Investors - How does insolvency affect me if I am a debenture holder?
With debentures, you lend your money to a business, usually for a fixed term. For this reason, debenture holders are usually creditors of a company. Debentures can be either secured or unsecured.
The effect of the appointment of a receiver and manager, voluntary administrator or liquidator (often referred to as external administrators) will be to place a freeze on any payments to you. The external administrator will then oversee an orderly realisation of the assets of the company and distribute the net proceeds to creditors in the order of priorities set out in the Corporations Act. The external administrator will undertake investigations, report to the investors and hold meetings of creditors detailing how the assets can be realised and the expected amount and timing of return to creditors. The Trustee may also write to investors and convene meetings from time to time.
The freeze will generally extend to:
- your initial investment
- interest payments.
This means that you may not receive any future interest payments on the due date and your principal debentures may not be repaid on maturity.
You should seek financial advice about how a freeze will affect your personal circumstances.
If you are experiencing financial hardship you can contact Centrelink or the Department of Veterans Affairs as you may be eligible for assistance. In some instances, the external administrator may contact the Commonwealth Minister for Families, Housing, Community Services and Indigenous Affairs requesting that the investment be excluded from the Aged Pension Deeming Provisions and for the purposes of determining an entitlement to a pension from the Department of Veterans Affairs.
For further information about creditors and insolvency.
What information will I receive and when will I be paid?
The external administrator may report to you directly. Alternatively, the external administrator may report to your Trustee who is obliged to report to you from time to time. You should be kept informed about how much of your investment you can expect to recover and when you will be paid.
If you change your address, you should advise your Trustee and the external administrator as soon as possible to ensure that you continue to receive timely information about your investment.
If you are a secured debenture holder, you are required to be paid before unsecured creditors and will be treated equally along with other secured debenture holders. If you are an unsecured debenture holder, you will rank equally along side all other unsecured creditors.
What is the role of my Trustee?
A Trustee in respect of debentures represents debenture holders of retail debenture products. The role of the Trustee includes the monitoring of the issuer's (being the person borrowing the funds) compliance with the:
- terms of the debentures
- provisions of the Debenture Trust Deed, and
- applicable statutory obligations under the Corporations Act.
The Trustee also plays a key role in representing debenture holders when issuer companies get into financial distress by monitoring and enforcing the rights of debenture holders. If your trustee forms the view that the issuer company is insolvent and is unable to meet its obligations to you and other debenture holders, it may, in certain circumstances, appoint an external administrator in its capacity as Trustee under the Debenture Trust Deed. Your Trustee will then liaise directly with the external administrator in order to maximise the returns to debenture holders.
In certain circumstances after appointing an external administrator, your Trustee may write to you and convene meetings from time to time.
Will I be able to write off my investment for tax purposes?
You should seek advice specific to your personal circumstances in relation to the tax treatment of any loss on your investment.
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