Debt Capital


Public limited companies have the power to borrow money necessary for their operations by issuing debt securities (debentures). Unlike shares debentures do not create an ownership interest in the company. They create a debtor- creditor relationship. Accordingly, the company’s obligated to pay a periodic interest charge as well as the balance of the debt on maturity date.

A debenture is a negotiable instrument constituting a long -term debt.  Debenture is the term applied not to the indebtedness itself but to the document evidencing it. It is normally, but not necessarily, secured by a charge over company property.


Public limited companies shall not be allowed to issue debentures except if they have existed for three years and have drawn up three balance sheets duly approved by the general meeting of shareholders.

Furthermore, the issue of debenture is not allowed for companies whose capital is not paid up.

In addition, the amount of debentures issued by the company cannot be superior to the company’s share capital. Note that the company, which issues debentures, is allowed to reduce its share capital only to the extent of the reimbursements effected on the debentures. 


Like shares, debentures are negotiable instruments, which can easily be transferred. The procedure to be followed depends on the type of debenture i.e., whether it is a registered debenture or bearer debenture.            


Much the same as registered shares, debenturesare represented by registration in a register of debenture holders. Following registration a certificate is issued certifying that he is a holder of a certain number of debentures.

Note that the holder’s legal rights depend not on the certificate but upon entry in the register.

The certificate merely states what these rights are and constitutes evidence of these rights.  Registration may be made by the party himself or any of the directors.

Transfer of registered debenture is effected by the transfer in the register of the company, the holders rights resulting from registration on the company’s register of debenture holders. 


Bearer debentures are represented by a piece of paper paginated and detached from a counterfoil book carrying a number of indications but the most important characteristics is the absence of a name. The paper must be signed by two directors.

The holder’s rights depend on the mere possession of the paper; consequently, negotiation is by the simple delivery of bearer debentures. The bearer of such a debenture shall be deemed to be the owner.


Holders of debentures issued at the same time shall as of right be grouped together to defend their interests.

A representative of debenture holders shall represent the group, according to the decision taken by the general meeting of debenture holders.

The following may not be chosen to represent the group:

  • Organs of the company;
  • A parent or relation up to the fourth degree;
  • An agent or intermediary of the company.            


The general meeting of debenture holders of the same group may meet as required by law. The law recognizes two types of meetings: annual meeting and special meeting.

Annual Meeting

The annual meeting is one convened to do the following acts:

  • Appoint and dismiss the representative of debenture holders:
  • Determine the emoluments of the trustee, in case of any disagreement the emoluments shall be fixed by the Court of First Instance:
  • Vote the discharge of the representative of debenture holders:
  • Deliberate on measures aimed at defending the interests of debenture holders and the execution of the contract with the company as well as the expenses concerning the execution of the decisions.
Special Meeting

The special meeting has the following business:

  • A modification or suppression of the security;
  • The extension or suppression of one or more maturity dates of interest payment, the reduction of the interest rate and modalities of payment;
  • The extension or suppression of one or several amortization schedules, modification of the amount of amortization and the modalities of payment;
  • The substitution of debentures by the shares of the company or of the debentures or shares of another company.          
Notice of Meetings of debentures

A meeting of debenture holders may be convened by any of the following persons:

  • By the directors of the company;
  • The representative of debenture holders;
  • Debenture holders having at least 1/3 of the debentures
  • At least eight (8) days before the holding of the meeting every debenture holder must be notified of such meeting. The notice convening the meeting shall contain the agenda of the meeting.

The following shall attend meetings of debenture holders with a right to vote: holders of registered debentures and holders of bearer debentures. On the other hand the representative of debenture holders and agents of the company provided they are not debenture holders, may attend the meeting with a consultative voice only.

Quorum and decisions

The quorum required for annual meeting of debenture holders is   1/ 2 of the debentures and decisions are taken by a simple majority of those voting. As regards a special meeting the quorum is 1/2 for the first meeting and ¼ for the second meeting. In either case decisions will be taken by ¾ of those voting.

Note that the decisions of the extraordinary general meeting shall be valid if they are taken in view of a recent financial situation verified by the auditors and upon a report of the board of directors justifying the measures proposed.         


The present section is about issue of obligations on the one hand, and on the other hand, the registration of the liabilities.


