ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Kestrel Ltd issued debentures whose terms give each holder the right, on a stated future date, to exchange the debt for ordinary shares at a fixed ratio. Which type of debenture is this?
This is a convertible debenture. The holder has the right to exchange the debt for ordinary shares on specified terms at a future date, whereas a redeemable debenture is simply repaid and a perpetual debenture has no fixed repayment date.
- ARedeemable debenture
- BBearer debenture
- CConvertible debentureCorrect
- DPerpetual debenture
Explanation
A convertible debenture gives the holder the option to convert the debt into shares on set terms. A redeemable debenture is simply repayable, a perpetual one has no fixed repayment date, and a bearer one concerns how ownership is evidenced, not conversion.
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