Question

Study the following case/situation and express your opinion.

Rose limited company proposes to issue debentures to the public to raise funds. After discussions, the board of directors has decided to issue secured, redeemable, non-convertible debentures with a tenure of ten years. Please advise the board on the following matters:

1. Should the company appoint a debentures trustee?
2. Should the company create a charge on its assets?
3. Can the tenure of debentures be less than ten years?

Answer 1

1. Yes. The company should appoint a Debentures trustee. This is because, in the above case, Rose Limited Company proposes to issue debentures to the public to raise funds. Thus, the company issuing debentures must appoint one or more debentures trustees.
2. Yes. The company should create a charge on tangible assets. The charge is created in the favour of the Debenture Trustee and they become the custodian of the assets on which the charge has been created.
3. Secured debentures can be redeemed for a maximum of 10 years. Less than ten years is possible. It demonstrates a company's strong liquidity position.