The debenture may be defined as a certificate of loan issued by the company, which creates or acknowledges an indebtedness of the company. The companies have to borrow the money for their extension or developments. The loan requirements may not be met by single moneylender. The loan may have to be split into several units. The most usual form of borrowing by a company in this way is by the issue of debentures. By the issue of debentures, the public is invited to lend money for a fixed period at a declared rate of interest to be paid on such money e.g; a company requires one million Rwandan francs. It may be divided into one hundred thousand units of RFW 1,000 each. A money-lender may purchase as many units as he please. The company will then issue certificate for the units purchased by a lender. A debenture is, therefore, a document issued by a company as an evidence of a debt due from the company, with or without a charge on the assets of the company. The Rwandan companies’ law defines the debenture under article 2.  17º  as ‘a written acknowledgement of indebtedness issued by a company in respect of a loan made to it or to any other person or money deposited with the company or any other person or the existing indebtedness of the company or any other person whether constituting a charge on any of the assets of the company or not’.


Relevant provisions of the law in relation with the issue of debentures

The law provides for some requirements in relation to issuing of the debentures depending on whether or not they are of a same class.

Indeed, article 157, says that where a company issues or agrees to issue debentures of the same class to more than 25 persons, or to any one or more persons with a view to the debentures or any of them being offered for sale to more than twenty (25) persons, the company shall before issuing any of the debentures :

  • sign under its name and unique number;
  • and procure the signature to the deed by a person qualified to act as a debenture holders’ representative.

Article 158, sheds more lights by clarifying that a debenture shall not be deemed to be of the same class where:

  • they do not rank equally for repayment when any security created by the debenture is enforced or the company is wound up;
  • different rights attach to them in respect of:
  • the rate of, or dates for payment of interest;
  • the dates when, or the installments by which, the principal of the debentures shall be repaid, unless the difference is solely that the class of debentures shall be repaid during a stated period of time and particular debentures shall be selected by the company for repayment at different dates during that period by drawings, ballot or otherwise;
  • any right to subscribe for or convert the debentures into shares or other debentures of the company or any other company or corporation;
  • the powers of the debenture holders to realize any security.

Where a company has given a debenture to secure advances on a current account, the debenture shall not be deemed to have been redeemed by reason that the account of the company with the debenture holder has ceased to be in debit while the debenture remains unsatisfied (article 163).          


Article 160 of the law provides that every company which issues debentures shall keep at its head office a register of debenture holders which shall contain the names and addresses of the debenture holders and the amount of debentures held by them.

Let’s note that the register shall be open to the inspection of a shareholder (art.161). Concerning the content of the register of debenture holder, it must contain their names and addresses as well as the amount of the debentures they hold (art. 160).

Where a company has given a debenture to secure advances on a current account, the debenture shall not be deemed to have been redeemed by reason that the account of the company with the debenture holder has ceased to be in debit while the debenture remains unsatisfied.

Similarly, where a company has decided to issue debentures and to secure their payment by a mortgage or floating charge, the inscription of such mortgage or floating charge shall be valid when kept in the relevant register.

Finally, the company shall, within thirty (30) days after the date on which the security is provided, with the Registrar General a statement of the particulars of all securities provided. The particulars required to be given in the statement are the following:

  • the date of its provision;
  • the amount secured by the charge;
  • a description sufficient to identify the property charged;
  • the name of the person entitled to the charge.


Article 277 states that an investigation by the OGR can be instituted where debenture holders holding not less than one-fifth (1/5) in nominal value of the issued debentures make an application to the OGR. 



  Share-holder Debenture-holder
1 He is the member and joint owner of the company He is simply a creditor of the company who has given some loan to the company
2 He has a right to vote at the meetings of the company He has no right to vote at any meeting of the company.
3 He is entitled to get dividends only out of profits. The rate of dividends is not fixed. It varies from year to year depending upon the profits of the company. He is entitled to fixed rate of interest whether there are profits or not.
4 He has full right to control company`s affairs. In fact, the ultimate destiny of the company is in the hands of shareholders He has no right to interfere with the business of the company. However, in case of company`s default in paying their debts, he may enforce their security.
5 He cannot be paid back so long as the company is a going concern He can be paid back unless he is perpetual debenture-holder.
6 He does not have any charge over the assets of the company He generally has a charge over the assets of the company
7 In case of winding up of the company, he is paid after satisfying all other claims In case of winding up, a secured debenture-holder is paid prior to the share-holder.


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