100. Power of Court in relation to certain irredeemable debentures

Question 1

100. Power of Court in relation to certain irredeemable debentures

Answer 1

General overview
[100.01] Where in irredeemable debenture or debenture redeemable upon a contingency, the company’s assets are depleting over time and on a fair valuation are becoming less than the principal sum such that upon its liquidation at the time of application hereunder, the security would likely fetch not more than 60% of the principal sums outstanding and the company is unable to generate sufficient profits to pay the interest thereon, the debenture holder(s) may apply to court for an order to enforce the debenture. Generally speaking, the enforcement of a debenture is carried out by the appointment of a receiver under the terms of the debenture or trust deed.

Question 2

Irredeemable debentures

Answer 2

[100.02] For conversion of redeemable debentures into irredeemable debentures, see Northern Assurance Co Ltd v Farnham United Breweries Ltd [1912] 2 Ch 125 where the court held that it amounted to a modification of rights of a debenture holder. An article in the memorandum and articles which empowers the company to issue “debentures and debenture stock” does not include issuing irredeemable debentures which was really equivalent to a perpetual annuity: Re the Southern Brazilian Rio Grande Do Sul Rly Co Ltd [1905] 2 Ch 78, Ch D . A trust deed that created a debenture in perpetuity or in the alternative payable only on the winding up of the company is a valid debenture