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Issue of Debentures Problems - Chapter Notes

Debentures are long-term debt instruments that are issued by companies to raise funds. However, the process of issuing debentures can be complicated and can lead to various problems. In this chapter note, we will discuss some of the common problems that companies face while issuing debentures.

1. Over-subscription

Over-subscription occurs when the demand for debentures exceeds the number of debentures that a company has issued. This can lead to a difficult situation for the company as it has to decide how to allocate the debentures among the subscribers. In such cases, the company may have to refund the excess amount paid by the subscribers.

2. Under-subscription

Under-subscription occurs when the demand for debentures is less than the number of debentures that a company has issued. This can lead to a situation where the company is unable to raise the required amount of funds. In such cases, the company may have to cancel the issue or may have to reduce the size of the issue.

3. Non-receipt of subscription money

Sometimes, subscribers may fail to pay the subscription money for the debentures. This can lead to a situation where the company is unable to raise the required amount of funds. In such cases, the company may have to cancel the issue or may have to take legal action against the defaulting subscribers.

4. Non-compliance with legal requirements

Companies are required to comply with various legal requirements while issuing debentures. Failure to comply with these requirements can lead to legal problems for the company. For example, the company may be required to refund the subscription money or may have to pay a penalty.

5. Redemption problems

Companies are required to redeem the debentures on maturity. However, sometimes companies may face problems in redeeming the debentures. For example, the company may not have sufficient funds to redeem the debentures or may face legal problems in redeeming the debentures.

In conclusion, the issue of debentures can lead to various problems for companies. Therefore, companies should carefully plan the issue and should comply with all legal requirements to avoid any problems in the future.