Definition of Debenture Trustees

Who can be a Trustee?

Banks, Public Finance Institutions, Insurance Companies and Body Corporate can be a trustee when they fulfilling the capital adequacy requirement of ` 1 crore in terms of net worth.

Net worth = Paid-up capital + Free reserve – (accumulated losses + deferred expenditure not written off).

The Certificate of registration from SEBI is mandatory to act as debenture trustee.

Who cannot act as a Debenture Trustee?

A debenture trustee cannot act as a trustee for any issue of debenture if (a) it is an associate to the body corporate; (b) it has lent money to the body corporate; (c) if the loan is not fully repaid; (d) if it proposes to lend money to the body corporate.

Factors considered for Registration by SEBI

Infrastructure facilities like office space, equipment and manpower to discharge duties effectively.

Past experience as a debenture trustees (or) employment of two experienced persons in the matters relating to debenture trustee.

Should not have direct/indirect connection with the applicant.

Engagement of minimum of one person with professional qualification in law.

Any of its directors/principal officers should not have been convicted for any offence involving more turpitude or should not have been found guilty of any economic offence.

Must be fit and a proper person as per the criteria specified in SEBI intermediary regulation 2008.

Period of Registration & Registration Fee

The Registration is valid for 3 years and can be renewed before 3 months following the expiry of the period of the certificate.

Registration fee is ` 10 lakh.

Renewal fee is ` 5 lakh

Conditions of Registration are the same as those applicable to merchant bankers.

Responsibilities and Duties

Responsibilities and duties of a debenture trustee of obligation before appointment.

Must enter into a written agreement with the body corporate before the opening of the subscription list for issue of debentures. Agreement should contain the following:-

Agreeing to act as the trustee under the trust deed for securing an issue of debentures for the body corporate.

The time limit of the security for the debenture holders.

Obligations: The Debenture Trustee should accept the trust deed.

The deed should contain the following matter.

Rights of the Debenture holders and manner in which they are vested in the trustee.

Purpose of raising funds through debenture issue.

Description of debenture like, amount, tenure, interest, periodicity of payment, period for redemption, options available terms of conversion/redemption of the debentures.

Nature of charge, rank of charge of assets.

Creation of future security for the issue of debentures – time limit within which is to be created.

Events under which security becomes enforceable.

Creation of obligation of company not to create future security.

Minimum security cover require

A clause for subsequent valuation

Circumstances necessitating the enforceability of the security.

Preservation methods of assets charged as security circumstances under which security may be disposed or leased out with the approval of the trustee.

Inspection of charged.

Steps which would be taken by the Debenture Trustee in the event of default.

The companies’ duties should be specified in the agreement.

Other Miscellaneous provisions such as

Procedure for appointment

Removal of trustee,

Appointment of new trustee

Non-relinquishment from the assignment

Procedure for removal of debenture trustee by a resolution passed by at which 75% of debenture holders.

Provision for redressal of grievance of the debenture holders.

Duties of Debenture Trustee

To take possession of trust property to enclosing securities.

To perform acts necessary in the event of security becoming enforceable resolving grievances of debenture holders.

To ensure dispatch of debenture certificate.

To ensure dispatch of interest warrants.

To ensure repayment of maturity value of the debentures.

To ensure availability of property charged to the debentures an adequate enough to discharge the interest and principal amount.

To ensure that the property is free from any other encumbrance.

To take steps to protect the interest of debenture holders in case of any breach of the trustee deed law comes to its notice.

To ensure the conversion/redemption is done as per the provisions under which they were offered to the debenture holders.

To nominate a director on the Board of directors of the body corporate in the event of default in payment of interest in two consecutive times, default in creation of security for debentures and default in redemption of debentures.

To arrange for the meeting of all debenture holders in the event of

Request from at least 10% (in value) of debenture holders.

To continue as debenture trustee until another trustee is appointed (i.e., trustee should not relinquish its assignment).

To maintain net worth requirements

To inspect books of accounts records registers of the body corporate and the trust property.

Maintenance of Books of Records

The Records relating to the trusteeship functions must be kept and maintained for at least five financial years preceding the current financial year.

Appoint of Compliance officer

A compliance officer should be appointed by the trustee to monitor the compliance of the SEBI Act/Rules & Regulations etc., and for redressal of investors’ grievances. Non-compliance should be immediately and independently reported to the SEBI by the compliance.

Information to SEBI

As and when required by SEBI the debenture trustee is bound to submit the following:-

Delayed payment/Non-payment of interest to debenture holder.

Dispatch/transfer details of debenture certificate.

Any other detail relevant to the trustee.

Inspection by SEBI

SEBI is authorized to inspect books of account and other records of debenture trustees.

The purpose of inspection is

To ensure proper maintenance and compliance with companies Act.

To ensure that they are maintained in the manner prescribed by SEBI.

To grant continuance of Registration

Investigation of compliance against the trustees’ activities.

In the interest of securities/Business/investors.As an alternative the SEBI may appoint a qualified auditor for investigation into the accounts/affairs of the trustee.