ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Dalton Ltd's debenture trust deed gives the trustee power to appoint a receiver on default. The company misses two interest payments. A group of holders holding a small minority of the debentures wants to sue the company separately for the interest, but the trust deed says only the trustee may enforce the debenture terms, and the trustee has not acted. Which statement is most accurate?
Holders are generally bound by the trust deed, so where it reserves enforcement to the trustee, minority holders must normally act through the trustee unless the deed itself allows individual action. The deed is valid and the company's interest obligation continues.
- AThe minority holders are normally bound by the trust deed and must generally proceed through the trustee, unless the deed allows otherwiseCorrect
- BAny single holder can ignore the trust deed and appoint a receiver
- CThe trust deed is void because it limits individual rights
- DThe company is released from paying the interest until the trustee acts
Explanation
Trust deed terms bind the holders, and where the deed channels enforcement through the trustee, individual holders are generally restricted to that route, unless the deed permits individual action or the trustee fails in its duty. The deed is not void, the debt is not released, and individual holders cannot appoint a receiver contrary to the deed.
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