Debentures & Charges

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Introduction

Compare and contrast charges and debentures.

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 Debenture

A debenture is essentially a loan document which evidences a company’s

indebtedness and sets out the lender’s right to enforce repayment.

Definition
“debenture” is not specifically defined in the CA but Section 4 (interpretation section) explains that “debenture” :
includes debenture stock, bonds, notes
excludes cheque, letter of credit

Levy v Abercorris Slate and Slab Co [1887] provides the following case law definition :
A debenture is a document which either creates a debt or acknowledges it, and any document which fulfills either of these conditions is a “debenture”

© 2018 Singapore University of Social Sciences. All rights reserved.

Charge

A charge is a security interest given to a creditor over a company’s assets. If the company defaults on the loan, the credito
The company (borrower) retains possession of the charged assets (security).
The creditor acquires a contractual right to take control of the security if and when the company defaults.

 A charge is a non-possessory security.

The term “charge” is not defined in the CA. Section 4 (interpretation section) merely states that a ‘charge’ includes a m

© 2018 Singapore University of Social Sciences. All rights reserved.

 Charge

Registration of Charge
The CA imposes several requirements regarding registration of a charge created by
a company - sections 131 to 141 :
• Within 30 days of creation of charge over assets listed* in CA, the company
must register the charge.

• Assets listed* in CA includes shares of a subsidiary company, land, book debts,

ships, as well as intellectual property rights of the company such as patent,
trademark or copyright.
• Failure to register will render the security void against the liquidator and other
creditors of the company, the lender will lose his security and becomes an
unsecured creditor. However, the debt becomes immediately repayable.
• The company and ACRA will maintain a register of charges registered. It is an
offence for the company which fails to register a charge.

 Upon registration, a charge is ranked in priority according the

date of creation subject to property rules.

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 Types of Charge

There are two types of charges which can be created by a

company :

Fixed Charge A charge secured over a specific

asset (eg a lorry or factory
equipment). The borrower cannot
sell or transfer the charged asset
without paying off the secured
lender or obtaining his consent.

Floating A floating charge does not attach to

Charge any specific asset. It is generally
created over a class of assets (eg
company’s stock in trade or its book
debts). It ‘floats’ over the secured
assets and is converted to a fixed
charge upon default (eg the company
fails to repay the loan).

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Floating Charge

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 Priority Among Charges

A company can create more than one charge over the same asset.
The order of priority of security determines which charge-holder gets paid first.

• Rank according to nature of charge :

A fixed charge has priority over a floating charge created over the same
asset, even if the fixed charge is created later in time than the floating
charge.
- “If same asset - fixed before floating”

• Rank according to date of creation :

As between the same type of charges over the same asset, the charge
created first in time will have priority.
- “If same type, first in time prevails”

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 Summary

either debentures or charges. A company can create two types of charges – fixed or floating. The order of priority of the charges will dete