1) A private company is prohibited from inviting public to subscribe to its shares or debentures. However, nothing prohibits the company from issuing debentures on private placement basis, if the Articles of the company empowers the Board to borrow by issuing debentures and creation of security.

2) it may not be required to appoint Debenture Trustee. The company may execute a deed of charge on its assets and register it with the ROC and this is permissible under provisions of companies act

3) every company issuing debentures should create DRR for the purpose of redemption of debentures to which adequate amounts should be credited from the profits of the company until debentures are redeemed. This is a mandatory provision. SEBI regulations also require companies issuing debentures to provide for DRR as required under the Act

4) since DRR will have to be carved out of profits of the company, there is no obligation to create DRR if there is no profit in a particular year. DRR is insurance and it enables the issuer of security to redeem the debentures and fulfill its obligation. If, for any reason, the issuer of security fails to redeem the debentures, the aggrieved party may approach CLB\Tribunal which will issue a direction to the company to redeem the debentures forthwith together with interest.

5) registered deed / NOC would protect company to some extent

6) default by company would impact regular operations of the company

6) it is better to raise equity from your friends rather than issuing debentures . in the event of default in payment on maturity creditors can approach CLB to direct company redeem debenture with interest

Deed of charge comes under preview of chartered accountant for execution

2) if company issues zero coupon debenture no need to pay interest to creditors

3) in case of default creditors can move CLB and it would affect the operations of company

4) you can approach venture capitalists for funding . Venture capitalists are usually savvy investors who look for promising businesses that need backing.

5) companycan issue preference shares to raise capital

A zero-coupon bond is a bond that makes no periodic interest payments and is sold at a deep discount from face value. The buyer of the bond receives a return by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date.

1) Is it mandatory to appoint a debenture trustee for issuing debentures to 4 creditors for an amount less than 25 Lakhs ? What are the correct thresholds to appoint a debenture trustee ?

In business, issuing debentures is one of the ways to raise money for the working of the company.

debenture is a kind for formal loan given to the company by another individual. The company is under obligation to repay the loan within a specified period of time with interest.

A debenture trustee is a person or entity that serves as the holder of debenture stock for the benefit of another party.

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.

2) In case of default by the company, does the registered deed and NOC sufficiently protect the company and promotors as mentioned above ?

The trustee can communicate promptly to the debenture holders’ defaults, if any, with regard to payment of interest or redemption of debentures and action taken by the trustee therefor.

3) Does the default by the company impact regular operations and existing products that are running successfully ?

The trustee ensures that all the condition regarding creation of security for debentures is met

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

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

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

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

4) In case the product works as expected, can the company suitably reward the creditors beyond the redemption amount of the loan initially offered by the creditors to acknowledge their risk in the beginning ?

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.

5) The reason to not issue equity is that creditors are only interested in this particular product and not other lines of business being pursued by the company. Are there any alternative instruments to raise funds for specific products in situation mentioned above ?

The proper implementation of these measures will help in giving boost to the sagging confidence of investors in the debt market and now more and more investors will prefer to invest in the debt market if they perceive debentures as a safe and secure investment opportunity with decent return on investment. Hence, it will lead to the development of a healthy debt market in the Country.

The charge is typically in the form of a “fixed and floating” charge, which means it attaches to tangible assets, such as plant and machinery (fixed) and intangible assets, such as goodwill and fluctuating bank account balances (floating). Deeds of charge are really mortgages over business assets for company loans.

A zero-coupon bond is a bond that makes no periodic interest payments and is sold at a deep discount from face value. The buyer of the bond receives a return by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date.