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The following is an extract which was taken from BPP text:
“A secured debentureholder (or the trustee of a debenture trust deed) may enforce the security. They may:
-Take possession of the asset subject to the charge if they have a fixed charge (if they have a floating charge they may only take possession if the contract allows)
– Sell it (provided the debenture is executed as a deed)
-Apply to the court for its transfer to their ownership by foreclosure order (rarely used and only available to a legal chargee)
– Appoint a receiver to it, provided an administration order is not in effect or (in the case of floating charge holders), appoint an administrator without needing to apply to court”
I have read on debenture trust deeds however I haven’t quite understood it as yet. Can you explain what a debenture trust deed is and what rights or privileges it grants debenture holders?
Also what does it mean by “sell it (provided the debenture is executed as a deed)? Does this mean assets which were used to secure debentures (via fixed charges and floating charges) which has now been acquired by the debenture holder can only be sold through trust deeds?
Further what is meant by ‘legal chargee’? Is this simply referring to a registered charge?
Lastly, what is the difference between appointing a receiver and appointing an administrator (in the case of floating charge holders)?
“Can you explain what a debenture trust deed is and what rights or privileges it grants debenture holders?”
A deed is a contract that is officially “signed, sealed and delivered” before (in front of) witnesses
Debenture trustees are appointed where there is an issue of a series of debentures (as distinct from a single debenture in favour of, for example, a bank)
If there are thousands of lenders of money in multiples of $100, it would be totally impracticable for these thousands collectively to look after their own interests
Instead, trustees are appointed and it is they that will ensure that the lenders’ interests are protected. The trustees have the same rights to enforce the terms of the loan agreements as if they themselves were the lenders
“Also what does it mean by “sell it (provided the debenture is executed as a deed)?”
In order to transfer full title to property, it is necessary that the transfer document be signed, sealed and delivered in front of witnesses
If it IS so signed, sealed and delivered the, when the borrowing entity defaults on the terms of the loan agreements, the trustees will be able to take ownership of the affected assets and sell them
“Does this mean assets which were used to secure debentures (via fixed charges and floating charges) which has now been acquired by the debenture holder can only be sold through trust deeds?”
The trustees have the power to sell without recourse to any other authority so long as the debenture has gone through this rigmarole of being “signed, sealed and delivered in front of witnesses”
“Further what is meant by ‘legal chargee’? Is this simply referring to a registered charge?”
A legal chargee is distinguished from an equitable chargee. A legal chargee has the title deeds to the property signed over in their favour whereas an equitable chargee simply has possession of the property title documents but not ownership rights
“Lastly, what is the difference between appointing a receiver and appointing an administrator (in the case of floating charge holders)?”
A receiver is appointed in order to seize the affected assets and sell them to raise the money to repay the lenders their outstanding capital and interest arrears. They are analogous to a surgeon conducting an operation – they go in, take out the bits that are necessary, and sew the patient entity back together.
In some cases, they have to take out so much that the patient doesn’t recover and then we’re in that situation where the surgeon may say “the operation was a success but the patient died”
An administrator is more akin to a medical specialist (or faith healer!?) They are appointed to an entity and conduct their specialist activities (laying on of hands?) in an attempt to cure the patient entity
Literally, they take control of the entity away from the directors and run the entity in a way that hopefully its fortunes will recover and it will rise like a phoenix from brink of the ashes to which the board of directors had led it
In short, the receiver is paid to take assets out of the entity to raise the funds to repay the lenders
The administrator is tasked with rescuing the entity in order that it may continue its life in a restored, healthier, stranger condition
OK?
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