Ch 16- Loan Capital

Question 1

What are debentures ?

Answer 1

Debentures are loan capitals used to raise finance. In legal terms, its known as ‘a written acknowledgement of indebtedness’ .

Question 2

How can debentures be issued ? ( 3 methods )

Answer 2

1. Single debentures : issued to a single provider.
2. Debentures issued in series : the loan is raised from several providers, all of them are treated equally.
3. Debenture stock : finance is raised from the public each owning a debt via a certificate.

Question 3

What are the main differences between shares and debentures ?

Answer 3

• Shares gives variable returns whereas dividends provides a fixed interest.
• shares are never issued at discounts whereas dividends are issued at the par value or premium.
• shares hold no security whereas debentures have either a fixed or floating charge.
• shares rank last during liquidation whereas debentures rank first.

Question 4

What is meant by a crystallizing event ? When does it take place ?

Answer 4

It is when floating charges are converted to fixed charges. It takes place when :
1. A company is unable to pay its debts.
2. Company goes into liquidation.

Question 5

Charges must be registered with the registrar within ______ days.

Answer 5

21 days.