What Is The Difference Between Secured And Insecured Debentures?

Question

What Is The Difference Between Secured And Insecured Debentures?

2 Answers

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Answer 1

On basis of Security, debentures are classified into:

· Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company. So if the issuer fails on payment of either the principal or interest amount, his assets can be sold to repay the liability to the investors

· Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment of the interest or principal amount, the investor has to be along with other unsecured creditors of the company

Answer 2

Both are bearer debentures yet they have some differences that make them distinct from each other. Naked or unsecured debentures, in the reflection of their name, are not secured and safe from any kind of mortgage or other kind of charges and is a very timid and insignificant acknowledgement of the fact of in debtedness of the company to the person who holds the debentures. As for secured debentures, they are also called mortgage debentures and are complete opposites of the naked debentures in the sense that they are secured by a mortgagee or a charge of some kind on the assets of the company. The secured debenture is further divided into three types, the first type characterized by a fixed charge on the company and its specific assets in the form of freehold property. The second category marks a floating charge over its undertaking and assets while the third type is characterized by both the previous types, meaning that it charges a fixed charge on particular assets of the company and also promulgates a floating charge on some other or all assets of the company.