In last post we
discussed Debenture Trust. Now we will discuss format for debenture trust deed
as given in Form SH -12.
The debenture
trust deed shall, inter alia, contain the following:-
1.
DESCRIPTION OF DEBENTURE ISSUE:
(a) Purpose of raising finance through the debenture
issue;
(b) Details of debenture issue as regards amount,
tenure, interest/coupon rate, periodicity of payment, mode of payment and period
of redemption;
(d) The terms of conversion/redemption of the
debentures in terms of the issue to the debenture holders, options available,
and debt equity ratio and debt service coverage ratio, if applicable.
2.
DETAILS OF CHARGE CREATED (in case of secured debentures):
(a) Nature of charge created and examination of
title;
(b) Rank of charge created viz. first, second, pari
passu, residual, etc;
(c) Minimum security cover required;
(d) Complete details of the asset(s) on which charge
is created such as description, nature, title, location, value, basis of
valuation etc.;
(e) Methods and mode of preservation of assets charged
as security for the debentures;
(f) Other particulars of the charge, e.g., time period
of charge, rate of interest, name of the charge holder;
(g) Provision for subsequent valuation;
(h) Procedure for allowing inspection of charged
assets and book of accounts by debenture trustee or any person or person
authorized by it;
(i) Charging of future assets
(j) Time limit within which the future security for
the issue of debentures shall be created
(k) Circumstances specifying when the security may be
disposed of or leased out with the approval of trustees
(l) Enforceability of securities, events under which
security becomes enforceable
(m) Obligation of company not to create further charge
or encumbrance of the trust property without prior approval of the
trustee
3.
PARTICULARS OF THE APPOINTMENT OF DEBENTURE TRUSTEE(S):
(a) The conditions and procedure for the appointment
of the debenture trustee;
(b) Procedure for resignation by trustee including
appointment of new trustees;
(c) Provision that the debenture trustee shall not
relinquish his office until another debenture trustee has been
appointed;
(d) Procedure to remove debenture trustee by debenture
holders providing for removal on a resolution passed by the holders of not less
than three fourth in value of debentures;
(e) Fees or commission or other legal travelling and
other expenses payable to the trustee(s) for their services;
(f) Rights of the trustee including the right to
inspect the registers of the company and to take copies and extract thereof and
the right to appoint a nominee director;
(g) Duties of the trustee.
4. EVENTS
OF DEFAULTS
(a) Events under which the security becomes
enforceable which shall include the following events:
(i) When the company makes two consecutive defaults in
the payment of any interest which ought to have been paid in accordance with the
terms of the issue;
(ii) When the company without the consent of debenture
holders ceases to carry on its business or gives notice of its intention to do
so;
(iii) When an order has been made by the Tribunal or a
special resolution has been passed by the members of the company for winding up
of the company;
(iv) When any breach of the terms of the prospectus
inviting the subscriptions of debentures or of the covenants of this deed is
committed;
(v) When the company creates or attempts to create any
charge on the mortgaged premises or any part thereof without the prior approval
of the trustees/debenture holders;
(vi) When in the opinion of the trustees the security
of debenture holders is in jeopardy.
(b) Steps which shall be taken by the debenture
trustee in the event of defaults;
(c) Circumstances specifying when the security may be
disposed off or leased out with the approval of trustees;
(d) A covenant that the company may hold and enjoy all
the mortgaged premises and carry on therein and therewith the business until the
security constituted becomes enforceable
5.
OBLIGATIONS OF COMPANY:
This section
shall state the company’s duty with respect to-
(a) maintaining a Register of debenture holders
including addresses of the debenture holders, record of subsequent transfers and
changes of ownership;
(b) keeping proper books of accounts open for
inspection by debenture trustee;
(c) permitting the debenture trustee to enter the
debentureholder’s premises and inspect the state and condition of charged
assets;
(d) furnishing information required by the debenture
trustee for the effective discharge of its duties and obligations, including
copies of reports, balance sheets , profit and loss account etc.;
(e) keeping charged property/security adequately
insured and in proper condition;
(f) paying all taxes, cesses, insurance premium with
respect to charged property/security, on time;
(g) not declaring any dividend to the shareholders in
any year until the company has paid or made satisfactory provision for the
payment of the installments of principal and interest due on the
debentures;
(h) creating the debenture redemption
reserve;
(i) converting the debentures into equity in
accordance with the terms of the issue, if applicable;
(j) informing the debenture trustee about any change
in nature and conduct of business by the company before such change;
(k) informing the debenture trustee of any significant
changes in the composition of its Board of Directors;
(l) informing the debenture trustee of any
amalgamation, merger or reconstruction scheme proposed by the
company;
(m) keeping the debenture trustee informed of all
orders, directions, notices, of court/tribunal affecting or likely to affect the
charged assets;
(n) not creating further charge or encumbrance over
the trust property without the approval of the trustee;
(o) obligation of the company to forward periodical
reports to debenture trustees containing the following particulars:
(i) updated list of the names and addresses of the
debenture holders;
(ii) details of interest due but unpaid and reasons
thereof;
(iii) the number and nature of grievances received
from debenture holders and (a) resolved by the company (b) unresolved by the
company and the reasons for the same.
(iv) a statement that the assets of the company which
are available by way of security are sufficient to discharge the claims of the
debenture holders as and when they become due
(p) complying with all directions/guidelines issued by
a Regulatory authority, with regard to the debenture issue
(q) submitting such information, as required by the
debenture trustee
6.
MISCELLANEOUS:
(a) The conditions under which the provisions of the
trust deed or the terms and conditions of the debentures may be
modified;
(b) The mode of service of notices and other documents
on the company, the trustee and the holders of the debentures;
(c) The company to be responsible for paying any stamp
duty on the trust deed or the debentures (if applicable);
(d) Provisions regarding meetings of the debenture
holders;
(e) Provisions for redressal of grievances of
debenture holders.
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