Roles and responsibilities of Debenture Trustee

ROLES AND RESPONSIBILITIES OF DEBENTURE TRUSTEE

Before shading a light on the roles and responsibilities of debenture trustee, let’s know first what debenture trustee actually means and from where it derived. Even in business issuing debentures is one of the ways to raise the working out of the companies, as it is very different from other kind of shares. The advantage of being a debenture holder is in the moment of the bankruptcy or winding up the debenture holders are considered to be as the creditors and they were the one who are re-pay first.

A debenture is an instrument of debt executed by the company acknowledging its obligation to repay an amount at a specified rate and also carrying an interest. It is just like a certificate of loan evidencing the fact that the company is liable to pay the loan with an interest and although the money raised by the debenture becomes a part of the company’s capital structure as it does not become a share capital. But before proceeding further let me also mention that who is a debenture trustee and who can be appointed as a debenture trustee, so a debenture trustee is a trustee of a trust deed for securing an issue of debentures of a corporate body, and to act as a debenture the entity should be a scheduled bank carrying out a commercial activity, a public financial institution, more over the entity should be registered to SEBI to act as a debenture trustee.

To apply for the registration of debenture trustee an applicant will be required to pay a non-refundable fee of Rs. -50,000/- by a demand draft and the challan will be made in favor of Securities and exchange board of India , payable at Mumbai, and the certification of an initial registration will be valid up to five and if the debenture trustee wish to have permanent registration then he have to apply 3 months before the end of initial registration and for this he have to pay an amount of Rs.9,00,000 for every three years.

ROLES OF DEBENTURE TRUSTEE

1.   To call for periodical reports from the body corporate, i.e. issuer of debentures.

2.   To take possession of trust property in accordance with the provision of the trust deed.

3.   To ensure a continuous basis that the property which charged to debenture is available and adequate at all times to discharge the interest and principal amount payable in respect of the debentures and that such property is free from any other encumbrances except those which are specifically agreed with the debenture trustee.

4.   To enforce security in the interest of the debenture holders.

5.   To exercise due diligence to ensure compliance by the body corporate with the provisions of the company act, the listing agreement of the stock exchange or the trust deed.

6.   To take appropriate measures for protecting the interest of the debenture holders as soon as any breach of the trust deed or law comes in his notice.

7.   To ascertain that the debentures have been converted or redeemed in accordance with the provisions and conditions under which they are offered to the debenture holders.

8.   Inform the board immediately of any breach of trust deed or provision of any law.

9.   To appoint a nominee director on the board of corporate body when required.

RESPONSIBILITIES OF DEBENTURE TRUSTEE

1.   The trustee ensures that there is no breach in the terms of issue of debentures.

2.   The trustee can take steps to remedy the breach.

3.   The trustee is a person who informs the debenture holders about such breach.

4.   The trustee ensures that all the conditions regarding creation of security for debentures are met.

5.   The trustee convenes the meeting between the company and the debenture holders.

6.   The trustee is the person who ensures that the debentures are redeemed as per the conditions agreed upon.

7.   The trustee can take steps to resolve the dispute between the company and the holders.

8.    The trustee has to take necessary steps to ensure the interest of the debenture holders.

                                                  Thus, debenture trustee is a person who is responsible for issuance and distribution of debentures. A debenture trustee is a person or entity that serves as the holder of debenture stock for the benefit of another party. When a company is looking to raise capital, one method of accomplishing this is by issuing stock as a form of debt with the obligation to repay the debt at a specific interest rate. The trustee serves as a liaison (the person who keeps in contact with different groups) between the company that issued the debentures and the debenture holders that are collecting interest payments.  According to SEBI Rules, 1993- “debenture trustee” means a trustee of a trust deed for securing any issue of debentures of a body corporate [section 2 (bb)]. (Applicable to public companies only)

Eligibility for a debenture trustee: To act as debenture trustee, the entity should either be a scheduled bank carrying on commercial activity, a public financial institution, an insurance company, or a body corporate. The entity should be registered with SEBI to act as a debenture trustee.

    

                                    By,

                    Utkarsh Kumar