Module 1 · Chapter 1
What Security Is For
On 24 April 2026 Marlow Precision Engineering Limited signed a Debenture in favour of Coldharbour Bank plc. Six days later the Bank lent it £13,000,000: a £12,000,000 term loan drawn in full, and £1,000,000 of a £3,000,000 revolving facility. This chapter is why the Bank insisted on that document, and what the Company gave up by signing it. It ends with what each asset will do for the Bank on the day it matters.
1.1Your seat
You are a trainee at Harlow Vance LLP in Birmingham. You joined the banking team on 5 January 2026. The firm acts for Coldharbour Bank plc of London — "the Bank" from here on. Priya Nandakumar, an associate, supervises you. At the Bank itself you deal with Callum Reid, the relationship director, and Sarah Lindqvist, its in-house counsel. Across the table, Tom Ashdown of Sedgley Barnes LLP in Northampton acts for Marlow Precision Engineering Limited — "the Company" — and for its subsidiary Marlow Tooling Limited — "Tooling".
The document on your desk is the Debenture dated 24 April 2026. A debenture is the document by which a company gives a lender security over its assets, usually all of them at once. The Company's objections to it are reported fairly, because Priya insists on it: "you cannot draft against an argument you have not understood."
1.2The deal in one page
The Company is a private company limited by shares, incorporated in England and Wales on 14 May 1987, registered number 02131877. It machines precision components for aerospace and medical-device customers, with 148 staff. In the year to 31 December 2025 it had revenue of £21,400,000 and net assets — what it owns less what it owes — of £9,200,000.
Richard Marlow, the Managing Director, holds 600,000 of its 1,000,000 ordinary shares of £1: 60%. His sister Catherine Marlow, a non-executive director, holds 400,000: 40%. Helen Okafor is the Finance Director. The Company owns all 100 shares in Tooling, which makes jigs and fixtures with 22 staff and revenue of £3,100,000. Tooling occupies its unit at Cransley Park under a 15-year lease from Tresham Estates Limited.
Under a Facility Agreement dated 24 April 2026 the Bank lends to the Company in two parts. A Term Loan of £12,000,000 is lent once and repaid over five years, to 30 April 2031. It comes back in eight half-yearly instalments of £750,000 from 31 October 2026, then a final payment of £6,000,000 — a balloon. A Revolving Facility of £3,000,000 can be drawn, repaid and drawn again, like an overdraft. Together the two parts come to £15,000,000: the most the Company can borrow at any one time. Interest is a margin over the Bank's reference rate.
The money has four uses: a new machining hall, "Hall 3", £4,900,000; six five-axis machining centres for it, £3,700,000; repaying Kite Receivables Finance Limited, £1,900,000; and working capital and costs, £1,500,000. Kite is an invoice discounter — a financier that lends against a company's unpaid invoices and takes security over them. The Bank would not lend while Kite had a claim on those invoices.
Tooling signs the Facility Agreement as Guarantor: it promises to pay if the Company does not. On 30 April 2026 — Utilisation, the day the money is drawn — the Company drew the whole Term Loan and £1,000,000 of the Revolving Facility: £13,000,000 in all, with £2,000,000 of the Revolving Facility still to call on.
1.3A promise, or a claim on a thing
Suppose the Bank had lent that £13,000,000 on the Facility Agreement alone. It would hold a promise, and a promise is worth what the promisor can pay. If the Company fails, it will owe the Bank, its suppliers, its staff and the tax authority at once. An unsecured lender — one whose debt is backed by the borrower's word and nothing else — joins that queue. What is left is sold and shared out, each creditor taking the same fraction of its debt. Pence in the pound, paid late.
Security changes the queue. A secured lender holds more than a promise: it holds a claim on a particular thing. If the debt is not paid, the lender can take that thing, sell it and pay itself from the price. Only what is left goes into the general pot. That is the whole idea; the rest is machinery.
Key point
An unsecured creditor has a promise and a place in the queue. A secured creditor has a claim on a thing: the right to take a named asset, sell it and be paid from the price before anyone else touches it.
The Bank's position is simple. It is lending £12,000,000 at once and up to £3,000,000 more, and the money is its depositors', not its own. Its credit committee approved the loan on 10 March 2026 on one condition: security over everything the Company has. No security, no deal.
The Company's position is just as simple. Security costs money to take: a valuer, searches, registrations, two sets of lawyers, all at the Company's expense. It ties the Company's hands: no sale of a charged asset, and no borrowing against it elsewhere, without the Bank's consent. And it is a promise about a future nobody can see, from a business with net assets of £9,200,000. The family's answer was: "you are lending to a business, not taking our house."
Both are right, and the Debenture is where they met. The first thing it does is restate the promise.
The Company covenants with the Bank to pay and discharge the Secured Liabilities when they fall due under the Facility Agreement or, where the Facility Agreement fixes no time for payment, on the Bank's written demand.Read in the Debenture →
This is the covenant to pay: the Company's promise, repeated in the security document, to pay everything it owes the Bank. "Secured Liabilities" is defined in clause 1.1 as all money the Company owes the Bank under the Facility Agreement or the Debenture. Security secures a debt; without a debt there is nothing to secure. The Company asked why it must promise twice. Because a charge secures whatever its own document says it secures, and clause 2.1 says it in terms.
1.4What the Bank asked for, and what it got
The Bank's opening ask was four things. A debenture from the Company. A debenture from Tooling. A share charge over the Company's own shares from Richard and Catherine Marlow — security over the shares themselves, so that the Bank could sell the whole Company. And a personal guarantee from each of them: a promise in their own names to pay the Company's debt from their own money.
The family refused the last two outright. A personal guarantee reaches past the company to the house and the pension; so does a charge over shares that are the family's whole wealth. You are lending to a business, they said, not taking our house. The Bank accepted and priced the risk into the margin: it charges more for a loan with less behind it.
Tooling's debenture fell away too, for three reasons. Tooling's lease does not allow a charge without the landlord's consent, and Tresham Estates would have charged a fee and taken months. Tooling's trade creditors were nervous about a floating charge. And Tooling's assets were small. The compromise: a guarantee from Tooling, plus a charge over Tooling's 100 shares given by the Company as their owner. The Bank reaches Tooling's value by selling the shares, not the assets. A buyer takes the company whole, lease and all, and the landlord is never asked.
1.5Four kinds of security
English law gives a lender four main ways to take a claim on a thing. The Debenture uses all four in clause 3. A charge is the general word for security that leaves ownership where it is. The asset stays the Company's, but the Bank can have it sold and be paid first from the price. A mortgage goes further. It transfers ownership to the lender, or is treated by the law as doing so, until the debt is paid. An assignment by way of security transfers a right to the lender — here, the right to be paid under an insurance policy. The lender must transfer it back at the end.
| Kind | In plain words | Used here for | Debenture |
|---|---|---|---|
| Legal mortgage | The Company stays on the title and keeps using the land. The Bank has the protection and powers it would have if the land had been mortgaged to it outright: to sell it, or to appoint a receiver — a person who takes over the asset and sells it for the Bank (Law of Property Act 1925, section 87). | The Property: the freehold factory at Cransley Park | clause 3.1; Schedule 1 |
| Fixed charge | Security over a particular, identified asset. The Company may not sell it, or deal with it, without the Bank's consent. | The Equipment, the Tooling Shares, the Book Debts, the Collection Account, intellectual property and goodwill | clause 3.2; Schedules 2 and 3 |
| Floating charge | Security over a shifting pool of assets the Company keeps buying and selling. It deals with them freely in the ordinary course of business until the charge "fixes". | Everything else, present and future: stock, work in progress, older plant, other accounts | clause 3.4 |
| Assignment by way of security | The Company's rights under a contract are transferred to the Bank, which is paid under it directly. The Bank transfers them back when the debt is paid. | The Insurances: the Aldgate policy | clause 3.3; Schedule 4; reassigned under clause 14 |
A floating charge fixes — the law's word is crystallises — when the Bank gives notice, or when one of the events in clause 4 happens. From that moment it is a fixed charge, and the Company may not deal with the asset without consent.
The Bank wanted fixed security over everything. A fixed charge is stronger. The Bank controls the asset, and the claims the law puts ahead of a floating charge when a company fails do not come ahead of a fixed one. The Company could not live with that: it sells stock every day and pays wages every month. A business that asked its bank before each sale would stop within the week. The floating charge is the answer both sides could sign.
As security for the payment and discharge of the Secured Liabilities, the Company charges to the Bank by way of floating charge all its other assets, present and future, wherever they are, including its stock and work in progress, its plant and machinery other than the Equipment, every account and sum of money not charged by clause 3.2, and every asset which clause 3.2 or 3.3 expresses to be subject to a fixed charge or an assignment but which is not for any reason effectively so charged or assigned.Read in the Debenture →
The clause does two jobs. The first is obvious: it catches every asset the fixed charges do not name. The second is in its last forty words. If a fixed charge or an assignment in clause 3.2 or 3.3 does not work for any reason, the asset falls into the floating charge. Weaker, but held. The Debenture calls the charge over the Book Debts fixed. Whether the law agrees will turn on how the Collection Account is actually run, and that question will decide more money than any other in this file.
Drafting — why clause 3.5 is there
A floating charge over the whole, or nearly the whole, of a company's assets lets its holder appoint an administrator out of court (Insolvency Act 1986, Schedule B1, paragraph 14). An administrator is an insolvency practitioner who takes the running of the company out of its directors' hands. The paragraph applies only if the charge says so. Clause 3.5 says so. On the day it matters, that one sentence is the Bank's fastest route to the assets.
