When a company intends to issue debentures, how to describe the
debentures in a prospectus or an advertisement is a key
consideration for that company.
Currently, under s283BH of the Corporations Act 2011,
three descriptions are permitted:
mortgage debenture – if the repayment of all money
under the debentures are secured by a security interest in real
debenture – if the repayment of all money under the
debentures are secured by a security interest in tangible personal
unsecured notes or unsecured deposit note – if the
notes are not secured or are secured by intangible property (e.g.
Many debenture issuers are financing companies whose main source
of revenue is generated by lending money. Thus, their assets
comprise primarily of accounts receivable. Accounts receivable are
intangible property for the purposes of describing debentures.
Therefore, previously these debentures could only be described as
'unsecured notes' or 'unsecured deposit note', when
they were in fact secured by intangible property.
Solution: the missing link
ASIC Class Order CO 12/1482 came into effect on
8 February 2012. This Class Order effectively inserts a new class
into s283BH called "secured notes". These are debentures
secured by intangible assets such as
The key requirements for a debenture to be described as
"secured notes" are:
it must be a first ranking security interest
in favour of the trustee over the whole or any part of the
borrower's and/or the guarantor's property; and
the whole or part of the property covered must be sufficient
and reasonably likely to be sufficient to repay all liabilities
that have been and may be incurred and are ranked ahead or equally
in priority to the security interest covering the notes.
Things to 'note'
If the debentures you issue satisfy the above criteria and you
choose to describe them as "secured notes", there are
required statements and disclosures that must be made along with
For example, a prospectus or any document relating to an offer
for 'secured notes' must expressly state that (1) the
secured note is not a bank note and (2) there is a risk that
investors can lose some or all of their money. There are different
requirements for disclosure documents and quarterly reports and for
use on a website.
When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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