Issue of Secured Debentures by a PRIVATE Co.

[rashmi mr]

Dear All,

What is the procedure for issue of Debentures by a PRIVATE Co.?


Summarised procedure is stated below:

1. Authorisation by AoA and Board of Directors
2. Creation of Debenture Trust Deed
3. Issue of Secured Debentures
4. Creation of charge and registration of the same
5. Creation of Debenture Redemption Reserve

Please let me know if there are any other compliances required in this regard.


Also clarify on the following issues.

A) What is the form of Debenture Trust Deed to be created? Where is it prescribed?
B) Appointment of Debenture Trustees is not mandatory for a Pvt Co.


Regards,
Rashmi

[sree raj]

Hai Rashmi,

 

I feel that the procedure provided by you is right. The following matters should be decided at the Board meeting:

 

1.convertibility

2.terms and premium

3.maturity

4. interest

5. appointment of trustee.

 

Section 117B do not specify about the non applicability to a private limited company. Hence, I feel that even a private limited Company should appoint a Debenture Trustee. Please correct me if I am wrong.

 

 I am also attachin a format of such deed available with me. A Debenture Trust Deed shall include the following:

 

a. An undertaking by the company to pay the Debenture holders, principal and interest.
b. Clauses giving the Trustees the legal mortgages over the company's freehold and leasehold property.
c. Clauses that may make the security enforceable in the event of default in payment of principal or interest i.e. appointment of receiver, foreclosure, sale of assets etc.
d. A clause giving the Trustees the power to take possession of the property charged when security becomes enforceable.
e. Register of Debenture holders, meeting of all debenture holders and other administrative matters may be included in the Deed.

In addition thereto, the SEBI regulations have laid format of the Trust Deed in Schedule IV to the regulations. Some of the important provisions would include

f. Time limit of creation of security for issue of debentures.
g. Obligations of the body corporate towards the debenture holders.
h. Obligations towards the debenture holders - equity ratio and debt service coverage ratio.
i. Procedure for the inspection of charged assets by the Trustees.
 

Warm Regards,

 

Sreeraj
 

[raghuveer cs]

Hi Rashmi,

 

If the Debentures are Convertible at a future date to Equity shares there is no need of creating any Debenture Redemption Reserve and such Debentures may also be Unsecured in nature. If the Debenture is unsecured in nature the need for charge creation will also not arise.

Regards - Raghuveer

[rashmi mr]

Sreeraj & Raghuveer,

Thank you for the clarification.

Regarding the appointment of Debenture Trustees - Sub Sec (1) of Sec 117B provides

"No company shall issue a prospectus or a letter of offer to the public for subscription of its debentures, unless the company has, before such issue, appointed one or more debenture trustees for such debentures and the company has, on the face of the prospectus or the letter of offer, stated that the debenture trustee or trustees have given their consent to the company to be so appointed:


Since a Private Co. cannot issue debn to public, the case as contemplated by the Sec is that of a Public Co. only.

With this in the background, it seems Pvt Co. need not appoint Debn Trustees.

Views of all members are invited.

Regards,
Rashmi