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ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital

Delta plc's trust deed for its debenture stock provides that the trustee may enforce the security if interest is unpaid for 60 days. Interest has been unpaid for 90 days. An individual holder of a small amount of the stock wishes to sue the company directly for the interest. Under the deed, enforcement rights are reserved to the trustee. What is the most likely position?

The individual holder is generally bound by the trust deed and must act through the trustee, who enforces on behalf of all holders. Such restrictions are valid terms of the stock, and the passage of time does not void the debentures.

  1. AThe individual holder may sue directly, because the trust deed cannot restrict holders' rights
  2. BThe individual holder is generally bound by the deed and must act through the trustee, who enforces for all holdersCorrect
  3. CThe debenture stock becomes void because the trustee failed to act in 60 days

Explanation

Holders take their stock subject to the trust deed terms, which commonly reserve enforcement to the trustee so that action is collective and orderly. The deed is not void for restricting individual action. The delay does not invalidate the stock.

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