What is a Debenture? And what are the rights of debenture holders?

A debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term “debenture” originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debenture becomes a part of the company’s capital structure, it does not become share capital.

In legal parlance, when the phrase company security is mentioned, what should come to mind is the stakes or rights in companies. Section 567 of the Nigerian Companies and Allied Matters Act (CAMA) Cap C20 LFN 2004 defines securities to include shares, debentures, debenture stock, bond, notes (other than promissory notes) and units under a unit trust scheme. There are two main types of company securities, these are shares and debentures. This is what individuals deal in as regards having a stake in any company which gives them a right in the company and so on. Section 166 of CAMA 2004 further states how a debenture is created. Thus, the rights and remedies of debenture holders are as follows:-

(i) They can file a suit against the company for the principal as well as for the interest.

(ii) They can file an application to the court regarding compulsory dissolution of the company.

(iii) If the company is under the process of winding up, they can claim their principal.

Rights and remedies of secured debenture holder:-

(i) They can file a suit against the company for the principal as well as for the interest.

(ii) They can file an application to the court regarding compulsory dissolution of the company.

(iii) If the company is under the process of winding up, the can claim their principal.

(iv) These debenture holders can file a suit against the companies for its compulsory dissolution through the debenture trustee.

(v) They can file a suit against the company for the sale of property.

(vi) They can get an injunction from the court to restrict the right of the company to sell its property for redemption of the debenture.

(vii)  If the trustee is so authorized, the debenture holder may appoint liquidator through the trustee and get the charge sold for the purpose of repayment.

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