What are Debentures?
A business may need to raise capital in the course of its operations.
When companies apply for loans from banks or other institutions, they often provide securities to creditors. A common form of security is a charge on an asset.
A charge is a form of security interest usually taken by a lender or creditor (“chargee”) to secure the repayment of a loan.
A debenture is a written loan agreement between a borrower and a lender registered with ACRA. It provides the lender with security over the borrower's assets.
A debenture is a document that promises to pay creditors and grants security over all or most of a company's assets. Typically, debentures create a fixed charge over company assets that are not disposed of in the ordinary course of business and a floating charge over the remainder of the company's operations. It confers on the creditor rights as a mortgagee or chargee, such as the right to appoint an administrator or administrative receiver with broad powers to run the company's business and realize its assets.
Typically, banks, factoring companies or invoice discounters use debentures as guarantee for their loans. A debenture can only be held by an LLC or LLP; it cannot be taken over by a sole proprietorship or a standard partnership.
Directors who advance or loan funds to their companies can take debentures to secure the loans. Private lenders can also take debentures.
Debentures are medium-to-long-term debt instruments used by large companies to borrow money at fixed interest rates. A debenture is like a loan certificate or loan bond that certifies that the company is obligated to pay a specified amount of interest. While the money raised in debentures becomes part of the company's capital structure, it does not become share capital. Senior debentures are paid out before subordinated debentures, and these classes vary in risk and reward.
Debenture holders do not have the right to vote at the company's shareholder meetings. The interest paid to them is an expense on the company's financial statements.
Registering a New Charge for Companies
Charges to secure any debenture issue must be registered. Once a charge is created, it must be registered with ACRA.
A full list and rules relating to the registration of changes can be found in Sections 131 to 141 of Division 8 of the Companies Act.
Types of Charges
Fixed Charge
A charge secured by fixed assets such as land and buildings, ships, machinery, shares, copyrights, patents, trademarks and other intellectual property rights
Floating Charge
A charge secured by a non-specific asset or generic class (eg inventory, cash, shares, accounts receivable).
A floating charge "floats" over the secured assets. It is converted to a fixed charge only in cases such as when the company fails to repay a loan.
Registration of charges apply to all local and foreign companies registered in Singapore.
Section 93 of the Companies Act requires every company that issues debentures (other than debentures transferable by delivery) to maintain a register of debenture holders. The register and trust deed are available for inspection by debenture holders and shareholders.
For reasons of confidentiality, the Trust Deed, which may contain commercially sensitive information, is not open to public inspection.
When to Register
Charges must be registered within 30 days of their creation.
Applications will be processed and approved upon submission. ACRA will send an email notification confirming the charge registration. Email notifications will serve as conclusive evidence that the company has complied with the requirements.
Connect with Us
Bestar is an accounting firm and corporate secretarial firm. Engage our services to submit filing on your company’s behalf. Contact us.
Comments