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