Question

In relation to a public company issuing debentures through a prospectus explain the actual or potential roles of the trustee for debenture holders, the prospectus, the debenture trust deed, the register of charges and a receiver.

Answer 1

A debenture trustee safeguards the interest of debenture holders, he is given the responsibility for issuing and distributing debentures. The roles of the trustee for debenture holders are calling for periodical reports from the body corporate. Ensuring that the asset charged to the debenture is available and adequate to discharge the interest and principal payable to debenture holders. Further to ensure that these assets are free from any external obligations.The trustee for debenture exercises due diligence on issue of debentures. He shall take the possession of trust property according to the trust deed.Further they ensure that the debentures are converted or redeemed according to the provisions or conditions under which debenture is issued.

The prospectus is an invitation to the public for subscribing to the debentures or shares of the company. Prospectus will include all the details of the company. The actual or potential role of a prospectus is to bring to the notice of the public about the debenture issue of the company. The prospectus will have clear details about terms and allotment of the above mentioned debenture issue. Any misstatement in the prospectus will make the company liable for civil and criminal liability.

Debenture trust deed is a document that is created by the company which is essentially a contract or an agreement. Debenture trust deed  should clearly specify the trustees for debenture holders appointed, the interest rate payable on debentures, terms for conversion or redemption of debentures, floating charges, the nature of assets charged to the debenture holders, dates of interest and principal payment etc.

Every limited company shall keep at the registered office of the company a register of charges. The register of charges shall contain entry of charges specifically affecting property of the company and all floating charges on the undertaking or any property of the company, giving in each case a short description of the property charged, the amount of the charge, and, except in the case of securities to bearer, the names of the persons entitled thereto. Therefor the company should enter the details of charges created against its asset on issue of debentures.

A receiver is appointed by debenture holders or the court on application by the debenture holders, after a company defaults on a debenture that is secured by a floating or fixed charge on the company's assets. The role of a receiver is to manage and realize the secured assets in order to maximize profit and asset value to the debenture holders.