What are Debt securities?
⁃ Debentures (An overview of CAMA 2020)
Debt securities are financial instruments which are issued by companies for loans of either short term or long term duration. These instruments are transferable without restriction. One of these debt securities, by which capital can be raised for a company are debentures or debenture stock.
A debenture is a document or an instrument which contains an acknowledgment of the debt of a company and is, usually, given as a charge on the assets of the company.
The Companies and Allied Matters Act 2020 defines a debenture as a written acknowledgement of debt by a company which states clearly the terms and conditions of the indebtedness and includes, debenture stock, bonds and any other securities of a company which could contain a charge on the asset or otherwise.
Section 193 of the CAMA 2020 provides that every debenture shall include a statement on the following matters—
(a) the principal amount borrowed ;
(b) the maximum discount which may be allowed on the issue or re- issue of the debentures, and the maximum premium at which the debentures may be made redeemable ;
(c) the rate of and the dates on which interest on the debentures issued shall be paid and the manner in which payment shall be made ;
(d) the date on which the principal amount shall be repaid or the manner in which redemption shall be effected, whether by the payment of instalments of principal or otherwise ;
(e) in the case of convertible debentures, the date and terms on which the debentures may be converted into shares and the amounts which may be credited as paid up on those shares, and the dates and terms on which the holders may exercise any right to subscribe for shares in respect of the debentures held by them ; and
(f ) the charges securing the debenture and the conditions subject to which the debenture shall take effect.
Therefore, Debentures may either be unsecured by any charge or secured by a charge over the company’s assets. And that where a charge Is secured it may be secured by a fixed charge, where the companies properties are certain or a floating charge over the whole or specified part of the company’s assets .
See Section 203 and 204 of CAMA 2020-
203.—(1) A “floating charge” means an equitable charge over the whole or a specified part of the company’s undertakings and assets, including cash and uncalled capital of the company both present and future, but so that the charge shall not preclude the company from dealing with such assets until—
(a) the security becomes enforceable and the holder thereof, pursuant to a power in that behalf in the debenture or the deed securing the same, appoints a receiver or manager or enters into possession of such assets ; or
(b) the Court appoints a receiver or manager of such assets on the application of the holder ; or
(c) the company goes into liquidation.
Sec 204. A fixed charge on any property shall have priority over a floating charge affecting that property, unless the terms on which the floating charge was granted prohibits the company from granting any later charge having priority over the floating charge and the person in whose favour such later charge was granted had notice of that prohibition at the time when the charge was granted to him .
Finally, we know that raising capital is crucial for any company that’s a going concern. We advise that where a company as the case may be seeks to obtain a financial instrument it may be in form of a debenture which, as stated, is a written acknowledgement of debt by a company which outlines clearly the terms of the company’s indebtedness.
References:
- J. Abugu- company security: Law and practice
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