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Debenture Trustee – Commerce And Accountancy Notes – For W.B.C.S. Examination.
Debenture Trustee is an entity that secures any issue of debentures of a body corporate for the benefit of investors.Continue Reading Debenture Trustee – Commerce And Accountancy Notes – For W.B.C.S. Examination.
Debenture Trustee plays a very important role in the NCD issue by safeguarding the interest of debenture holders and acting as an intermediary between the issuer company and the debenture holders.
As per the provisions of the companies act, the appointment of a debenture trustee is mandatory in case of debentures/bonds with maturity beyond 18 months, irrespective of whether debentures/bonds are secured or not. However, the issue of debentures/bonds with a maturity of 18 months or less are exempt from the requirement of debenture trustee.
Debenture Trustee Regulations SEBI
The SEBI (Debenture Trustees) Regulation, 1993 governs the Debenture Trustee and provides for all the required details for Debenture Trustee from eligibility criteria to responsibilities of a Debenture Trustee along with the procedure for action in case of default.
Debenture Trustee Appointment / Eligibility Criteria
To act as a debenture trustee, the entity should either be:
- A scheduled bank carrying on commercial activity; or
- A public financial institution; or
- An insurance company; or
- A body corporate.
The entity should be registered with SEBI to act as a debenture trustee.
The entity should be an independent body from the issuer company and should in no way be related to the company.
The principal officer overseeing the activities of the debenture trustee should NOT be:
- A beneficial share owner of the issuer company, or
- A promoter, director or key management personnel or employee of the issuer company or its holding, subsidiary or associate company.
Debenture Trustee Role and Responsibilities
- To protect the interest of the debenture holders.
- To call for and keep a periodic check on the reports of the issuer company.
- To take possession of the trust property by provisions of the trust deed.
- To take appropriate measures to protect the interest of the debenture holders in case of any breach of the trust deed or law.
- To ensure that the debentures have been converted or redeemed as per the provisions and conditions under which they are offered to debenture holders.
- To enforce security in the interest of the debenture holders in case of any default by moving to assets for collection of debt.
- To ensure at all times that the property charged to the debenture is free from any other claim except those specifically agreed with the debenture holder and that the property is available and adequate to discharge the interest and the principal amount payable in respect of the debentures.
- To exercise due diligence to ensure that the issuer entity is compliant with provisions of the Companies Act, the listing agreement of the stock exchange, or the trust deed.
- To inform the Board immediately in case of any breach of trust deed or provision of law.
- To appoint a nominee director on the board of issuer entity when required. A nominee director can be appointed in case of below happenings:
- Two consecutive defaults in payment of interest to debenture holder or
- Default in the creation of security for debentures or
- Default in the redemption of debt.
With such an important role to play for the debenture trustee in NCD issue, SEBI is looking to strengthen the regulatory framework for them in view of better investor protection and reducing the events of defaults by financial institutions.
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