DEBENTURES A debenture is a legal document which

DEBENTURES A debenture is a legal document which states the terms on which a company

DEBENTURES • had borrowed money i. e, a written acknowledgement of debt. Put differently, debenture is a loan agreement by which the lenders provide money to a company to be repaid at a later date while bearing interest at an agreed rate.

DEBENTURES • Debenture is usually secured on company’s property though, it need not always be so, as there are unsecured debenture. Unlike shares, debenture is an external source of capital of a company for a company’s business or objects.

DEBENTURES • See General Auction Estate Co. V. Smith (1991) 3 Ch. 43, Intercontractors (Nig) Ltd V N. P. F. M. B. (1988) 2 NWLR (pt. 76) 280 at 292 and Union Bank of Nig. Ltd V Tropic Foods Ltd (1992) 3 NWLR (pt. 228) 321.

DEBENTURES • Debentures are transferable securities and the normal conditions require the company to maintain a register of debenture holders (except bearer debenture). • Types of debentures: • The types of debentures are;

DEBENTURES • 1. Perpetual Debentures: • These are debentures at the time of their creation were made irredeemable and are only redeemable on the happening of an event/contingency however remote or on the expiration of a period

DEBENTURES • however long. Such contingency maybe winding up of a company, take over bid etc. See S. 171 of CAMA. • 2. Convertible Debenture: • These are debentures issued with a proviso that at a determinable

DEBENTURES • future date and at the option of the debenture holders shall be converted into ordinary shares. But no debenture so converted into shares shall appear as if the shares were sold at a discount. See S. 172 of CAMA. The conversion is in lieu

DEBENTURES • of redemption or repayment. • 3. Secured and Naked Debentures: • A secured debenture is that which is secured by a charge over the company’s property and it may be so secured by a fixed charge or by a floating charge.

DEBENTURES • While a naked debenture is one which is not secured by a charge also called an unsecured loan note. See S. 173 of CAMA. • 4. Redeemable Debentures: • These are debentures at the time of issuance are said to be redeemable

DEBENTURES • at an agreed date. Redemption of this type of debenture is out of the profit of the company or from a Sinking Fund, which is a fund set aside for redemption of debentures at a future or agreed date. See S. 174 of CAMA.

DEBENTURES • 5. Registered Debentures: • These are debentures registered in the register of debenture holders and payable only to the registered holders. It can be transferred and the transfer becomes effective after registration in the register of

DEBENTURES • debenture holders. • Bearer Debenture: • These are negotiable instruments and payable to the bearer. Bearer debentures do not require the company to maintain a register of debenture holders.

DEBENTURES • Issue of Debentures: • Debentures are issued in accordance with the provisions of the Memo and Articles of Association of a company. If the debentures are issued to the public, apart from complying with the

DEBENTURES • Memo and Articles of Association, must also meet up with the requirements of S. 71 of the ISA, to the effect of issuance of prospectus. A prospectus is the basis of the contract between the company and

DEBENTURES • the public. • Form of Debentures: • There are two forms of debentures namely Simple debenture and Debenture stock. • Simple Debenture: • This type is used where the loan is

DEBENTURES • from one or few people. It is an agreement stating the sum borrowed, signed, sealed and delivered on behalf of the lender/holder and the borrower/company with the conditions of borrowing endorsed at

DEBENTURES • the back. • Debenture Stock: • Where the loan is from a large number of people, debenture stock is used. A debenture stock is a securitised loan stock by which loans are made by way of securities, which are alloted in the

DEBENTURES • same way shares are alloted except that debenture stock holders are creditors to the company. Debenture stock is issued under a trust deed between the company and the trustee of the debenture holders.

DEBENTURES • Charges securing debentures: • Debentures maybe secured by fixed or floating charges. A charge over a company’s assets gives to the creditor/chargee, a prior claim over other creditors to payment of his debt out of those assets.

