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CS Executive · Company Law and Practice · Debt Instruments - Concepts

Bharat Agro Ltd plans a debenture offer to 800 members and the public. A director argues that debenture trustees can be appointed after allotment. Which is correct?

Debenture trustees must be appointed before the issue or offer, because the offer is to the public or to more than five hundred members. Section 71(5) prohibits such an offer or prospectus until trustees are appointed, so later appointment or convertibility does not excuse the company.

  1. ATrustees can be appointed within a year after allotment
  2. BTrustees need to be appointed only for secured debentures
  3. CBefore the issue or offer, one or more debenture trustees must be appointed, since the offer exceeds five hundredCorrect
  4. DNo trustee is needed if the debentures are convertible

Explanation

Section 71(5) bars a prospectus or offer to the public or to more than five hundred members for subscription of debentures unless one or more debenture trustees have been appointed before such issue or offer. Here the offer exceeds five hundred, so appointment must precede the offer; neither later appointment nor convertibility is an exception.

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