Law Firms In Dhaka

Law Firms In Dhaka, Bangladesh

Law Firms In Dhaka, Bangladesh: A document which either creates a debt or acknowledges it and any document which fulfills either of these conditions is a debenture” Explain. The main source of finance of a joint stock company is Share capital. Company is liable to them.

By issuing share, company basically take money as capital for the company from them and later the company provides them a percentage of its profit. They also share the loss or the liabilities of the company. Company may need additional amount of money for a long period. It cannot issue shares every time. So, it can raise loan from the public. The amount so raised is loan for the company.

A Debenture is a unit of loan amount. It bears the date of redemption and rate and mode of payment of interest. A debenture is therefore, a certificate of loan issued by a company. [1] When a company intends to raise the loan amount from the public it issues debentures. It is a type of security and a debenture holder is the creditor of the company.

As per section 2(12) of Companies Act 1956, “Debenture includes debenture stock, bond and any other securities of the company whether constituting a charge on the company’s assets or not”.  So it is equivalent to mortgage.

Other securities means fixed assets which are not moveable and has fixed reselling value. If the company gets bankrupt the bank repay the loan by selling those fixed assets and recompense credits of debenture holders In United Dominion Trust Ltd. v. Kirkwood, receipt or a certificate for a deposit made with a company when the deposit was repayable at a fixed period after it was made, was held to be debenture. In Laxman Bharamji v. Emperor, the Bombay High Court observed that debentures normally indicates the security against the loan taken by the company and contain the conditions of repayment, date, rate of interest payable to the holder.

They may even create a charge on the company’s property, but it is not always necessarily so. Briefly speaking, the debentures are the acknowledgement of debt, the promise to return it. [4] In the ordinary business sense a ‘debenture’ is generally understood to be a document acknowledging a debt and securing repayment thereof by mortgage or charge on the company’s property or undertaking , and providing that until repayment ,interest will be paid there on at a fixed rate payable usually half yearly or yearly on fixed dates.

Debenture includes stock, bonds and any other company’s securities. The company must record this debt in their balance sheet. Debentures are a way for companies to raise capital without having to use their assets or give up ownership in their company. This leaves their assets free to do other things to generate capital for the business.

Major types of Debentures:

  • Convertible debentures: these bonds are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. “Convertibility” is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert; convertible bonds typically have lower interest rates than non-convertible corporate bonds.

[4] Debenture is an acknowledgement of debt under the seal of the company.

[5] Secured debentures are those which has fixed charge and floting charge.
  • Non-convertible debentures: they are simply regular debentures, cannot be converted into equity shares of the liable company. As a result, they usually carry higher interest rates than their convertible counterparts.

A bond is a formal contract to repay borrowed money with interest at fixed intervals.  Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest.

Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders).

An exception is a consol bond, which is perpetuity (i.e., bond with no maturity). In the terms of security, there are two types of Debenture. 1. Secured Debenture & 2. Unsecured Debenture Secured Debentures:

  1.  So it is equivalent to mortgage.
  2.  Law Firms In Dhaka, Bangladesh
  3. Floating Charge: A floating charge is generally in respect of movables, that is, properties which are constantly changing. It does not amount to mortgage of property. A charge on the stock-in-trade from time to time of a business is a floating charge. its very identification goes on changing and the final identification is at the point of time when the charge crystallizes or becomes fixed after which the company can mortgage or sell that property subject the charge. The charge will continue to attach only so long as the item remains unsold.

Unsecured Debentures:

When debentures are issued without any charge or security, they are termed as unsecured or naked debentures. The attributes of a debenture: Ø      Issued by the company in the form of a certificate of indebtedness. The explanation clause of this section states that the loan shall include debentures. Ø       Section 117 to Sections 123 of the Companies Act, 1956 regulate the provisions relating to debentures, appointment of debenture trustees, their duties, creation of Debenture Redemption Reserve Account, liability of trustees etc.

The debentures issued under the Act shall not carry any voting rights.[6] In the case of public issue of debentures, there would be a large number of debenture holders on the register of the company. As such it shall not be feasible to create charge in favor of each of the debenture holder. A common methodology generally adopted is to create Trust Deed conveying the property of the company. The Trustees declare the Trust in favor of the debenture holders.

Failure to provide the same would invite penalties by way of fine under the Act. Any provision contained in the Trust Deed, which exempts a Trustee from liability for breach of Trust, is void.

Debenture holders can’t take part in company’s decision making they don’t have any right to give their vote in company’s decision making process. Ø       As per Section 125 (4) of the Companies Act, registration of a charge for purpose of issue of debentures is mandatory. The procedure of issue of debentures by a company is similar to that of the issue of shares.

A public company may, however, require the approval of shareholders to borrow money in excess of the aggregate of its paid up capital and free reserves.{Section 293 (1) (d)}. Debentures have been defined under Section 2 (12) of the Act to include debenture stocks, bonds [8] and any other securities of the company whether constituting a charge on the company’s assets or not. It is only one of the methods of raising the loan capital of the company.

Finally it can be said that, all the features and classifications of debentures has proved the statement “A document which either creates a debt or acknowledges it and any document which fulfills either of these conditions is a debenture” Bond is similar to that of debenture both in terms of contents and texture.

The significant difference between bonds and debentures is with respect to the issue condition i.e., bonds can be issued without predetermined rate of interest. – Company account: Issue of debenture Debenture stock is a document representing the loan capital of the company consolidated into one single composite debt which may be divided into the transferable in convenient units of fixed amount.

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Law Firms In Dhaka, Bangladesh

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Ph:0088-02-9571389; 0088-02-9513408,

 

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