Interest on debentures issued as a collateral security is paid on :
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Answer:
Collateral means secondary. Thus, collateral security refers to supporting or secondary security for a loan. In case the borrower fails to pay the original loan amount on the due date, the lender can sell the collateral security to realize the amount of loan.
Usually, the borrower places a particular asset or a group of assets as collateral security. When he fails to pay the loan, these assets are sold and the loan is paid from the sale proceeds.
However, sometimes a company may issue its own debentures as collateral security for a loan. When it pays the loan on the due date, the lender immediately releases the main security and these debentures.
In a case where the company is unable to repay the principal amount and the interest on the loan on the due date, the lender becomes the holder of these debentures.
Thus, he can exercise all the rights of a debenture holder. However, the holder of these debentures is entitled to the interest on the loan but not on the debentures.
Explanation:
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