Question

Elaborate on the process for the issue of debentures.

Answer 1

Following is the procedure to be followed by a company issuing debentures.

1. Pass Resolution in Board Meeting: In the Board Meeting the following resolution will have to be passed:
   1. Amount type of debentures to be issued and the terms and conditions for the issue.
   2. Approve prospectus or offer letter or letter of offer.
   3. Approve the appointment of Debenture Trustees and get their written consent.
   4. Authorize the Board to create charges on assets of the company.
   5. Call an Extraordinary General Meeting if the Board's borrowing powers need to be increased.
   6. Authorizes the Board to open a separate bank account for receiving money from applicants.
2. Hold an Extraordinary General Meeting (EGM): If the borrowing powers of the Board are to be increased. EGM must be held to get the shareholders' approval through a Special Resolution.
3. Filing with Registrar of Companies: Secretary has to file the Special resolution and copy of the Prospectus, offer letter/Letter of offer with the Registrar of Companies within 30 days of the Board Meeting.
4. Obtain Credit Rating: The company gets its debentures rated by one or more Credit Rating Agencies. The ratings must be mentioned in the prospectus/offer letter/Letter of the offer.
5. Enter into Underwriting Agreement: The company enters into an underwriting agreement for underwriting its debenture issue.
6. Issue Prospectus/Letter of Offer/Offer Letter: The company issues a prospectus. if it is inviting the public to buy its debentures. Offer Letter is issued if a company makes a private placement and Letter of an offer for a Rights Issue.
7. Open Separate Bank Account: Company opens a separate bank account in a scheduled Bonk to receive the money from the applicants.
8. Receiving Application Money: Subscribers will submit their application along with the required amount to the specified bank within the time period mentioned in the prospectus or letter of offer/Offer Letter.
9. Hold Board Meeting: After the issue closes, a Board Meeting is held to decide and approve the allotment of debentures. Board also approves the creation of charges on the company's assets.
10. Issue of Debenture Certificate: The allotment procedure has to be completed within 60 days from the receipt of the application money. The company has to issue a Debenture certificate within six months of the allotment of debentures.
11. Make Entries in Register of Debenture holders: Secretary has to make entries in the Register of Debenture holders within seven days after the Board approval of allotment However. if debentures are issued in Demat form, the company does not maintain the Register of Debenture holders.