Study the following case / situation and express your opinion.
1. Rose limited company proposes to issue debenture to the public to raise funds. After discussions, the Board of directors have decided to issue secured, Redeemable non – convertible debentures with a tenure of Ten years. Please advise the board on following matters :
a. Should the company appoint Debenture trustee ?
b. Should the company create a charge on its assets ?
c. Can the tenure of debentures be less than ten years ?
(a) Yes. The company should appoint a Debentures trustee. This is because, in the above case, Rose Limited Company proposes to issue debenture to the public to raise funds. Thus, the company issuing debenture must appoint one or more debentures trustees
(b) Yes. The company should create a charge on tangible assets. The charge is created in the favour of the Debenture Trustee and they become the custodian of the assets on which charge has been created.
(c) A company can issue secured debentures with a date of redemption not exceeding ten (10) years from the date of issue.
2. Violet Ltd. company plans to raise ` 10 crores by issuing debentures. The Board of
Directors have some queries. Please advise them on the following __
a. Can the company issue unsecured debentures?
b. Can they issue irredeemable debentures?
c. As the company is offering debentures to its members, can such debentures have normal voting rights ?
(a) Yes. The company can issue secured and unsecured debentures. But they have to get the approval of shareholders in a general meeting by passing a special resolution.
(b) No. All the debentures are redeemable i.e, have to be repaid. Thus, the company cannot issue irredeemable debentures.
(c) As per the Companies Act, 2013, the company cannot issue debentures with voting rights. Debenture holders are the creditors of the company. So, they don’t have normal voting rights. They can vote only matters related to them.
3. DDS financial plans to raise ` 10 crores by issuing secured, Non-convertible debentures.
However, as per the Articles of Association, the board of directors have authority only
to raise upto 5 crores. They are also considering whether to go for private placement or
make public offer. Please advise them on the following __
a. What can be the maximum tenure of the debentures to be issued ?
b. Is the proposed issue within the borrowing powers of the board ?
c. Within what period should company issue Debenture certificate ?
(a) The maximum tenure of the debentures to be issued is of 10 years. Only certain companies permitted by the Ministry of Corporate Affairs, Central Government, or RBI can issue debentures beyond a period of 10 years but not exceeding 30 years.
(b) No. The proposed issue is not within the borrowing powers of the board. The board can use their borrowing power up to limit permitted by Articles of Associations. In case, the Board wants to increase its borrowing power, they have to get approval from shareholders by passing a special resolution in general meeting.
(c) Debenture certificate is a document issued by a company as an evidence of debts to the holder. As per the Companies Act, 2013, company has to issue debenture certificate within 6 months of allotment of debentures.