and empowers a majority of (say) two-thirds or three-fourths in number and value at such meeting to bind the rest to any compromise or arrangement with the company which such majorities may deem beneficial. This is found a very useful power, and may save recourse to a scheme or arrangement first sanctioned under the machinery of the Joint Stock Companies Arrangement Act 1870 (Companies Act 1908, § 120).
Registration of Mortgages and Charges.—A company is bound, under the Companies Act 1862, to keep a register of mortgages and charges, but the register is only open for the inspection of persons who have actually become creditors of the company, not of persons who may be thinking of giving it credit, and the legislature recognizing its inadequacy provided in the Companies Act 1900 (§ 4 of act of 1908) for a public register at Somerset House of all mortgages and charges of certain specified classes by a company. If not registered within twenty-one days from their creation such mortgages and charges are made void—so far as they are securities—against the liquidator and any creditor of the company, but the debenture-holders retain the rights of unsecured creditors. An extension of the time for registering may be granted by the court, but it will only be without prejudice to the rights of third persons acquired before actual registration. These provisions for registration as amended are contained in the Companies Act 1908 (§ 93).
Debentures Registered and to Bearer.—Debentures are, for purposes of title and transfer, of two kinds—(1) registered debentures, and (2) debentures to bearer. Registered debentures are transferable only in the books of the company. Debentures to bearer are negotiable instruments and pass by delivery. Coupons for interest are attached. Sometimes debentures to bearer are made exchangeable for registered debentures and vice versa.
Redemption.—A company generally reserves to itself a right of redeeming the security before the date fixed by the debenture for repayment; and accordingly a power for that purpose is commonly inserted in the conditions. But as debenture-holders, who have got a satisfactory security, do not wish to be paid off, the right of redemption is often qualified so as not to arise till (say) five years after issue, and a premium of 5% is made payable by way of bonus to the redeemed debenture-holder. Sometimes the number of debentures to be redeemed each year is limited. The selection is made by drawings held in the presence of the directors. A sinking fund is a convenient means frequently resorted to for redemption of a debenture debt, and is especially suitable where the security is of a wasting character, leaseholds, mining property or a patent. Such a fund is formed by the company setting apart a certain sum each year out of the profits of the company after payment of interest on the debentures. Redeemed debentures may in certain cases be reissued; see Companies Act 1908 (§ 104).
Debenture Stock.—Debenture stock bears the same relation to debentures that stock does to shares. “Debenture stock,” as Lord Lindley states (Companies, 5th ed., 195), “is merely borrowed capital consolidated into one mass for the sake of convenience. Instead of each lender having a separate bond or mortgage, he has a certificate entitling him to a certain sum, being a portion of one large loan.” This sum is not uniform, as in the case of debentures, but variable. One debenture-stockholder, for instance, may hold £20 of the debenture stock, another £20,000. Debenture stock is usually issued in multiples of £10 or sometimes of £1, and is made transferable in sums of any amount not involving a fraction of £1. It is this divisibility of stock, whether debenture or ordinary stock, into quantities of any amount, which constitutes in fact its chief characteristic, and its convenience from a business point of view. It facilitates dealing with the stock, and also enables investors with only a small amount to invest to become stockholders. The property comprised in this security is generally the same as in the case of debentures. Debenture stock created by trading companies differs in various particulars from debenture stock created by public companies governed by the Companies Clauses Act. The debenture stock of trading companies is created by a contract made between the company and trustees for the debenture-stockholders. This contract is known as a debenture-stockholders’ trust deed, and is analogous in its provisions to the trust deed above described as used to secure debentures. By such a deed the company acknowledges its indebtedness to the trustees, as representing the debenture-stockholders, to the amount of the sum advanced, covenants to pay it, and conveys the property by way of security to the trustees with all the requisite powers and provisions for enabling them to enforce the security on default in payment of interest by the company or on the happening of certain specified events evidencing insolvency. The company further, in pursuance of the contract, enters the names of the subsisting stockholders in a register, and issues certificates for the amount of their respective holdings. These certificates have, like debentures, the conditions of the security indorsed on their back. Debenture stock is also issued to bearer. A deed securing debenture stock requires an ad valorem stamp.
Debenture Scrip.—Debentures and debenture stock are usually made payable in instalments, for example 10% on application, 10% on allotment and the remainder at intervals of a few months. Until these payments are complete the securities are not issued, but to enable the subscriber to deal with his security pending completion the company issues to him an interim scrip certificate acknowledging his title and exchangeable on payment of the remaining instalments for debentures or debenture stock certificates. If a subscriber for debentures made default in payment the company could not compel him specifically to perform his contract, the theory of law being that the company could get the loan elsewhere, but this inconvenience is now removed (see § 105 of the Companies Act 1908).
Remedies.—When debenture-holders’ security becomes enforceable there are a variety of remedies open to them. These fall into two classes—(1) remedies available without the aid of the court; (2) remedies available only with the aid of the court.
1. If there is a trust deed, the trustees may appoint a receiver of the property comprised in the security, and they may also sell under the powers contained in the deed, or under § 25 of the Conveyancing Act 1881. Sometimes, where there is no trust deed, similar powers—to appoint a receiver and to sell—are inserted in the conditions indorsed on the debentures.
2. The remedies with the aid of the court are—(a) an action by one or more debenture-holders on behalf of all for a receiver and to realize the security; (b) an originating summons for sale or other relief, under Rules of Supreme Court, 1883, O. lv. r. 5a; (c) an action for foreclosure where the security is deficient (all the debenture-holders must be parties to this proceeding); (d) a winding-up petition. Of these modes of proceeding, the first is by far the most common and most convenient. Immediately on the issue of the writ in the action the plaintiff applies for the appointment of a receiver to protect the security, or if the security comprises a going business, a receiver and manager. In due course the action comes on for judgment, usually on agreed minutes, when the court directs accounts and inquiries as to who are the holders of the debentures, what is due to them, what property is comprised in the security, and gives leave to any of the parties to apply in chambers for a sale. If the company has gone into liquidation, leave must be obtained to commence or continue the action, but such leave in the case of debenture-holders is ex debito justitiae. A debenture-holder action when the company is in winding up is always now transferred to the judge having the control of the winding-up proceedings. The administration of a company’s assets in such actions by debenture-holders (debenture-holders’ liquidations, as they are called) has of late encroached very much on the ordinary administration of winding up, and it cannot be denied that great hardship is often inflicted by the floating security on the company’s unsecured creditors, who find that everything belonging to the company, uncalled capital included, has been pledged to the debenture-holders. The conventional answer is that such creditors might and ought to have inspected the company’s register of mortgages and charges. The matter was fully considered by the departmental board of trade committee which reported in July 1906,
