Its character springs from its genesis, as the writ er above quoted remarks, and is moulded by the combination of necessities: (1) Of giving security to the holders ; (2) of leaving the company free to manage its business. From this combination arises the idea of the "floating charge" which binds the property of the company and the continuance of which as a mere charge is based upon the contin ued existence of the company as a going concern. See FLOATING CHARGE. The property charged, changing as it does in specie from time to time is by English courts termed the UNDERTAKING, which title see.
If the company makes by default or is wound up or "ceases to be a going concern," the right of the holders arises to ask far a receiver and to realize their interest ; 56 L. J. Ch. 636, 35'w. R. 674; L. R. 16 Ch. D. 465. A sale of its entire property assets, good will, etc., is not in the ordinary course of business and was enjoined ; id.
"A floating charge, though it nets all the avail able assets, is only an equitable security, end . . . may vanish altogether, Hence, where the sum borrowed is large, it has become usual to sup plement the floating charge by a mortgage of spe cific property embodied in what is commonly called a covering or trust deed ;" 13 L. Q. R. 422; which has two purposes: (1) To fasten the security upon the property ; (2) to organize the debenture holders into a compact body and name trustees to act for them; id.
The mere fact that an instrument is on its face termed a debenture does not make it such, if on an examination of its substance it is found not to con tain an acknowledgment of, or agreement to pay, a debt ; 36 Ch. D. 216; 37 id. 260.
Debentures may be issued by a single per son, a firm, or corporation, and it is an tribute implied in the definition of deben ture that the holders are entitled without priority among themselves. They are, it is said, usually made a primary charge on the corporate property or undertaking, and as such will have priority over judgments ob tained by general creditors and over the claims of shareholders ; Cay. Mon. Sec. 358.
"Such debentures are in effect statutory mortgages. . . . In England each cred itor is secured by a separate mortgage, while in America one secures all ; and by statute in England, holders of mortgage debentures have no priority inter se." Jones, Corp. B. &
M. Sec. 32.
Sometimes the nature of a debenture hold er's charge is that of a floating mortgage or security attaching only to the subjects which are for the time being the property of the company, and not preventing the latter from disposing of the subject charged free from incumbrance; id.; L. R. 15 Ch. D. 465; id. 530.
A debenture is distinguished (1) from a mortgage which is an actual transfer of prop erty, (2) from a bond which does not directly affect property, and (3) from a mere charge on property which is individualized and does not form part of a series of similar charges ; Cay. Mon. Sec. 267, citing L. R. 10 Ch. D. 530, 681; 15 id. 465; 21 id. 762 ; L. R. 7 App. Cas. 673. Debentures strictly so called dif fer frinn mortgages in not conferring on the grantee the legal title or any of the ordinary rights of ownership of the property upon which the charge Is created. A leading Amer ican writer says of this class of securities as understood in England that the charge cre ated by them confers only equitable rights either as against other creditors or as against the creating them. It is a test whether an instrument is a debenture or mortgage to ascertain whether the holder has any legal right to interfere with the com pany's use or control of the property in what ever way it pleases. If the instrument con fers a charge which can be protected and en forced only in equity it is strictly a deben ture; Jones, Corp. B. & M. § 32. See 10 H. L. C. 191. Of course, the effect and extent of the charge depend entirely upon the language used; L. R. 2 Ch. D. 337.
A debenture holder in England differs from a mortgagee in that the latter has a lien upon tolls and traffic receipts and may have a receiver appointed while the former has not; Jones, Corp. B. & M. § 232 ; 2 Ir. Eq. 524; L R. 7 Ch. 655.
Debentures issued by an English company owning land in Italy and binding their "as sets, property, and effects" were held to cre ate no mortgage or lien ; 26 W. R. 123 ; and debenture bonds, principal and interest payable to bearer, secured by mortgage of the comiany to certain persons as trustees for the holders, which was void for non-re cording, were held to create no charge; 19 Q. B. D. 568.