Sometime borrowers are requested to charge its debenture to bank as an additional security. This is very common when the approved loan amount is not fully secured. For eg. an approved loan of RM 1.0 mil. secured against a fixed deposit of only RM200,000.What is debenture in layman's term ? For a loan secured against a property or fixed deposit, the lending bank will create a charge on the property or fixed deposit receipt, whereas a debenture is a charge created over the fixed and floating assets of the company, meaning on fixed asset and current assets (stock, debtors and desposits). The debenture holder has the priority in liquidating the company's assets to recover the loan in default.
It is NOT advisable to charge your debenture to any bank. A borrower can offer more collateral in order to waive the debenture charge. After charging your debenture, the only way to remove the debenture is to full settle the outstanding loan.
Only a Sdn Bhd can charge its debenture to bank. A debenture cannot be created on a sole-proprietor or partnership company.
