Q.6 (ii) Debenture Trustees are appointed by a company while issuing debentures.
Best answer
Answer: The statement is true.
Debentureholders are creditors of the company and are usually scattered in large numbers all over the country. It is not possible for each of them to watch the company and protect his interests individually. Therefore, the law requires a trustee to act on their behalf.
Under Section 71 of the Companies Act, 2013, a company which issues a prospectus or a letter of offer to the public or to more than 500 persons for subscription of debentures must, before the issue, appoint one or more debenture trustees and execute a debenture trust deed. A debenture trustee must be registered with SEBI.
The debenture trustee protects the interests of debentureholders by: (1) ensuring that the assets charged as security are sufficient to discharge interest and principal; (2) seeing that interest is paid and debentures are redeemed on time; (3) taking steps to enforce the security if the company defaults; (4) calling meetings of debentureholders when necessary; and (5) approaching the NCLT for relief where needed.
Hence a company appoints debenture trustees while issuing debentures to safeguard the interest of debentureholders.
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