In company operations, there is a constant need for regular finance within the options set by the relevant company law governing their areas of physical location and one of such methods of financing remains debentures which under the current Companies & Allied Matters Act of Nigeria (CAMA) 2020(this is pursuant to my previous article on debentures under the repealed Companies Allied Matters Act 2004) will constitute the focus of this article.
What does the CAMA say about companies raising finance via debentures?
The act states that a company may borrow money for the purpose of its business or objects and may mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the company or of any third party.
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How are debentures secured as prescribed under the CAMA?
The act states that every company shall, within 60 days after the allotment of any of its debentures or after the registration of the transfer of any debentures, deliver to the registered holder thereof, the debenture or a certificate of the debenture stock under the common seal of the company (if the company has a common seal) or otherwise executed as a deed by the company.
If a debenture or debenture stock certificate is defaced, lost or destroyed, the company, at the request of the registered holder of the debenture, shall issue a certified copy of the debenture or renew the debenture stock certificate on payment of a fee as the company may determine and on such terms as to evidence and indemnity and the payment of the company’s out-of- pocket expenses of investigating evidence, as the company may reasonably require.
If a default is made in complying with this section, the company and any officer of the company who is in default, is liable to such fine as the Corporate Affairs Commission (CAC) shall specify in the regulation, and on application by any person entitled to have the debentures or debenture stock certificate delivered to him, the court may order the company to deliver the debenture or debenture stock certificate and may require the company and any such officer to bear all the costs of and incidental to the application.
What is the effect of statements in debentures under CAMA 2020?
Statements made in debenture or debenture stock certificates constitute prima facie evidence of the title to the debentures of the person named therein as the registered holder and of the amounts secured thereby.
If any person changes his position to his detriment in reliance in good faith on the continued accuracy of any statement made in the debenture or debenture stock certificate, the company shall be estopped in favour of such person from denying the continued accuracy of such statements and shall compensate such person for any loss suffered by him in reliance thereon,which he would not have suffered had the statement been or continued to be accurate, but nothing in this subsection shall derogate from any right the company may have to be indemnified by any other person.
What does CAMA 2020 say about the enforcement of contracts relating to debentures?
A contract with a company to take up and pay for any debenture of the company may be enforced by an order for specific performance.
What are the types of debentures in Nigeria under CAMA 2020?
Perpetual Debentures :-A company may issue perpetual debentures, and a condition contained in any debenture, or in any deed for securing any debentures, shall not be invalid by reason only that the debentures are made irredeemable or redeemable only on the happening of a contingency, however remote, or on the expiration of a period, however long, any rule of equity to the contrary notwithstanding.
Redeemable Debentures :- Debentures can be issued upon the terms that in lieu of redemption or repayment, they may, at the option of the holder or the company, be converted into shares in the company upon such terms as may be stated in the debentures.
Secured/Unsecured Debentures :- Debentures may either be secured by a charge over the company’s property or may be unsecured by any charge.
Fixed/Floating Debentures :- Debentures may be secured by a fixed charge on certain of the company’s property or a floating charge over the whole or a specified part of the company’s undertaking and assets, or by both a fixed charge on certain property and a floating charge.
A charge securing debentures shall become enforceable on the occurence of the events specified in the debentures or the deed securing the same.
Can companies re-issue redeemed debentures under CAMA 2020?
Where either before or after the commencement of this Act,a company has redeemed any debenture previously issued, unless:-
(a) any provision, express or impl-ied, to the contrary is contained in the articles or in any contract entered into by the company ;
(b) the company has, by passing a resolution to that effect or by some other act, manifested its intention that the debentures shall be cancelled,the company shall have, and shall be deemed always to have had, power to re-issue the debentures, either by re-issuing the same debentures or by issuing other debentures in their place.
On a re-issue of redeemed debentures, the person entitled to the debentures, shall have, and shall be deemed always to have had, the same priorities as if the debentures had never been redeemed.
What are the rights of debenture holders under the act?
-The trustee of a debenture trust deed shall hold all contracts, stipulations and undertakings given to him and all mortgages, charges and securities vested in him in connection with the debentures covered by the deed, or some of those debentures, exclusively for the benefit of the debenture holders concerned (except in so far as the deed otherwise provides) and the trustee shall exercise due diligence in respect of the enforcement of those contracts, stipulations, undertakings, mortgages, charges and securities and the fulfillment of his functions generally.
– A debenture holder may sue:
(a) the company which issued the debentures he holds for payment of any amount payable to him in respect of the debentures ;
(b) the trustee of the debenture trust deed covering the debentures he holds for compensation for any breach of the duties which the trustee owes him, and in any such action, it shall not be necessary for any other debenture holder of the same class, or if the action is brought against the company, the trustee of the covering trust deed, to be joined as a party.
