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A debenture is an instrument of debt executed by the company acknowledging its obligation to repay the sum at a specified rate and also carrying an interest. It is one of the methods of raising the loan capital of the company. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capita
Debenture Trustee
A debenture trustee means a trustee of a trust deed for securing any issue of debentures of a body corporate.
Who can be appointed a Debenture Trustee?
To act as debenture trustee, the entity should either be a scheduled bank carrying on commercial activity, a public financial institution, an insurance company, or a body corporate. The entity should be registered with SEBI to act
as a debenture trustee.
Role of Debenture Trustee
Duties of the Debenture Trustee include:
(a) Call for periodical reports from the body corporate, i.e., issuer of debentures.
(b) Take possession of trust property in accordance with the provisions of the trust deed.
(c) Enforce security in the interest of the debenture holders.
(d) Ensure on a continuous basis that the property charged to the debenture is available and adequate at all times to discharge the interest and principal amount payable in respect of the debentures and that such property is free from any other encumbrances except those which are specifically agreed with the debenture trustee.
(e) Exercise due diligence to ensure compliance by the body corporate with the provisions of the Companies Act, the listing agreement of the stock exchange or the trust deed
(f) To take appropriate measures for protecting the interest of the debenture holders as soon as any breach of the trust deed or law comes to his notice.
(g) To ascertain that the debentures have been converted or redeemed in accordance with the provisions and conditions under which they are offered to the debenture holders.
(h) Inform the Board immediately of any breach of trust deed or provision of any law.
(i) Appoint a nominee director on the board of the body corporate when required.
contents of the debenture trustee agreement
Debenture Trustee Agreement should include the following:
(a) Preamble,
(b) Description of the Instrument,
(c) Details of charged securities
(i) Nature of charge,
(ii) Examination of title,
(iii) Rank of the charge, i.e., whether first, second, or pari passu charge, etc.
(iv) Charging of future assets,
(v) Time limit for creation of charge,
(vi) Minimum security cover required,
(vii) Valuation of security,
(viii) Circumstances in which security becomes enforceable,
(ix) Method and preservation of secured property etc.
(d) Events of default.
(e) Rights of Debenture Trustee.
(f) Obligations of the body corporate (i.e., Issuer of debentures).
Apart from the above, the Agreement will have to include the following provisions:
(i) Definition and Interpretation,
(ii) Appointment of Debenture trustee and its powers
(iii) Remuneration of Debenture Trustee,
(iv) Appointment of debenture Trustee as Attorney,
(v) Negative pledge i.e. not to create additional encumbrances on the secured
asset,
