Skip to content

CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Zenith Polymers Ltd issued debentures with a conversion option approved by special resolution before issue. A director argues that on conversion the company must still send rights-offer notices to equity holders. What is the correct position under the Act?

The director is wrong. The further-issue section does not apply to capital increased through exercise of a conversion option attached to debentures, provided a special resolution approved those terms before issue. Hence no rights-offer notice is required on conversion.

  1. AHe is right, because every increase in subscribed capital needs a rights offer
  2. BHe is right, but only for conversion beyond ten percent of capital
  3. CHe is wrong; the section on further issue does not apply to capital increased by exercising such a pre-approved conversion optionCorrect
  4. DHe is wrong, because the Tribunal must instead approve conversion

Explanation

The Act states that the further-issue provisions do not apply to an increase of subscribed capital caused by exercise of a conversion option attached to debentures, if terms were approved by special resolution before issue. Since that was done, no rights offer is needed. The ten percent limit and Tribunal approval do not exist in this provision.

Did you get it right without looking?

One question tells you little. A timed set on Raising of Funds from Debt and Procedural Aspects shows your real accuracy, how long you take and where you lose marks.

Practise Raising of Funds from Debt and Procedural AspectsFree diagnostic mock

More Raising of Funds from Debt and Procedural Aspects questions