The present recession is throwing up business
failures in all commercial sectors.
Some professional advisers recommend that asset
finance companies, including those in the fleet market, should
consider looking for additional legal security where possible.
Where the customer is a company registered within
England and Wales, it is possible for creditors to create a
debenture instrument to match the term of a lease or loan.
A corresponding charge on specified assets of this
customer can then be registered at Companies House, where the
customer agrees. This can be done in addition to the
financier's retention of title to the assets on the
“A debenture charge holder is practically assured
of a seat at the table where a customer goes into administration,”
said David Leibowitz, partner for restructuring and insolvency at
law firm Berwin Leighton Paisner.
“Though it does not give power to stop the
administration, or to dictate the choice of insolvency
practitioner, a charge will give you a say in the process.
“From the finance company’s standpoint we would
positively recommend consideration of debenture charges wherever
possible,” Leibowitz added.
There can also be more direct financial benefits
for the charge holding financier, where the finance contract is
terminated on the customer's insolvency.
Usually there will be a net contractual settlement
sum owing after the vehicles have been repossessed and sold.
The charge holder will have a higher claim on
liquidated assets compared with unsecured creditors.
Debenture charges are governed by Section 395 of
the Companies Act 1985. Charges cannot be registered against
unincorporated businesses, nor against companies registered in
Scotland (even if the finance contract itself is subject to English
There are various types of asset to which a
debenture charge can be attached. Normally it would be a floating
charge on all assets of the debtor.
Alternatives include fixed charges on book debts
(i.e. the customer's claims on its own debtors), or on
land and buildings.
“The appropriate choice could depend on the nature
of the core assets in the customer's business,” said
Blake Lapthorn partner Richard Humphreys pointed
out that debenture charges are not always a practical option.
“It could not normally be done where other
creditors already hold a corresponding charge,” Humphreys said.
“A bank lender may have taken a floating charge,
and invoice funders may hold a charge on book debts.
“As with personal guarantees, charges are
negotiable and may become a competitive issue if alternative
financiers do not ask for them.
“Registration also adds to transaction costs.
Within the fleet finance market, it may be mainly an option for the
largest deals,” added Humphreys