Debentures

In one line

A debenture is any instrument of a company evidencing a debt, whether secured or not; the Act lets it be made convertible by special resolution, forbids it to carry votes, requires a redemption reserve out of distributable profits and a debenture trustee for large issues, and gives the trustee and the holders a route to the Tribunal.

In exam wording: under section 2(30) "debenture" includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.

Why the law has this at all

A debenture holder is a creditor, and a creditor of a peculiar kind. He has lent to a company on terms fixed years in advance; he is one of many, often thousands; he has no vote and therefore no voice inside the company; and unlike a bank he cannot renegotiate his security when the borrower's position deteriorates. Everything in s.71 follows from that.

He cannot act collectively, so the Act gives him a representative. Sub-section (5) requires a debenture trustee for any prospectus or offer to the public or to more than five hundred members, and sub-sections (6) and (7) fix that trustee's duty and forbid contracting out of it.

He cannot see trouble coming, so the Act gives the trustee an early alarm. Sub-section (9) lets the trustee go to the Tribunal as soon as the assets look likely to become insufficient, before default, and get restrictions imposed on further borrowing.

He must be paid, so the Act sets money aside in advance. Sub-section (4) requires a debenture redemption reserve out of profits available for dividend, and forbids its use for anything but redemption. That is a direct restriction on distributions to members for the benefit of creditors.

And he must not be turned into a member without his consent. Sub-section (2) forbids voting rights on debentures, and sub-section (1) allows convertibility only with a special resolution.

The other half of the reason is definitional. Because a debenture is any instrument evidencing a debt, the term would otherwise swallow a great deal of ordinary corporate borrowing, which is why the 2017 proviso carves out the instruments regulated by the Reserve Bank.

Section 2(30): what a debenture is

"Debenture" includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.

Four things follow from that sentence.

It is inclusive. The list is not exhaustive, and the operative words are any other instrument evidencing a debt.

Security is irrelevant to the definition. A debenture may be secured or unsecured; the words "whether constituting a charge on the assets of the company or not" settle it. Secured debentures are permitted by s.71(3) subject to prescribed terms, and the charge itself is registered under s.77, treated in [Charges: Creation and Registration].