Debentures and charges

1. The loan is the company’s debt

Tamarind’s assets are Rs 1,000,000 and its liabilities are Rs 400,000. The board borrows a further Rs 300,000 from a lender so that the company can pay for equipment. The invoice and the loan are in Tamarind’s name. Meera signs as director. The debt is Tamarind’s. It does not become Meera’s debt because she signed, and it does not become a call on Ravi’s shares.

A debenture, in section 2, is a written acknowledgement of indebtedness issued by a company in respect of a loan made or to be made to it, or money deposited with it, or existing indebtedness, whether or not the debt is secured on the company’s assets. The word covers debenture stock, a bond, loan stock and an unsecured note. It does not cover a bill of exchange, a promissory note, a letter of credit, or an acknowledgement given in the ordinary course for goods or services.

The Rs 300,000 loan, written up as the company’s acknowledgement of that debt, is a debenture. An unpaid invoice for consulting supplies, given in the ordinary course, is not.

Document	What it is for this chapter
Tamarind’s written acknowledgement of the Rs 300,000 loan	A debenture, whether or not the equipment is charged
An unpaid invoice for consulting supplies, given in the ordinary course	Not a debenture
A fixed charge over the equipment	A charge. The company files it within 28 days of its creation
A hire-purchase agreement for a vehicle	Not a charge for the definition in section 2

In practice: read the document before you file it. An acknowledgement of a loan is a debenture. A supplier’s invoice for work already done is not. A charge over the equipment is filed even when the loan document is short.

Where the company issues debentures, the agency deed is the deed executed by the company or by a debenture holders’ representative in relation to that issue. Section 121 provides for that representative. One lender on one loan does not become a class meeting of debenture holders. The filing below is still required if the debt is secured by a charge.

Companies Act, sections 2 and 121.

2. A charge is filed within 28 days

A charge, in section 2, includes a mortgage, a fixed or floating charge under the Code Civil Mauricien, a pledge of shares or debentures, and an agreement to give a charge. A hire-purchase agreement is not a charge for this definition.

Tamarind gives the lender a fixed charge over the equipment. Section 127 requires the company, within 28 days of creating the charge, to file with the Registrar a statement of the specified particulars and a copy of the instrument, in a form the Registrar approves. The 28 days run from the creation of the charge, not from the day the equipment is delivered, and not from the annual meeting.

The same 28-day filing applies where the company issues debentures that are charged on its property.

From 1 March the company has 28 days

The board signs the charge on 1 March. The Registrar must have the particulars and the instrument by 29 March. Waiting for the annual meeting, or for the financial statements, does not extend the 28 days. The lender’s own file is not the register. The company makes the filing.

The Rs 300,000 becomes a liability of the company. If the board later proposed a dividend, the solvency test would count that liability. The charge filing does not itself authorise a dividend, and it does not need the special resolution that a major transaction needs. The equipment purchase is a separate question under section 130, worked in the directors chapter. This chapter is the debt and the register of the charge.

Liabilities were Rs 400,000. The loan adds Rs 300,000, so liabilities become Rs 700,000 if nothing else changes. Assets were Rs 1,000,000. When the Rs 300,000 is received and then spent on equipment recorded at that cost, assets are Rs 1,300,000. Stated capital stays Rs 100,000. Liabilities plus stated capital are Rs 800,000. Assets of Rs 1,300,000 are greater than that figure, so the assets limb of the solvency test is met on these numbers. The company must still be able to pay its debts as they fall due, including this loan on the date it falls due. A person entitled to a charge that has been registered under section 127 is also a person the Registrar notifies before removing a company on the grounds in section 309(1)(b).

Companies Act, section 127.

What you should now be able to explain

The Rs 300,000 is Tamarind’s debt. A written acknowledgement of it can be a debenture. The charge over the equipment is filed with the Registrar within 28 days, with the particulars and the instrument. The Code Civil supplies the mortgage and the fixed or floating charge. The Companies Act supplies the filing.

Next: who may sign for the company, and the office in Mauritius where documents are served.