Debentures Trust deeds
The document created by the company, whereby trustees are appointed to protect the interest of debenture holders before they are offered for public subscription is known as Debenture Trust Deed. The company offering debentures shall have to abide by with the following conditions:
(i) No public issue of debt instruments shall be prepared but for credit rating from credit rating group is acquired and revealed in the tender deed.
(ii) Credit ratings of the last three years shall be revealed in the offer deed.
(iii) A Trust Document shall be accomplished by the issuer corporation in favor of debenture trustees inside 6 months of the end of issue.
(iv) Requisite powers should be granted to debenture trustees, so that they can protect the interest of debenture-holders.
(v) The debenture trustees shall ensure the creation of Debenture Redemption Reserve.
Functions of Debenture Trustees:
(i) Calling for periodic reports from the body corporate.
(ii) Taking possession of the trust property in accordance with the conditions of the trust title deed.
(iii) Implementing safety measures in the interest of debenture holders.
(iv) Creation of charge in opposition to the assets as under debenture Trust Deed must be accomplished inside a month of the issue of allotment note and posting of debenture certificate.
A debenture trustee who doesn’t abide by with the provisions of set rules, regulations and conditions of trust deed will disqualify himself to act as trustee.
Selection of Debenture Trustees
According to Section 117-B as inserted by the Companies (Amendment) Act, 2000, the company can issue prospectus or note of proposal to the public for the subscription of debentures, if the corporation has appointed debenture trustees for the issue. The debenture trustees must express their consent to be appointed as trustee.
Who can be a Trustee
(a) A listed bank carrying on money-making action.
(b) A public financial institution.
(c) An insurance company.
(d) A body corporate.
Who cannot be a Trustee
(a) He, who favorably has possession of company shares.
(b) If he is beneficially at liberty to moneys, which are to be compensated by the corporation to the debenture trustees, and,
(c) If he has entered into any agreement in respect of primary debts protected by the interest or debentures thereon.