# Mortgage Debenture



## mickeyg (4 Mar 2009)

If a bank has a Mortgage Debenture over the assets of a company does that mean that in the case where the company goes belly up that this entitles the bank to first priority to the assets and creditors fall in line after that??


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## dewdrop (4 Mar 2009)

Broadly speaking yes.


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## Bank Manager (4 Mar 2009)

Mickeyg,

Complex area this - and I'm definately not the expert (I'd suspect many with a legal background will give a better answer than I) - not quite as clearcut as Dewdrop might suggest - firstly there are both fixed and floating debentures.  Fixed being in effect like a first legal charge over an asset like property - but could be machinery (but usually only where the machine is very specialised, large (valueable) and not something that the business would be changing frequently, for example a car or van).

A Floating debenture is again like a charge over the current assets (debtors/stock and indeed unspecified machinery, which would be classified as fixed assets in the Balance Sheet) - however a floating charge (as far as I'm aware), ranks after...

a) employees (for example unpaid wages - redunadancy payments etc)
b) preferential creditors - tax, vat etc
c) those with a first legal charge on the particular assets - for example if the machinery was leased, then the leasing co would have to be paid first, if the debtors were factored, then the factoring co would have to be paid first and if the stock has reservation of title clauses then the original unpaid seller would have to be compensated first - so the floating debenture would have questionable value as security for a bank - the one thing it does allow a bank do is appoint a receiver, and that at least does give some element of control, when things have gone badly wrong.

Hope that helps, and I'd suspect there may be elements of this that may be interprested differently or explained better than I have done.

Regards,


BM


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## dewdrop (5 Mar 2009)

Agree it is a complex area but in practice Debenture holders rarely get much from the Floating charge and rely on the proceeds sale of property under the fixed charge...receivers expenses fees etc have to be paid first


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## Askar (5 Mar 2009)

cerbera1 said:


> I might add that before all of these the liquidator and then the revenue takes their pound of flesh before employees and any creditors are paid.


 
This is a bit confusing. 

Liquidators fees and expenses are first in the queue if it is a liquidation. If it is a receivership (and no liquidator subsequently involved in respect of unsecured assets) then recievers fees and expenses are first in queue for payment. 

AFAIK preferential creditors include the tax man and employees. If receiver is appointed as only a receiver and not as 'receiver and manager' then there is no floating charge which becomes crystallised on appointment. 

If there is a floating charge (over such things as stock) and reciever appointed as reciever and manager then crystallised floating charge is behind reciever, secured creditor and preferential creditors but has priority over unsecured creditors and shareholders.


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