Business, Legal & Accounting Glossary
A written acknowledgement of a debt – a name used for loan financing taken up by a company.
A type of bond (an interest-bearing document that serves as evidence of a debt) that does not require security in the form of a mortgage or lien on a specific piece of property. Repayment of a debenture is guaranteed only by the general credit of the issuer. For example, a corporation may issue a secured bond that gives the bondholder a lien on the corporation’s factory. But if it issues a debenture, the loan is not secured by any property at all. When a corporation issues debentures, the holders are considered creditors of the corporation and are entitled to payment before shareholders if the business folds.
A debenture in finance is a long term debt instrument used by governments and large companies to obtain funds. It is similar to a bond except the securitization conditions are different. A debenture is unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors.
The advantage of debentures to the issuer is they leave specific assets unencumbered, and thereby leave them open for subsequent financing.
In practice, the distinction between bond and debenture is not always maintained. Bonds are sometimes called debentures and vice-versa.
A specific type of debenture is the subordinated debenture. In the event of liquidation, these debentures are subordinated to designated debt obligations, typically bank loans or notes payable. That is, the debenture holders will not get paid until the senior debt, named in the debenture, have been paid.
The issued share and debenture capital of the company as of the 31st Dec 2017 was: – The company has a reserve fund of £4,732,169, the major part of which is invested in the business.
When the money was lent, solicitors drew up the debenture to be signed by all parties representing the financially challenged business and the bank.
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This glossary post was last updated: 22nd April, 2020 | 36 Views.