DEBENTURES • Fixed or Specific charges: • It is a charge attaching to a particular asset on creation. In other words, it is a mortgage of a specified property of the company like land, machinery, building, etc. It is best suited to fixed assets which the

DEBENTURES • Company is likely to retain for a long period. A fixed charge maybe a legal mortgage or an equitable mortgage. • A floating charge has been described as a charge on a class of assets or whole assets of a company

DEBENTURES • present or future, which class is, in the ordinary course of the company’s business, changing from time to time and until the holders enforce the charge, the company may carry on business and deal with the assets charged. A floating charge can be created over the

DEBENTURES • current and fixed assets of a company, the book debt, stock in trade, cash, uncalled capital etc but only attaches to the relevant assets when the charge crystallises. See SS. 178 -179 0 f CAMA

DEBENTURES • Registration of Charges: • S. 197 of CAMA provides that where a company creates a charge on its property, the company must within 90 days of the creation, deliver to CAC certain particulars for registration like, the particulars of

DEBENTURES • the charge and the instrument by which the charge is created. The registration is done by filling CAC Form 8. CAC must issue a certificate once a charge is registered, which is a prima-facie evidence of compliance with the requirements of registration.

DEBENTURES • Effect of Non-Registration: • Failure to register a charge as required will render it void against the liquidator and any creditor of the company. See S. 197(1) of CAMA. The obligation to pay the debt is, however,

DEBENTURES • not thereby discharged as held in Capital Finance Co. Ltd V Strokes (1969) 1 Ch. 261. When a charge becomes void, the money secured shall immediately become payable. • Records to be kept by a company after creating debentures: -

DEBENTURES • A company keeps the following records after issuing debentures; Register of Charges, Record of Instruments and Register of Debenture holders. • Remedies of Debenture Holders: • See generally S. 209 of CAMA.

DEBENTURES • 1. Recovery of Principal and Interest; • 2. Petition for Winding Up; • 3. Debenture holders’ Action; • 4. Sale; • 5. Foreclosure; and

DEBENTURES • 6. Valuation of security and proving the balance on winding up. • Satisfaction of Charges: • By the provisions of S. 204 of CAMA, where the company repays its debt to the debenture holder, it must file a Memorandum of Satisfaction of

DEBENTURES • the charge. This is done by using CAC Form 9 which is delivered to CAC and entered in the Register. • Rectification of Register and Extension of Time: • S. 205 of CAMA provides that a company and any person interested,

DEBENTURES • may apply to court for rectification of the register of charges and extension of time for registration in respect of omission to register a charge within time or omission or mis-statement of any particular with respect to that charge or in the

DEBENTURES • Memorandum of Satisfaction. • Notice of Enforcement of Security: • Any person who appoints a Receiver or Manger by order of court or by powers conferred by the debenture instrument must within 7 days from the date of the court order or

DEBENTURES • appointment of the Receiver or Manager, give notice of the fact to CAC, which will then register the fact in the register of charges. See S. 206 of CAMA. • Procedure on Creation of Charge: • The following steps are taken in

DEBENTURES • Creating a charge; • 1. Convene a Board meeting to pass resolution authorising the loan and preparation of loan documents including the prospectus if necessary; • 2. Preparation, Execution and

DEBENTURES • • • Stamping of the documents; a). Deed of Mortgage; b). Power of Attorney (if any); c). Debenture Trust Deed (if any); 3). Obtain Governor’s Consent if necessary; See N. I. D. B. V Olalomi Ind. Ltd (2002) 5 NWLR 76.

DEBENTURES • 4. File documents for registration at CAC; • a). Mortgage/Charge; • b). Trust Deed; • c). Particulars of Charge in CAC Form 8; • 5. File documents at Lands Registry;

DEBENTURES • 6. Leave copies of document for inspection at the registered office of the company that is, in the Record of instruments; • 7. Enter particulars of charge in the Register of Charges and also in the Register of debenture holders

DEBENTURES • Where applicable; • 8. obtain Certificate of registration from CAC and have a copy of the charged endorsed on every debenture or certificate of debenture stock issued by the company, the payment of which

DEBENTURES • is secured by the charge; • 9. On the satisfaction of the Charge, file Memorandum of Satisfaction of Charge using CAC Form 9 along with Deed of Release or other instruments; and • 10. Notify CAC of the appointment

DEBENTURES • Of a Receiver or Manager upon enforcement of the security.