Words and Phrases - "debenture"
Acmetrack Ltd. v. Bank Canadian National (1984), 4 PPSAC 199 (Ont CA)
The debtor ("Chateauvert") executed a floating charge and assignment of book debts in favour of the plaintiff ("Acmetrack"), and acknowledged therein a varying amount of trade indebtedness not exceeding $125,000 and covenanted to repay such indebtedness. A preliminary issue addressed in determining the relative priority of Acmetrack, and the defendant (the "bank") in respect of a chattel mortgage subsequently executed by Chateauvert in favour of the bank, was whether the the instrument of Acmetrack was properly registrable under the Corporation Securities Registration Act (Ontario), which turned on whether the instrument qualified as a debenture. In so finding, Zuber J.A. quoted the above passage in Levy, and stated (at p. 206):
The plaintiff's security is a document in which a debt is acknowledged and in which the debtor covenants to repay. In my view, this is sufficient for it to qualify as a debenture. The fact that the debt is not stated as a sum certain does not destroy the character of the document. I conclude, therefore, that the plaintiff's security was properly registered pursuant to the C.S.R.A.
He declined to follow a statement in Rollies' Sport that a debenture must state a specific debt.
Lemon v. Austin Friars Investment Trust Ltd., [1926] 1 Ch 1 (CA)
The appellant and others subscribed cash for "income stock certificates" of the respondent corporation, and successfully submitted that the certificates were "debentures" for purposes of s. 108 of the Companies (Consolidation) Act, 1908 (UK), which therefor meant that he had the right to inspect the register of holders of the company debentures. The income certificates were non-interest bearing, were evidenced by certificates and were repayable only out of 3/4 of the annual profits of the corporation.
The Court found that as the "root meaning" of debenture is "a record of indebtedness" (Pollock M.R., at p. 13) or "an acknowledgement of indebtedness" (per Sargant L.J. at p. 19) and the certificates has some of the other characteristics often associated with debentures, they so qualified.
Sargant L.J. stated (at p. 19) regarding the words "this is to certify that the above-named company is indebted to" the applicant, which indebtedness is "payable only out of profits hereinafter mentioned":
I should find it difficult to frame clearer words for the purpose of expressing that there is an immediate debt, but that that debt is only to be payable in the future and on a contingency....
Furthermore, there was provision for the company to pay off the principal at any time after giving three months' notice, which indicated that notwithstanding the provision for repayment out of profits, the corporation considered there to be an immediate debt. This undercut an argument (p.20) that the company "could by passing a resolution to wind up absolutely and entirely deprive the holders of this document of any right whatever to receive any payment...."