Skip to content

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

Zenith Agro Ltd. plans to issue non-convertible debentures through a public offer to raise funds. Under the Companies Act, 2013, which step must the company complete before it issues the prospectus or makes the offer?

The company must appoint one or more debenture trustees before issuing the prospectus or making the public offer of debentures. The Act prohibits a public debenture offer, or an offer to more than five hundred members, until trustees are in place, to protect debenture-holders.

  1. AAppoint one or more debenture trusteesCorrect
  2. BObtain a special resolution approving conversion into shares
  3. CCreate a debenture redemption reserve account out of the profits
  4. DObtain a Tribunal order restricting further liabilities

Explanation

Section 71(5) bars a company from issuing a prospectus or making an offer to the public, or to more than five hundred members, for subscription of debentures unless it has first appointed one or more debenture trustees. A special resolution is required only for debentures convertible into shares, and the Tribunal order relates to a different situation.

Did you get it right without looking?

One question tells you little. A timed set on Debt Instruments - Concepts shows your real accuracy, how long you take and where you lose marks.

Practise Debt Instruments - ConceptsFree diagnostic mock

More Debt Instruments - Concepts questions