LOAN CAPITAL
1. INTRODUCTION
Every company has borrowing powers, which is the power
to issue debentures and create charges: s 19(1)(c) and Third Schedule, CA
1965.
The power is exercised by the BOD. The power should be
exercised in the interests of the company subject to any limitations in the M/A
and the A/A.
2. DEBENTURES
Debenture includes debenture stock, bonds, notes and
any other securities of a corporation whether constituting a charge on the
assets of the corporation or not: s 4(1), CA 1965.
A debenture is basically a document which acknowledges
a company’s indebtedness. It should be noted that the mere holding of a
debenture does not make the person a secured creditor.
If a debenture is secured by a charge, then it can be
said that the debenture holder is a secured creditor.
A charge is a security created by a company in favour
of a creditor.
The differences between shares and debentures are as
follows.
SHARES
|
DEBENTURES
|
A shareholder is a
member of a company
|
A debenture holder
is a creditor and not a company member.
|
A shareholder has
membership rights in the company, ie rights to attend and vote at meetings
and receive dividends.
|
A debenture holder
has no rights in the company except the rights against the company by virtue
of the debenture.
|
A shareholder can
rely on s 33(1) of CA 1965 to enforce his rights as per the A/A.
|
A debenture holder
will rely on the debenture to enforce his rights.
|
A shareholder will
receive dividends only if there are distributable profits.
|
A debenture holder
is paid interest irrespective of whether the company made profits.
|
A shareholder
cannot be paid dividends out of capital as the capital will be reduced.
|
A debenture holder
can be paid interest out of capital.
|
If a company is
wound up, a shareholder is only paid after a debenture holder is paid in
full.
|
If a company is
wound up, a debenture holder must be paid in full before any distribution is
made to shareholders, ie the debenture holder is in priority.
|
Return of
investment to a shareholder is subject to the availability of capital
|
Return of money to
a debenture holder is obligatory if a company is wound up.
|
A shareholder
cannot convert his shares to debentures.
|
A debenture holder
can convert his debentures to shares if they are convertible debentures.
|
A shareholder
cannot be issued shares at a discount.
|
A debenture holder
can be issued debentures at a discount.
|
A company cannot
buy back shares from a shareholder.
|
A company can buy
back debentures from a debenture holder.
|
A shareholder can
only transfer his shares subject to the BOD’s approval.
|
A debenture holder
can freely transfer debentures to another person.
|
A shareholder can
only be issued shares subject to the company’s authorised share capital.
|
There is no such
limit for debentures.
|
A shareholder can
challenge the BOD if shares were not issued to raise capital.
|
A debenture holder
has no such rights.
|
LOAN CAPITAL
Reviewed by Kamaruddin Mahmood
on
9:57:00 PTG
Rating:

Tiada ulasan: