Question

Explain the two merits of Debentures.

Answer 1

Answer:

Debentures ensure a higher position in the ‘pecking order’ for repayment as a creditor. Otherwise, the loan is unsecured - the position of unsecured creditors near the bottom of the payment hierarchy means a significantly lower chance of recovering any money.

Valuable financial protection and reassurance is provided for directors as regards their personal funds.

The use of debentures can encourage long-term funding to grow a business. It is also cost-effective when compared with other forms of lending.

Debentures usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders.

Control of the company by existing shareholders is not reduced, and profit-sharing remains in the same proportion.

Answer 2

$\huge\bf{Answer:-}$

1. Against the assets of company
2. Date of interest payment.