My MD has asked me to put a proposal together with regards to our limited company and our holding company.
It is believed that by the holding company owning the client list and 'lending' the limited company this list, it would safeguard the company.
I have had a look at debentures and I am not too sure about them so would appreciate anyone who could explain them to me in laymen terms so I can get my head round them.
Basically it's an IOU. Company A would write a debenture saying (eg) "I will give you £1,000,000 in 15 years time" and sell it (usually to another company or individual). So they would get (say) £750,000 cash now, but have to reapy £1,000,000 in 15 years. Figures are all made up for the sake of the example.
The terms of some debentures include regular interest payments throughout the term, but don't always.
If the double-entry makes it clearer, then Company A would first record DR cash/CR debenture (in long term liabilities) £750,000 Then each year, DR interest/CR debenture (in long term liabilities) so that by Year 15 you'd made the debenture loan £1,000,000. At which point you'd need to repay it - CR cash/DR debenture £1,000,000.
I don't see how it would fit in with plans to safeguard the company, unless you're just trying to raise some finance. You also need to check if your company would be allowed to use debentures in this way...
Loan in the Ltd co and client list in holding co would mean no-one would want to buy ltd co, only the Group (incl holding co)... maybe thats his thinking?