– The section of CAMA on the rights of debenture holders applies notwithstanding anything contained in a debenture or trust deed or other instrument, but a provision in a debenture or trust deed is valid and binding on all the debenture holders of the class concerned in so far as it enables a meeting of the debenture holders by a resolution supported by the votes of the holders of at least three quarters in value of the debentures of that class in respect of which votes are cast on the resolution to:
(a) release any trustee from liability for any breach of his duties to the debenture holders which he has already committed, or generally from liability for all such breaches (without necessarily specifying them) upon his ceasing to be trustee ;
(b) consent to the alteration or abrogation of any of the rights, powers or remedies of the debenture holders and the trustee of the debenture trust deed covering their debentures (except the powers and remedies under section 233) ;
(c) consent to the substitution for the debentures of a different class issued by the company or any other company or corporation, or the cancellation of the debentures in consideration of the issue to the debenture holders of shares credited as fully paid in the company or any other company.
What does the act say on the meetings of debenture holders?
-The act states that the terms of any debenture or trust deed may provide for the convening of general meetings of the debenture holders and for the passing, at such meetings, of a resolution binding on all the holders of the debentures of the same class.
– Also, whether or not the debenture or trust deed contain such provisions as are referred to in subsection (1), the Commission may at any time direct a meeting of the debenture holders of any class to be held and conducted in such manner as the Commission deems fit to consider ancillary or consequential directions as it shall deem fit.
-Notwithstanding anything contained in a debenture trust deed, or in any debenture, contract or instrument, the trustee of a debenture deed shall, on the requisition of persons holding, at the date of the deposit of the acquisition debentures covered by the trust deed which carry at least one-tenth of the total voting rights attached to all the issued and outstanding debentures of that class, proceed to convene a meeting of that class of debenture holders.
What are floating and fixed charges?
Under CAMA 2023, A “floating charge” means an equitable charge over the whole or a specified part of the company’s undertakings and assets, including cash and uncalled capital of the company both present and future, but so that the charge shall not preclude the company from dealing with such assets until:
(a) the security becomes enforceable and the holder thereof, pursuant to a power in that behalf in the debenture or the deed securing the same, appoints a receiver or manager or enters into possession of such assets ;
(b) the Court appoints a receiver or manager of such assets on the application of the holder ;
(c) the company goes into liquidation.
– On the happening of any of the events mentioned in mentioned above, the charge shall be deemed to crystallise and become a fixed equitable charge on such of the company’s assets as are subject to the charge, and if a receiver or manager is withdrawn with the consent of the chargee, or the chargee withdraws from possession before the charge has been fully discharged, the charge shall thereupon be deemed to cease to be a fixed charge and again to become a floating charge.
What is the priority ranking of charges?
A fixed charge on any property shall have priority over a floating charge affecting that property, unless the terms on which the floating charge was granted prohibits the company from granting any later charge having priority over the floating charge and the person in whose favour such later charge was granted had notice of that prohibition at the time when the charge was granted to him :
Provided that a person is deemed to have notice of such prohibition in a floating charge where a notice indicating the existence of such prohibition is registered with the Commission.
What does the act say about the appointment of receivers on enforceable debentures by the court?
– Whenever a fixed or floating ch-arge has become enforceable,the Court may appoint a receiver and in the case of a floating charge, a receiver and manager of the assets subject to the charge.
– In the case of a floating charge, the Court may, notwithstanding that the charge has not become enforceable, appoint a receiver or manager if it is satisfied that the security of the debenture holder is in jeopardy, and the security of the debenture holder shall be deemed to be in jeopardy if the Court is satisfied that events have occurred or are about to occur which render it unreasonable in the interests of the debenture holder that the company should retain power to dispose of its assets.
– A receiver or manager shall not be appointed as a means of enforcing debentures not secured by any charge.
What does the act say about debenture trust deeds?
– Every company which offers debentures to the public for subscription or purchase shall, before issuing any of the debentures, execute a debenture trust deed in respect of them and proc-ure the execution of the deed by the trustee for the debenture holders appointed by the deed.
-No debenture trust deed shall cover more than one class of debentures,whether or not the trust deed is required by this section to be executed.
– Where a trust deed is required to be executed by this section but has not been executed, the Court, on the application of a debenture holder concerned,may :-
(a) order the company to execute a trust deed ;
(b) direct that a person nominated by the Court to be appointed as a trustee ;
(c) give such consequential directions as it deems fit, as to the contents of the trust deed and its execution by the trustee.
