DEBENTURE STOCK mortgages and charges, open for the inspection of creditors.. able in certain events : for instance^ if the interest is in It is also bound now, under the Companies Act, 1900, to. arrear for three months, or if a winding up order is made register with the registrar of joint-stock companies at against the company, or a resolution for winding up is Somerset House all mortgages and charges of certain passed. Other events are sometimes added accelerating specified kinds made by the company, otherwise the payment The conditions also provided for the mode and security will be void. form of transfer of the debentures, the death or bankruptcy Debentures Registered and to Rearer. Debentures are of the holder, the place of payment, &c. The term “ float- usually of two kinds—(1) registered debentures, and (2) ing charge ” is used to distinguish it from one that is fixed. debentures to bearer. Registered debentures are transferThe charge attaches as soon as the debenture is issued, able only in the books of the company. Debentures to. but it attaches to the assets for the time being only, i.e., bearer are negotiable instruments, and pass by delivery. it leaves the company free (or, to put it otherwise, gives Coupons are attached for interest. Sometimes debentures, it a licence) to sell, mortgage, lease, and otherwise deal to bearer are made exchangeable for registered debentures, with such assets as if no charge existed. This licence is and vice versa. involved in the fact that the debenture-holders’ charge Redemption.—A company generally likes to reserve to is on the company’s undertaking, which implies that the itself a right of redeeming the security before the date undertaking is to remain a going concern. The licence extends, however, only to dealings in the ordinary course fixed by the debenture for repayment; and accordingly a power for that purpose is generally inserted in the condiof business / it does not entitle a company to sell the tions. But as debenture-holders, who have got a satiswhole of its undertaking and assets. Payment by a com- factory security, do not wish to be paid off, the right of pany of its just debts is always in the ordinary course of redemption is usually qualified so as not to arise till (say) business, but satisfaction by execution levied in invitum five years after issue, and a premium of 5 per cent, is, is not. Every debenture must now, under the Companies Act, made payable by way of bonus to the redeemed debenture1900, bear the registrar’s certificate of registration. This holder. The number of debentures to be redeemed each is also limited. The selection is usually made by floating form of security is found very convenient both year drawings held in the presence of the directors. A sinking to the borrowing company and to the lender. The fund is a convenient means often resorted to for redempcompany is not embarrassed by the charge, while the lender has a security covering the whole assets for the tion of a debenture debt. Such a fund is formed by the time being, and can intervene at any moment by obtaining company setting apart a certain sum each year out of the of the company after payment of interest on the a receiver if his security is imperilled, even though none profits debentures. , of the events in which the principal moneys are made payDebenture Stock.—Debenture stock bears the same relaable have happened. If any of them has. happened, e.g., default in payment of interest, or a resolution by the com- tion to debentures that stock does to shares. “ Debenture pany to wind up, the payment of the principal moneys is stock,” as Lord Lindley states {Companies,^ 5th ed. 195),, accelerated, and a debenture-holder can at once commence “ is merely borrowed capital consolidated into one mass an action to obtain payment and to realize, his security. for the sake of convenience. Instead of each lender a separate bond or mortgage, he has a. certificate At times a proviso is inserted in the conditions endorsed having on the debenture, that the company is not to create any entitling him to a certain sum, being a portion of one mortgage or charge ranking in priority to or pan passu larcm loan.” This sum is not uniform, as in the case of debentures, but variable. One debenture-stockholder, for with that contained in the debentures without the consent instance, may hold £20 of the debenture stock, another of the debenture-holders. Trust Deeds.—When the amount borrowed by a com- £20,000. It is this divisibility of stock in fact, whether pany is large, and it is not meant that it should be soon debenture or ordinary stock, into quantities.of any amount,, paid off, it is very common for the company to execute a which constitutes its peculiar characteristic, and its. conTrust Deed by way of further security. The object of venience from a business point of view. . It facilitates, such a trust deed is twofold: (1) it conveys specific pro- dealing with the stock, and also enables investors with perty to the trustees of the deed by way of legal mort- only a° small amount to invest to become stockholders. gage (the charge contained in the debentures is only an The property comprised in this security is generally the equitable security), and charges all the remaining assets same as in the case of debentures. Debenture stock created trading companies differs in various particulars from in favour of the debenture-holders, with appropriate pro- by debenture stock created by public companies governed by visions for enabling them, in certain events similar to those expressed in the debenture conditions, to enforce the the Companies Clauses Act. The debenture stock ot security, and for that purpose to enter into possession and trading companies is created by a contract made between carry on the business, or to sell it and distribute the the company and trustees for the debenture-stockholders, profits; (2) it organizes the debenture-holders and con- known as a debenture-stockholders’ trust deed, analogous, stitutes in the trustees of the deed a set of experienced in its provisions to the trust deed above described as used and business-like men who can watch over the. interests to secure debentures. By this deed the company acknowledges its indebtedness to the trustees as representing the of the debenture-holders and take steps for their protec- debenture-stockholders to the amount of the.sum advanced, tion if necessary. In particular it provides machinery covenants to pay it, and conveys the subject matter, by for the calling of meetings of debenture-holders by the of security to the trustees with all the requisite trustees, and empowers a majority of (say) two-thirds way powers and provisions for enabling them to enforce the or three-fourths in number and value at such meeting security on default in payment of interest by the company to bind the rest to any compromise or arrangement or the happening of certain specified events evidencing with the company which such majorities may deem insolvency. The company further in pursuance ot the beneficial. This is found a very useful power, and contract enters the names of the subsisting stockholders m may save recourse to a scheme of arrangement under the a register, and issues certificates for the amount ot then machinery of the Joint-Stock Companies Arrangement respective holdings. A deed securing debenture stock requires an ad valorem stamp. ^ of Mortgage! m«l Charges. A company is Remedies. —When debenture-holders’ security becom , bound, under the Companies Act, 186^, to keep a register o
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