ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Marlow Plc issues debentures to hundreds of investors. It appoints Harbour Trustees Ltd to hold the security on behalf of all the debenture holders under a trust deed. What is the main advantage of using a debenture trust deed here?
The main advantage is that the trustee holds the security for all debenture holders collectively, so the company need not grant separate charges to each lender. The trustee can monitor the company and enforce the security on behalf of the whole group.
- AEach holder can separately enforce the security at a time of their choosing
- BSecurity is held collectively by the trustee, avoiding the need to grant a charge to each holder individuallyCorrect
- CThe company is relieved of any obligation to pay interest
- DThe debentures automatically become redeemable at any time at the holder's option
Explanation
With many lenders, a trustee holds the charge for them all, so one security arrangement serves the whole class and the trustee can act collectively. Holders do not each enforce separately, which is the reverse of the first option. A trust deed does not remove interest or create redemption rights.
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