Debenture - Definition - Law Dictionary Home Dictionary Definition debenture

Definition :

Debenture [fr. debeo, Lat., to owe] may be defined generally as a charge in writing [not necessarily sealed, see British India, etc., Co. v. Commissioners of Inland Revenue, (1881) 7 QBD 165] of certain pro-perty with the repayment at a time fixed of money lent by person therein named at a given interest, but the term is a very elastic one. The word 'debenture' is of ancient origin and appears to have been in use five centuries ago (Palmer's Company Precedents, Pt. III., p. 1); and a document which, though it mentions to security and is only a promise to pay, is properly described as a debentures, and as a marketable security will require to be stamped as such, Spenyer v. Inland Revenue Commissioners, (1907)1 KB 246. By the (English) Companies Act, 1929, s. 380, a debenture is defined as including debenture stock, bonds or other securities of a company whether constituting a charge on the assets of the company or not. The charge created by debentures as a rule is fixed on the company's property or by way of floating charge. If fixed, the remedies upon default are those available to mortgagees and those stipulated for and endorsed on the debenture or provided by the trust deed. See also FLOATING CHARGE. This form of security is frequently resorted to by public companies to raise money for the prosecution of their undertakings. Registration of a company's debentures (under the term 'mortgage or bond') is required by the Companies Clauses Consolidation Act, 1845, in the case of a company incorporated by Special Act, and by the Companies Act, 1929, s. 88, see infra, in the case of a company incorporated under the general powers of that Act, but not by the Bills of Sale Acts [Re Standard Manufacturing Co., (1891) 1 Ch 627], and 'debentures' of an incorpor-ated company are expressly exempted from the (English) Bills of Sale Act, 1882, by s. 17 of that Act. Under the (English) Companies Act, 1929, ss. 79-91, every mortgage or charge created by a company registered in England for securing debentures, or on uncalled capital, or such as would require a bill of sale, on land wherever situate, on company's book debts, or as a floating charge, or on calls made but not paid; on a ship; on goodwill or patent or trade mark (see the full list in s. 79) will be void as against the liquidator and any creditor of the company unless the charge is registered with the Registrar of Joint Stock Companies in manner prescribed by the Act, within 21 days from the date of execution of the charge. The avoidance will be without prejudice to the company's obligation to repay the money secured by the charge and that money will become immediately repayable. Under s. 81 the company must also register charges existing on property when acquired by it. Registers of charges are to be kept by the registrar and the company respectively the register and copies of the instruments registered are open to the inspection of members, creditors and the public (s. 81). It should be observed that a purchaser or chargee of registered lands, of which a company is registered as proprietor or chargee, is not affected by notice of any incumbrance registered with the Registrar of Joint Stock Companies unless the incumbrance is registered or otherwise protected under the (English) Land Registration Act, 1925. See s. 60 of that Act, but double registration under the (English) Land Charges Act, 1925, is not necessary. S. 10(5) provides that registration of a land charge for securing money which has been registered under the (now) 81st s. of the (English) Companies Act, 1929, shall have effect as if the land charge had been registered under the (English) Land Charges Act, 1925.

The certificate of registration [s. 82 (2)] is conclusive that the statutory requirements for registration have been complied with, Lester v. Yolland, Husson and Burkett, (1908) 1 Ch 152. As to the re-issue of redeemed debentures, see (English) Companies Act, 1925, s. 75.

The terminability and fixity in amount of deben-tures, being inconvenient to lenders, have led to their being superseded in many cases by debenture stock which is frequently irredeemable, and usually transferable in any amounts except fractions of a pound.

Debentures may be made payable to bearer, see BEARER, and Edelstein v. Schuler & Co., (1902) 2 KB 144.

'Perpetual debentures' also are sometimes issued, and these are specially protected by s. 74 of the Companies Act, 1929.

The issue of debenture stock in the case of companies incorporated by Act of Parliament is regulated either by their special Acts, or by the (English) Companies Clauses Act, 1863 (26 & 27 Vict. c. 118), which provides that the same shall be a prior charge, and the interest a primary charge, and contains provisions for the enforcement of payment of arrears by the appointment of a receiver.

As to the issue of redeemable debenture stock by a 'statutory company,' See (English) Statutory Companies (Redeemable Stock) Act, 1915 (5 & 6 Geo. 5, c. 44).

Also a term used at the Custom House for a kind of certificate, signed by the officers of the Customs, which entitles a merchant exporting goods to the receipt of a bounty or drawback.

As to Debentures by County Authorities, see (English) Local Loans Act, 1875 (38 & 39 Vict. c. 83).--Consult Lindley on Company Law; Buckley on Companies; Palmer's Company Precedents, Pt. III.; Stiebel on Companies.

A debenture has been defined to mean essentially as an acknowledgement of debt, with a commitment to repay the principal with interest (Palmer's Company Law; p. 672) (24th Edition), Narendra Kumar Maheshwari v. Union of India, 1990 Supp SCC 440: AIR 1989 SC 2138 (2178). [Companies Act, 1956, s. 2(12)]

Includes stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not, Companies Act, 1985, s. 744(UK) Halsbury's Laws of England 3(1), para 25, p. 22.

Any document which is a debenture in the common acceptance of the term or has the same legal

effect, Halsbury's Laws of England 4(1), para 655, p. 302.