Part III. Form of debenture. Debenture stock. Debentures and Debenture Stock. the company in writing for the modfication or alteration of the rights of the holders of these debentures, and such agreement may include— (a) The release of any property charged hereby ; (b) The postponement of the date of payment of the principal moneys hereby secured; (c) The reduction or increase of the rate of interest hereby agreed to be paid. And such agreement shall be binding on all the holders of these debentures, provided that notice thereof shall be given to each debenture-holder. Every holder of these debentures shall forthwith after such notice produce to the company his debenture or debentures for the purpose of having a memorandum of the particulars of such agreement noted thereon. 20. Interest will be paid on this debenture only on presentation of such one of the interest coupons attached hereto as refers to the payment of interest applied for, or in the case of loss of any coupon proved to the satisfaction of the company on an indemnity to the satisfaction of the company; and the surrender to the company of each coupon by the bearer thereof shall operate as a discharge of the company against all persons whomsoever in respect of the payment of interest therein specified. If this debenture shall be paid off before the coupons are exhausted all outstanding coupons shall be surrendered to the company, or an indemnity in respect of any lost coupons given to the satisfaction of the company, before the holder shall be entitled to payment. If this debenture shall be surrendered for the purpose of registration or cancelling registration, the holder shall be entitled to a duplicate with fresh coupons only on surrending all outstanding coupons. For precedents of trust deeds covering debentures see 3 Palmer's C.P., 8th ed., 246; Simonson's Debentures, 2nd ed., 397. Debenture Stock. Where, instead of issuing debentures for equal amounts, assignable only as a whole and indivisible, it is desired to create a debt by the company assignable in fractions according to the convenience of the creditor, a deed is executed constituting what is called "debenture stock," which may be taken up in varying amounts, as in the case of shares, and certificates are issued to the various holders. Only one certificate is issued to each holder, whatever the amount of stock held by him, and on each transfer the certificate is surrendered to the company and a fresh certificate or certificates issued. Where the stock is not secured by mortgage it is called "naked" debenture stock. where it is secured by a covering mortgage it is called "mortgage" debenture stock. Excepting as above mentioned there is practically no difference between the security of debentures and the security of debenture stock. Debentures and Debenture Stock. Redemption by Drawings. Part III. Chap. 3. Redemption When it is contemplated to reduce the debt created by debentures or debenture stock gradually, provision is made for the redemption of the debentures or stock by drawings-deciding by drawings. by lot which debentures or what debenture stock shall be paid off. Floating Charge. "A floating security is an equitable charge on the assets for the time being of a going concern. It attaches to the subject charged in the varying condition in which it happens to be from time to time, but it is of the essence of such a charge that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in whose favour the charge is created intervenes. His right to intervene may of course be suspended by agreement, but if there is no agreement for suspension he may exercise his right whenever he pleases after default": Government Stock &c. v. Manila Railway, 1897, A.C. 81, per Lord Macnaghten. The term 'floating security' only expresses what is more fully expressed in the conditions endorsed on the debentures, viz., that the company shall, notwithstanding the debentures, be at liberty to carry on its business, and in the ordinary course of such business to dispose of the property as if the debentures did not exist. That is the ordinary meaning of the term "floating security." It does not mean that there is not to be a charge, and an immediate charge, on the property, but merely that notwithstanding the existence of the charge on all the property, including the real property of the company, power is reserved to dispose of the property if in the ordinary course of carrying on the business it becomes necessary to do so": Driver v. Broad, 1893, 1 Q.B. 744, 748. In Houldsworth v. Yorkshire Woolcombers &c., 1903, 2 Ch. 284, Romer, L.J., held that a mortgage or charge by a company which contains the three following characteristics is a "floating charge" within the meaning of Sec. 14 (1) of the E. Act of 1900 (to which Sec. 130 (11) of 1903 corresponds): 1. If it is a charge on a class of assets both present and future. 2. If that class is one which in the ordinary course of the business of the company would be changing from time to time. 3. If it is contemplated by the charge that until some future step is taken by or on behalf of the mortgagee, the company may carry on its business in the ordinary way so far as concerns the particular class of assets charged. may inter Debenture-holders may not intervene excepting in accord- When holders ance with the terms of their contract with the company, vene. unless : (a) The company does some act which is ultra vires of the Memorandum or jeopardises the debenture-holders' Part III. Power to give specific prior mortgages. Effect of winding up. What is a the "ordi business." Debentures and Debenture Stock. (b) The company has ceased to be a going concern: Borax Co., 1901, 1 Ch. 326; Hubbuck v. Helms, 56, L.J. Ch. 536. It is probable that the Court would interfere on behalf of debenture-holders where the company proposes to carry out an agreement containing a covenant not to exercise its powers in respect of the principal object in the Memorandum: Borax Co., ut sup., per Vaughan Williams, J., at p. 343. But the Court will not interfere merely because a sale of part of the concern has altered, not the nature of the undertaking, but the extent of it: H. H. Vivian & Co., Ltd., 1900, 2 Ch. 654. The company may after the issue of debentures giving a floating charge, grant in the course of its business mortgages of specific assets, and such mortgages will have priority of the debentures: Ward v. Royal Exchange Shipping Co., 58 L.T. 174; Wheatley v. Silkstone &c. Coal Co., 29 C.D. 715; Florence Land and Public Works Co., Ex p. Moor, 10 C.D. 530; Hamilton's Windsor Ironworks, 12 C.D. 707. On a winding-up the rights of the debenture-holders under a floating charge attach, and, though