246 16: Loan capital Part E Capital and the financing of companies
One advantage of debenture stock over debentures issued as single and indivisible loan transactions is
that the holder of debenture stock can sell part of their holding, say £1,000 (nominal), out of a larger
amount.
Debenture stock must be created using a debenture trust deed, though single and series debentures may
also use a debenture trust deed.2.4 Debenture trust deed
Major elements of a debenture trust deed for debenture stock
The appointment usually of a trustee for prospective debenture stockholders. The trustee is usually a
bank, insurance company or other institution but may be an individual.
The nominal amount of the debenture stock is defined, which is the maximum amount which may be
raised then or later. The date or period of repayment is specified, as is the rate of interest and
half-yearly interest payment dates.
If the debenture stock is secured the deed creates a charge or charges over the assets of the
company.
The trustee is authorised to enforce the security in case of default and, in particular, to appoint a
receiver with suitable powers of management.
The company enters into various covenants, for instance to keep its assets fully insured or to limit its
total borrowings; breach is a default by the company.
There may be elaborate provisions for transfer of stock and meetings of debenture stockholders.Advantages of a debenture trust deed for debenture stock
The trustee with appropriate powers can intervene promptly in case of default.
Security for the debenture stock in the form of charges over property can be given to a single trustee.
The company can contact a representative of the debentureholders with whom it can negotiate.
By calling a meeting of debentureholders, the trustee can consult them and obtain a decision binding
on them all.
The debentureholders will be able to enjoy the benefit of a legal mortgage over the company's land.2.5 Register of debentureholders
Company law does not specifically require a register of debentureholders be maintained. However, a
company is normally required to maintain a register by the debenture or debenture trust deed when
debentures are issued as a series or when debenture stock is issued.
When there is a register of debentureholders, the following regulations apply.
(a) The company is required by law to keep the register at its registered office, or at an address
notified to the registrar.
(b) The register must be open to inspection by any person unless the constitution or trust deed
provide otherwise. Any person may obtain a copy of the register or part of it for a fee. A holder of
debentures issued under a trust deed may require the company (on payment) to supply them with
a copy of the deed.
Under the Companies Act a company has five days to respond to an inspection request or seek
exemption to do so from the court.
(c) The register should be properly kept in accordance with the requirements of the Companies Act.