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Question
Explain briefly the procedure for issue of debentures.
Solution
Section 2 (30) of the Companies Act, 2013 define debenture as "debenture" includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.
Following is the procedure to be followed by a company issuing debentures -
1. Pass resolution in Board Meeting: In the Board Meeting following resolution will
have to be passed :
i) amount and type of debentures to be issued and the terms and conditions for issue.
ii) approve prospectus or offer letter or letter of offer.
iii) approve appointment of Debenture Trustees and get their written consent.
iv) authorize Board to create charge on assets of the company.
v) call Extra-ordinary General Meeting if the Board's borrowing powers need to be
increased.
vi) authorizes Board to open a separate bank account for receiving money from applicants
2. Hold Extra-ordinary General Meeting (EGM) : If the borrowing powers of the Board is 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 Prospectus, offer letter / Letter of offer with Registrar of Companies within 30 days of the Board Meeting.
4. Obtain Credit Rating: 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: Company enters into an underwriting agreement for underwriting its debenture issue.
6. Issue prospectus / letter of offer/offer letter: Company issues prospectus, if it is inviting the public to buy its debentures. An offer Letter is issued if a company makes a private placement and Letter of an offer for Rights Issue.
7. Open Separate Bank Account: The company opens a separate bank account in a scheduled Bank 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 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 application money. The company has to issue a Debenture certificate within 6 months of allotment of debentures.
11. Make entries in Register of Debenture holders: Secretary has to make entries in the Register of Debenture holders within 7 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.
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Arrange in proper order.
a. Hold Board Meeting for allotment
b. Issue debenture certificate
c. Receive application with money