– For the purposes of this Act, debentures shall belong to different classes if different rights attach to them in respect of:
(a) the rate of, or dates for payment of interest ;
(b) the dates when, or the instalments by which, the principal of the debenture shall be repaid, unless the difference is solely that the class of debentures shall be repaid during a stated period of time and particular debentures may be repaid at different dates during that period according to selections made by the company or by drawings, ballot or otherwise ;
(c) any right to subscribe for or convert the debentures into shares in, or other debentures of, the company or any other company ;
(d) the powers of the debenture holders to realise any security.
– Debentures further belong to different classes, if they do not rank equally for payment when any security invested in the debenture holders under any trust deed is realised or when the company is wound up, if, in the circumstances mentioned in subsection (4) the subject matter of any such security or the proceeds, or any assets available to satisfy the debentures, is or are not to be applied in satisfying the debentures strictly in proportion to the amount of principal, premiums and arrears of interest to which the holders of them are respectively entitled.
What does the act say about trustees for debenture holders?
-Whether or not a debenture is secured by a charge over the company’s property, there may be created in relation to such debenture, a trust deed appointing trustees for the debenture holders.
-It is the duty of such trustee to safeguard the rights of the debenture holders and, on behalf of and for the benefit of the debenture holders, exercise the rights, powers and discretions conferred upon him by the trust deed.
– Charges securing the debentures may be created in favour of the debenture holders by vesting them in the trustees.
-Any provision contained in a trust deed or in any contract with the holders of debentures secured by a trust deed is void if it would have the effect of exempting a trustee from, or indemnifying him against, liability for any breach of trust or failure to show the degree of care and diligence required of him as trustee having regard to the powers, authorities or discretions conferred on him by the trust deed.
– Nothing is deemed to invalidate any release otherwise validly given in respect of anything done or omitted to be done by a trustee on the agreement to such release of a majority of at least three quarters in value of the debenture holders present in person, or where proxies are permitted, by proxy at a meeting summoned for the purpose.
-Notwithstanding any provision contained in the debentures or trust deed, the Court may, on the application of any debenture holder or of the Commission, remove any trustee and appoint another in his place if satisfied that such trustee has interests which conflicts or may conflict with those of the debenture holders or that for any reason it is undesirable that such trustee should continue to act :
Provided that where any such application is made by a debenture holder,the Court if it deems fit, may order the applicant to give security for the payment of the costs of the trustee and may direct that the application be heard in Chambers.
On what grounds can a person be disqualified from being appointed as a trustee of a debenture trust deed?
A person is not qualified under the CAMA 2020 for appointment as a trustee of a debenture trust deed if he is :-
(a) an officer or employee of the company which issues debentures covered by the trust deed or of a company in the same group of companies as the company issuing debentures ;
(b) less than 18 years of age ;
(c) of unsound mind and has been so found by a court in Nigeria or elsewhere ;
(d) an undischarged bankrupt ;
(e) disqualified under section 283 from being appointed as a director of a company, but a corporation shall not be disqualified from being appointed as a trustee.
-If a trustee becomes subject to any of the disqualifications mentioned
in subsection (1) of the relevant section of CAMA after he has been appointed, he shall immediately cease to be qualified to act as a trustee of the debenture trust deed.
-Any person who acts as a trustee of a debenture trust deed whose appointment is invalid under subsection (1) or who is disqualified from acting under subsection (2) of the relevant provisions of CAMA 2020, commits an offence and is liable on conviction as the Court deems fit, or to such fines as the Commission shall specify in the regulation.
What does the act say about the liability of trustees for debenture holders?
—Subject to the provisions of the relevant provisions of CAMA 2020 section, anything contained in
a trust deed for securing an issue of debentures, or in any contract with the holders of debentures secured by a trust deed, is void if it would have the effect of exempting a trustee from or indemnifying him against liability for breach of trust, where he fails to show the degree of care and diligence required of him as trustee, having regard to the provisions of the trust deed conferring on him any power, authorities or discretion.
Are there any restrictions on the transferability of debentures under the act?
Except as expressly provided in the terms of any debenture, debentures shall be transferable without restriction by a written transfer in any usual or common form, or any other form which the directors of the company may approve, and that the transferee is entitled to the debenture and to the money secured thereby without regard to any equity, set-off or crossclaim between the company and the original, or any intermediate, holder.
– The terms of any debenture may impose restrictions of any nature on the transferability of debentures, including power for the company to refuse to register any transfer and provisions for compulsory acquisition or rights of first refusal in favour of other debenture holders, or members or officers of the company :
a).Provided that if any restriction is imposed on the right to transfer any debenture, notice of the restriction shall be endorsed on the face of the debenture or debenture stock certificate and in the absence of such endorsement, the restriction shall be ineffective as regards any transferee for value, whether or not he has notice of the restriction.