agreement. In terms of the different classes of assets that are referred to as being charged, it does not matter if the company might not hold any of a particular type of asset yet – if it acquires some of it in the future, then it will be covered by this debenture.
- Administrator – This refers to a person appointed by the creditor to act as an “administrator” if the company is put into administration as part of the enforcement of the creditor’s security.
- Charged Property – This refers to all of the assets of the company, which are all charged by way of security under the debenture.
- Company’s Obligations – This refers to the money owed by the company to the creditor and may include any future debts while the debenture is still in place. If the debenture is discharged/removed due to the company having cleared its debts in full to the creditor, then, if security is needed again, a new debenture will be required.
- Debts – This refers to debts due to the company, e.g. from its customers.
- Encumbrance – This definition is self-explanatory.
- Expenses – Naturally if the creditor has to enforce its security, it will charge the company for all its expenses in so doing.
- Floating Charge – This refers to the floating charge created by clause 2.1.3, which is the type of charge explained above.
- Interest – Fill in the percentage interest that applies if any payments due under this debenture (such as expenses) are not paid on time.
- Properties – This definition is self-explanatory.
- Receiver – This refers to a person that might be appointed by the creditor to act as a “receiver” or manager if the creditor is enforcing its security.
- Securities – This refers to classes of investment assets of the company that are being charged under this debenture.
- Charge – This is the main clause in the document, under which the company grants a series of charges in favour of the creditor – see clause 2.1.
In clause 2.1.1, fill in the address of any freehold or long leasehold properties currently owned by the company that are being charged by this debenture and the type of holding (freehold or leasehold). If it is undeveloped land (e.g. a field) or otherwise not simply known by its postal address, then fill in a description of it (in the case of registered land, this should match its description in the registered title). If it is registered at the Land Registry, then fill in its title number. If it is not registered land, then delete the phrase in square brackets that refers to registration.
By “long leasehold” property, we mean property that is not subject to the payment of annual rent (but perhaps ground rent and/or service charges) and for which a significant premium was paid to purchase the lease or its remaining term. Any other types of lease will not be good as security, as the lease will not have a sale value, but it is instead subject to the burden of paying significant rent each year. Although this debenture refers to all types of lease as being charged, in practice you would not bother to fill in the addresses in clause 2.1.1 of, or register a legal charge against, leases that are not long leasehold assets, as they would not provide good security, as they have no real saleable value.
After grant, the fixed charges over freehold or long leasehold property that the company currently owns need to be suitably registered. For registered land, this means registering it at the Land Registry on form “CH1”. For unregistered land, this means registering a land charge at the Land Registry on form “K1”.
See clause 3.4 regarding the registration of a “restriction” on the company’s granting any further charges over registered land – this restriction should be registered at the same time as a the fixed charge on the property is.
In the case of a company that is a UK company, it must also be registered at Companies House using form “MR01”. Deadlines and fees may apply for this, e.g. in the case of registering at Companies House this must be done validly within 21 days of the debenture’s date with a fee of £13, so be sure not to delay this or leave it to the last minute. An expensive and wasteful court application is needed to obtain permission to register the charge late at Companies House if you miss this strict deadline. Forms for the registrations are available from https://www.gov.uk/government/collections/companies-house-forms-for-limited-companies or https://www.gov.uk/government/collections/land-registry-forms.
If the company acquires further freehold or long leasehold property in the future, then you should promptly register a new fixed charge against their titles at the Land Registry. The registration at Companies House does not need to be repeated at that point, as you would already have registered the debenture there when it was first created.
Clause 2.3 explains the circumstances when a floating charge might automatically crystallise into a fixed charge. Clause 2.4 states when a floating charge can be converted into a fixed charge by the creditor by its giving notice to the company of this.
- Covenants – This clause sets out a series of requirements (dos and don’ts) so that the company looks after the charged property properly, e.g. that it keeps it insured and in good repair, and does not to alter it significantly. This clause imposes restrictions on the company in dealing with the charged property, e.g. it should not charge the charged property to someone else or rent it to a third party without the creditor’s permission.
- Powers of the Creditor – This clause adds some standard management powers in the event that the creditor needs to enforce this security, e. g. due to the company not having paid the loan, etc back on time.
- Receivers – After default by the company, the creditor will often enforce its security by appointing a “receiver” to resolve matters, manage the assets and get them ready for sale. Clause 5.1 refers to the creditor’s power to appoint a receiver. Clause 5.3 sets out various standard powers the receiver will have. The receiver’s charges will be passed on to the company – see clause 5.1.
- Enforcement – Clause 6.1.
- Power of attorney – As part of the security, the creditor will hold a “power of attorney” over the company, which permits the creditor to sign documents or do various things on the company’s behalf. This might be needed, for example, if the mortgage is being enforced by the creditor due to the company’s default and, as a result, the company is not co-operating or responding to any communications from the creditor. This should reduce the creditor’s costs and reduce wasted time and therefore the necessary charges for interest (for all of which the company is liable in any event).
- Miscellaneous – Clause 8.1 makes it clear that if the creditor has from time to time other security for the company’s debts, the different forms of security do not cancel one another out.
- Interest – Interest is due on unpaid expenses of the creditor as noted above. This clause states that such interest will be compounded if the interest is not paid by the creditor regularly. Select from the options as to whether this should be monthly or quarterly. You then charge interest on interest.
- Severability – This clause is to preserve the validity of the remainder of the agreement if the court, when the security is enforced, is not happy with any particular parts of it.
- Counterparts – As the agreement is being signed as a deed, this clause provides that you can have sufficient prints of it signed by each party separately and held by the other parties if you wish (i.e. they don’t all have to sign the same physical print).
- Entire agreement – This clause limits the parties’ reliance on representations and warranties (i.e. anything said or in writing before the agreement is signed) that are not included in the agreement.
- Notices – This clause requires notices to be given in writing. In clause 13.2 you need to choose the option to dictate whether notices given by email will or will not be considered acceptable (generally this is still seen as not being as reliable as post or fax for ease of proof that the notice was sent and received).
- Rights of third parties – This clause excludes the Contracts (Rights of Third Parties) Act 1999 from applying to the agreement, so that only the parties to the agreement can enforce it.
- Law and jurisdiction – If any party is based abroad, you may wish to change the jurisdiction clause to reflect this and/or make it non-exclusive. Where the parties are all based in the UK, the jurisdiction should be exclusively that of