Requirement in Respect of Debenture Trustees
A company must appoint one/more debenture trustee in accordance with the provisions of the Companies Act before issuing a prospectus/ letter of offer to the public for subscription of its debentures. The names of the debenture trustees should be stated in the offer document and also in all the subsequent periodical communications sent to the debenture holders. A trust deed should be executed by the company in favour of the debenture trustees within three ,months of the closure of the issue. Trustees should be vested with the requisite powers for protecting the interest of debenture-holders, including the right to appoint a no institutional director to the board of company in consultation with institutional debenture holders.
The debenture trustee should ensure compliance of the following:
It should obtain reports from the lead bank regarding monitoring progress of me project. It should also monitor utilisation of funds in the debenture issue. The trustees should obtain a certificate from the company’s auditors: (i) with respect to utilisation of funds during the implementation period of projects and (ii) in the case of debentures for working capital, the certificate, obtained at the end of each accounting year. Debenture issues by companies belonging to the group, for financing replenishing funds or acquiring shareholding in other group companies, are not permitted. In other words, the company cannot issue debentures for acquisition of shares! providing loan to any company belonging to the same group. However, it may issue equity shares for purposes of repayment of loan to, or investment in, companies belonging to the same group. The debenture trustees should supervise the implementation of the conditions regarding creation of security for the debentures and debenture redemption reserve.