What is a debenture? — Fons Hf v Corporal Ltd and another

The term ‘debenture’ supposedly arose from the practice of Mediaeval merchants writing the Latin ‘debentur’ (literally, ‘they are due’) on IOUs. Given that we have been using the designation — in one form or another — for more than 600 years, one might imagine its usage had been set in stone some while ago. However, a recent Court of Appeal case has caused consternation among City lawyers for introducing significant legal uncertainty over the established distinction between loans and debentures in English law.

The Court of Appeal found in Fons Hf v Corporal Ltd and another [2014] EWCA Civ 304 that certain shareholder loan agreements were ‘debentures’ as they created acknowledgement of debt in a written document…

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