104 SECRETARIAL PRACTICE
share capital, and no preference shares have been issued, the
restriction does not apply until preference share capital
exists [ Johnston Foreign Patents (1904), 2 Ch. 234].

We have already seen that, by s. 94 of the Act, a com-
pany may not exercise its borrowing powers until it has
received a certificate entitling it to commence business, but
that a company may nevertheless, before it obtains the
certificate, offer shares and debentures simultaneously for
public subscription, may allot shares and debentures, and
may receive money payable on application for debentures.

Where a company has power to borrow and wishes to
exercise it, the method usually employed is to issue a
debenture or debentures. There is, of course, nothing to
prevent a company securing a loan from an individual by a
specific mortgage of some or all of its freehold or leasehold
property, or from securing an overdraft by the guarantee of
its directors or others, or from securing any loan by any
method available to an individual. But the common practice
is for a company to secure its loans by the issue of debentures.

Nature of ‘In my opinion a debenture means a document which

Debentures. cjither creates a debt or acknowledges it, and any document
which fulfils either of these conditions is a debenture. I
cannot find any precise legal definition of the term; it is not
either in law or commerce a strictly technical term, or what
is called a term of art’ [per Chitty, J., in Levy v. Abercorris
Slate Co. (1888), 37 Ch. D. at p. 264].

A debenture is a document, not necessarily under the seal of
the company [Lemon v. Austin Friars Investment Trust (1925),
41 T.L.R. 629], acknowledging or creating a liability to pay
a sum of money with or without interest thereon at a
specified rate. The money may be payable at a fixed date, or
on notice, or the debt may be irredeemable or redeemable only
on the happening of a contingency, however remote [s. 74].
The debenture may be payable to bearer, in which case it is a
negotiable instrument passing by delivery, or it may be
registered in the name of the proprietor, the registered
holder. The payment of principal and interest need not
be secured at all, in which case the debenture amounts
to a mere promise to pay; but more commonly the payment
is secured by a mortgage or charge on the property of the
company. The charge may be created (a) by a trust deed, to
the benefit of which the debenture holders are by the words
of the debentures declared to be pari passu entitled; or .(b)
by the language of the debenture itself. In either case the
charge may be: (1) a fixed charge on the property of the
company; (2) a floating charge on the property of the