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Question
Justify the following statement:
A company has to create charge on its assets for issuing secured debentures.
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Solution
- Debentures can be secured. The company's property may be charged as collateral for the loan. The security may be for a specific asset (fixed charge) or for the entire asset (floating charge).
- As per its provisions, the company has to create a charge on the assets of the company, its subsidiary company or holding company.
- The value of the charge should be adequate to cover the entire value of debentures issued and interest to be paid on it.
- If a government company issues secured debentures which has central or state government’s guarantee, then it need not create any charge on its assets. Hence, a company has to create charges on its assets for issuing secured debentures.
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