1.6The assets, and how each is secured
Now put the four kinds against what the Company owns.
| Asset | Figure | Kind of security | Debenture |
|---|---|---|---|
| Freehold factory and offices, Cransley Park, title number NN587231 | market value £4,200,000 (Radleigh & Co, 12 March 2026) | legal mortgage | clause 3.1; Schedule 1 |
| The six new five-axis machining centres for Hall 3 | cost £3,700,000 | fixed charge | clause 3.2(b); Schedule 2 |
| Other plant and machinery | book value £3,100,000 | floating charge | clause 3.4 |
| Book debts — money owed by customers | £2,600,000 average | fixed charge, in the words of the document | clause 3.2(d) |
| Stock and work in progress | £1,400,000 | floating charge | clause 3.4 |
| Cash at bank | £600,000 | fixed charge over the Collection Account, in the words of the document; floating charge over other accounts | clause 3.2(e); clause 3.4 |
| 100 shares in Tooling | — | fixed charge | clause 3.2(c); Schedule 3 |
| Insurances — the Aldgate policy | sum insured £9,000,000 | assignment by way of security | clause 3.3; Schedule 4 |
| Intellectual property and goodwill | — | fixed charge | clause 3.2(f) |
| Everything else, present and future | — | floating charge | clause 3.4 |
Now take it one row at a time, asking what each row gives the Bank on the day the Company cannot pay.
The factory is the biggest single asset. Under the legal mortgage the Bank can sell it, or appoint a receiver to let or sell it. Until then the Company stays on the title and keeps making parts in it.
The six machining centres are what £3,700,000 of the Term Loan buys. Schedule 2 lists each by serial number. They must stay at the Property, each with a plate saying it is charged to the Bank (clause 8.5). On the day it matters the Bank takes them and sells them.
The book debts — the £2,600,000 customers owe at any one time — turn into cash fastest. Everything collected must go into the Collection Account, an account in the Company's name at the Bank, and nothing comes out without the Bank's permission (clause 8.3). On the day it matters the Bank collects the debts itself (clause 9.5).
The Tooling shares are the Bank's route to Tooling. At Signing the Company handed over the share certificate and a stock transfer form, signed but with the buyer's name and date left blank (clause 5.2). On the day it matters the Bank fills in a buyer and sells Tooling whole.
The insurance — the Aldgate policy — covers the buildings, the plant and business interruption, sum insured £9,000,000. The Bank is noted on it as loss payee — the person the insurer pays. If Hall 3 burns down, the money goes to the Bank, to rebuild or to repay as the Bank directs (clause 8.2).
Everything else — older plant, stock, work in progress, other accounts, whatever comes later — sits under the floating charge. The Company trades with it freely. On the day it matters an administrator sells it, and the Bank is paid after the claims the law puts ahead of a floating charge. None of those claims comes ahead of the mortgage or the fixed charges.
Pitfall — three columns of figures, none of them a price
The table carries a market value (£4,200,000: a valuer's opinion), a cost (£3,700,000: the machines' price) and a book value (£3,100,000: what the accounts say). A sum insured (£9,000,000) is not security at all: a policy pays a loss, not a debt. None of these is what a receiver will get selling in a hurry. Lend against the figure; never mistake it for the money.
1.7The map of the Debenture
Fifteen clauses and five schedules, in four groups. Clauses 1 to 4 are the grant: definitions, the covenant to pay, the four kinds of security, and when the floating charge fixes. Clauses 5 to 8 keep the security good. Clause 5 is perfection: the steps after signing that make the security count against the outside world. The main one is filing the charge at Companies House within 21 days, counted from the day after it is created (Companies Act 2006, section 859A). Miss that, and the charge counts for nothing against a liquidator — the person who winds a failed company up — or an administrator or any creditor (section 859H). Clause 6 is the negative pledge: the Company's promise to give nobody else security. Clause 7 is what the Company says it owns; clause 8 is what it must do.
Clauses 9 to 13 are for the day it goes wrong: enforcement, receivers, who is paid first, protection for buyers, a power of attorney. Clauses 14 and 15 end it: release when everything is paid, and the general terms, including English law.
The Company signed the Debenture as a deed — the more formal way of signing, here by two directors, Richard Marlow and Helen Okafor. The formality matters: a lender's statutory powers to sell mortgaged property and to appoint a receiver belong to a mortgage made by deed (Law of Property Act 1925, section 101).
None of this is theory. In February 2028 the Company will break a financial promise in the Facility Agreement, and Priya will ask you for one page on what the Bank would get back. That page cannot be written until you know what the Company owned in March 2026 and who already had a claim on it. Chapter 2 is the asset list, the search at Companies House, and the two lenders still on the register.