Debentures in company law may refer to secured debentures, unsecured debentures, registered debentures, bearer debentures, redeemable debentures, irredeemable debentures, and convertible debentures. Businesses usually raise capital by issuing shares in the company or by borrowing from lenders.
What do you mean by convertible debentures?
A convertible debenture is a type of long-term debt issued by a company that can be converted into shares of equity stock after a specified period. Convertible debentures are usually unsecured bonds or loans, often with no underlying collateral backing up the debt.
What are the different types of debentures in the UK?
On top of fixed and floating charge debentures, there are a number of other types of debentures that you might come across: If you’re in the UK, you’re most likely to come across secured debentures. As above, this means the lender leverages a borrower’s assets to provide security against the loan.
What does it mean when company redeems debentures?
Redemption of debentures is a significant cash outflow for the company which can imbalance its liquidity During a depression, when profits are declining, debentures can prove to be very expensive due to their fixed interest rate There are various types of debentures that a company can issue, based on security, tenure, convertibility etc.
What’s the difference between a debenture and a mortgage?
Normally debentures are secured by a mortgage or a charge on the company’s assets. However debentures may be issued without any charge on the assets of the company. Such debenture is called ‘naked debenture’ or ‘unsecured debenture’.
What’s the difference between secured and floating charge debentures?
Thus, debentures can be of two types here: a) Secured Debentures: These debentures carry a charge on some assets of the issuing company. In case the company fails to repay the debt, its assets will be sold off to pay creditors. This security on debentures may be of two types: Fixed-charge or Floating charge.
