A Debenture is known to be a debt instrument. It is being issued by any company that recognizes its duty to pay back the amount at a specific rate along with interest. A debenture is also considered to be one of the methods that will help a company to raise the amount of loan capital. Thus it can be said that a debenture is a sort of loan or a bond that acts as a reminder to the company that it has to pay back the amount along with interest. The amount that is received by debenture does not get included in the share capital.
The COVID-19 Pandemic has harshly affected the corporate world and it has led to a huge outcry everywhere. Due to the crisis, companies are approaching their investors to restructure their debentures. The companies need to restructure their debentures because it is a form of debt that is owed by the company and defaulting would lead to multiple consequences that would not be in favour of the company.
If a company defaults, the debenture holders have various rights which are:
Due to the COVID-19 pandemic, the cash flow of all the companies has been impacted and it has become difficult for these companies to fulfil their obligations towards repayment when the debentures are redeemed during maturity.
In respect of the COVID Pandemic restructuring of debentures would mean nothing but just to defer the date of its redemption. For this to happen, it is important to consider the terms of issuance of debentures because they provide for the method of such variation. The Board of Directors and the Debenture Trustee must approve any material modification that is done to the structure of the debentures.
In the recent case of Indiabulls Housing Finance Ltd. v. SEBI, the Delhi High Court provided ad-interim relief to the applicant by directing the maintenance of the status quo concerning the non-convertible debentures and allowed for a delay in the redemption of these debentures.
This is an example of debenture restructuring wherein the companies can comply with the regulations and push the date of maturity for their debentures because it is not possible for every company to pay off their debts in such a liquidity crisis and forcing them to do so would lead to insolvency and liquidation for a lot of companies. The force majeure clause also affects this matter and it would also act as a safeguard for the companies.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