the due date of the moneys secured has not arrived, these moneys become immediately payable, and they stand in a position superior to that of the general creditors, who can touch nothing until they are paid: Panama N.Z. and Australian Royal Mail Co., 5 Ch. 318; Hodson v. Tea Co., 14 C.D. 859; Wallace v. Universal &c. Co., 1894, 2 Ch. 547. But until the presentation of a winding-up petition the business transaction in of the company is going on, and any payment of a just debt by nary course of the company is a transaction in the course of the business of the company and good as against debenture-holders, even though such payment may be liable to an attack (as a fraudulent preference) for the benefit of the general body of creditors: Willmott v. London Celluloid Co., 34 C.D. 147. And a sale of stock-in-trade for the purpose of paying trade debts and other pressing liabilities is in the course of business: Old Bushmills Distillery Co., 1897, 1 Ir.R. Ch. 488; so also is the hypothecation of book debts or bank remittances to a creditor: Biggerstaff v. Rowatt's Wharf, Ltd., 1896, 2 Ch. 93; Arauco Co., 79 L.T. 336 ; and a distress levied before the commencement of the windingup of a company, and before a receiver is effectually appointed on behalf of the debenture-holders, is valid against the debenture-holders: Roundwood Colliery Co., 1897, 1 Ch. 373. Where a creditor levies execution of a judgment against a limited Rights of holders as against distress and execution. Debentures and Debenture Stock. company, the sheriff, on notice of an action by debenture- Part III. holders to enforce their securities, ought to obtain an inter- Chap. 3. pleader issue; if he does not the Court will grant an injunction to restrain the sale, as the debenture-holders' rights if asserted prevail against an execution creditor: Taunton v. Sheriff of Warwickshire, 1895, 2 Ch. 319; see Opera Co., 1891, 3 Ch. 260. But if a garnishee order absolute has been obtained attaching a debt due to a company, the garnishee may pay it to the judgment creditor, notwithstanding express notice by a debenture-holder of his security and claiming the debt: Robson v. Smith, 1895, 2 Ch. 118. The debenture-holders must take steps to enforce their security, or a winding-up petition must be lodged. It seems that until a receiver is appointed by or on the application of debenture-holders, or a liquidator is appointed, the company has not ceased to carry on business and the debenture-holders' charge is not fixed: Colonial Trusts Corporation, 15 C.D. 465; Hubbard & Co., 68 L.J. Ch. 54; but in such a case as Robson v. Smith, ut sup, the Court would most probably grant an injunction as in Taunton v. Sheriff of Warwickshire, ut sup. In Geoghegan v. The Greymouth &c. Co., 16 N.Z. 749, it was held : That the question whether the security given by debentures and a trust deed, which in its inception, was a floating security, had on a certain date become fixed and attached to the company's assets as they then stood, depends upon the question whether the authority of the company to use, in the course of its business, the assets charged with the moneys owing to the debenture-holders had then been determined. It is not necessary, in order that the floating security may attach, that the company's business should be brought to an end finally and for ever. And that where debenture-holders intervene and claim property seized at the suit of an execution creditor before it is sold, and the proceeds handed over to the execution creditor, their rights prevail. It was also held that Sub-sec. (f) of Sec. 2 of The Chattels Transfer Act, 1889, which excludes from the operation of that Act debentures issued by any company or other corporate body, applies to debentures issued by a British company incorporated in England under The Imperial Joint Stock Companies Acts, 1862 to 1890, notwithstanding that it has not within the Colony a register of its mortgages such as a company incorporated under The Companies Act, 1882 (N.Z.), is directed to keep. The debentures of such a company do not therefore require registration under The Chattels Transfer Act, 1889: The Standard Manufacturing Co., 1891, 1 Ch. 627, followed. Where debentures of a company state on their face that the holders will be entitled to the benefit of, and be subject to, the provisions contained in a trust deed for securing payment of the principal moneys and Geoghegan v. The Greymouth &c. Co. Part III. When security enforceable. Debentures and Debenture Stock. interest payable under the debentures, and such particulars of the trust deed are given as are sufficient to identify it, the trust deed is incorporated in and made part of each debenture, and is protected as part of each debenture. It does not, therefore, require registration under The Chattels Transfer Act, 1889, any more than the debentures themselves: Jenkinson v. Brandley Mining Co., 19 Q.B.D. 568, distinguished. The joint operation of debentures and of a trust deed referred to therein, was held to constitute the trustees named in the deed trustees for the debenture-holders for the purpose of enforcing all rights given to the debenture-holders both by the debentures and by the trust deed. It was also held that compensation to a workman recoverable under a statute which constituted the amount thereof a charge on the mine and mining plant in or about which such person was employed, was not a first and paramount charge, but a charge only upon the particular interest of the person against whom the compensation was recovered, subject to all encumbrances created before the charge arose. And that an omission by the encumbrancee to give notices before enforcing the encumbrance could not be taken advantage of by execution creditors of the encumbrancer, as they might be waived and had been waived by the encumbrancer. The Remedies of Debenture-holders. The remedies open to debenture-holders in enforcing their securities depend on whether the debentures are— (1) A floating charge; or are (2) Secured by a mortgage of specific property, usually executed to trustees for the debenture-holders; or are (3) Naked debentures. Where the Debentures Merely Create a Floating Charge. A security by floating charge is usually made enforceable- (2) On an order being made by the Court for the winding- (3) On an effective resolution being passed for the windingup of the company. The security will be enforceable in the two last-mentioned events, whether or not they are specified in the conditions, as also in the two following events : (4) If the company ceases to be a going concern and stops business: Government Stock &c. Co. v. Manila Railway Co., 1897, A.C. 81, per Lord Macnaghten at p. 86; or |