Where debentures are deposited by a company as security for a loan, and the debentures are of a larger face value than the amount of the loan, the holders are entitled to dividends upon the full amount of the debentures until the loan is repaid.
When a company, which is indebted to a banker, issues debentures forming a specific charge upon the property of the company. without applying the money so raised in reduction of the loan or overdraft, the banker should review his position, because, in the event of a winding up, he will, unless other wise secured, rank merely as an unsecured creditor after the debenture holders.
A private firm sometimes registers as a limited company for the sole purpose of obtaining powers to issue debentures as a floating charge upon its stock, and of avoid ing the necessity of having to give a bill or sale upon the stock in order to borrow money thereon.
Every company shall, within two months after allotment, and within two months after registration of the transfer of any debentures or debenture stock complete, and have reads' for delivery, the debentures, and certificates of debenture stock, unless the conditions of issue otherwise provide. (See Section 92 of the Companies (Consolidation) Act, 1908, under heading CERTIFICATE.) Every mortgage or charge created after July 1, 1908, by a company, registered in England or Ireland, must be delivered to the registrar of companies for registration within twenty-one days after the date of its creation. The holding of debentures en titling the holder to a charge on land shall not be deemed to he an interest in land. Where a series of debentures ( ontaining, or giving by reference to any other instrument, any charge to the benefit of the debenture holders, is created by a company, the required particulars must be delivered to the registrar within twenty-one days after the execution of the deed containing the charge, together with the deed containin-; the charge, or if there is no such deed, one of the debentures. The registrar shall give a certificate of the registration of anv mort gage or charge, and the company shall cause a copy to be indorsed 0 1 every debenture or certificate of debenture stock which is issued by the company and the payment of which is secured by the mortgage or charge so registered.
In the " Handbook on the Formation, etc.. of Joint Stock Companies," by F. Gore Brown, N.C., and William Jordan, the fol lowing information regarding the registra tion of debentures is supplied (p. 202, 30th edition) : " Before the 1st July, 190S, the more usual practice was to register the individual instruments as separate charges under sub-section 1 of Section 14 of the Act of 1900, instead of the series under sub section 4. In cases where debentures of a series were registered separately and a further issue of the same series is now made, the series should be registered within twenty one days after the issue of the first of the further debentures. The Registrar considers that registration of the series is also neces sary when debentures registered separately are renewed by indorsement, even though they may not have matured."
In addition to being registered with the registrar of companies, all debentures speci fically affecting property of the company must be entered in a register kept by the company, but a debenture containing merely a floating charge does not require to be entered in this register, though it does require registration with the registrar of companies.
For full particulars regarding registration, see the sections of the Companies (Con solidation) Act, 190S, under heading REGISTRATION OF MORTGAGES AND CHARGES.
Any creditor or member of a company may inspect the register of mortgages which is kept by the company, without payment of a fee, and any other person may inspect it on payment of one shilling. Any person may inspect the documents kept by the registrar of companies on payment of one shilling. (See REGISTRAR OF COMPANIES.) A copy of any trust deed for securing an issue of debentures shall be forwarded to any debenture holder on payment, in the case of a printed deed, of one shilling, or less, or, where the deed is not printed, on pay ment of sixpence for every 100 words required to be copied (Section 102, s.s. 2, Companies (Consolidation) Act, 190S).
Where a company has redeemed any debentures, the company, unless the articles or conditions of issue expressly otherwise provide, or unless the debentures have been redeemed in pursuance of any obligation so to do (not being an obligation enforceable only by the person to whom the redeemed debentures were issued or his assigns), shall have power to keep the debentures alive for the purposes of re-issue (Section 104, s.s. 1). Sub-section 3 of the same Section says :- " Where a company has either before or after the passing of this Act deposited any of its debentures to secure advances from time to time on current account or otherwise, the debentures shall not be deemed to have been redeemed by reason only of the account of the company having ceased to be in debit whilst the debentures remained so deposited.'' The re-issue of a debenture shall be treated as a new debenture for the purposes of stamp duty.
In the event of default in the payment of the principal and interest secured by a mortgage debenture : The debenture holders may sue the company for repayment of principal and interest ; or, Apply to the Court for an Order for sale of the property ; or, Apply for a receiver to be appointed to wind up the company ; or, If there is a trust deed giving the necessary power, the trustees may sell the property, or enter into possession ; or, If all the debenture holders agree, they may apply to the Court for an order of foreclosure. (See FORECLOSURE.) The exact terms of the debenture or of any trust deed must be strictly observed.
As to the stamp duty on a debenture for securing the payment or repayment of money, or the transfer or retransfer of stock, see MORTGAGE, ETC., AND MARKETABLE SECURITY.
When the debentures are stamped, the trust deed, if any, takes only a ten shilling stamp. (See COMPANIES, REGISTRATION OF MORTGAGES AND CHARGES.)