Q.What are "first" and "second" debentures? Explain the basis on which they are distinguished.
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Start your 14-day free trial to unlock the full solution →"First" and "second" debentures is a classification that applies only in the specific situation where a company has created more than one charge over the same asset or set of assets, by issuing secured debentures in successive series rather than in a single issue.
When a company first creates a charge on a particular asset (or class of assets) to secure one series of debentures, that series is called the first debentures, and the charge securing it is a first charge. If, at a later date, the company creates a further charge on the very same asset to secure a second series of debentures, that later series is called the second debentures, secured by what is, in effect, a second, subordinate charge on the same property. The company can do this — creating more than one charge over the same asset — because nothing in law prevents an asset from carrying successive charges, provided the terms of the first charge do not themselves prohibit it and the priorities between the charges are properly recorded (including, where applicable, registration of each charge with the Registrar under Section 77 of the Companies Act, 2013). …
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