Redeemable and Reissued Debentures Explained Under CAMA 2020

Redeemable and Reissued Debentures Explained Under CAMA 2020

By Baha’s Books
Visit bahasbooks.com for expert accounting, corporate, and compliance insights.

The Companies and Allied Matters Act (CAMA) 2020, under Sections 199 and 200, provides a detailed legal foundation for how companies can issue, redeem, and reissue debentures. These sections help businesses manage debt responsibly while ensuring lenders and investors are protected through proper documentation, clear procedures, and enforceable rights.

Debentures, in essence, are formal acknowledgments of debt — written promises by a company to pay a specific sum to a creditor, usually with interest. Sections 199 and 200 explain how companies may issue redeemable debentures (those that can be repaid or bought back later) and how they can reissue redeemed debentures (those previously paid off).

Let’s explore both sections comprehensively.

Section 199 — Redeemable Debentures

Section 199 gives a company that is limited by shares the power to issue redeemable debentures. These are debentures that can be repaid or “bought back” by the company at a future date, either on fixed terms or at the company’s option.

In simple terms, when a company issues redeemable debentures, it is borrowing money from investors with the agreement that it will repay the principal sum — either at a specific date, over several years, or at its discretion.

This provision recognizes the reality that many companies need long-term funding for projects, expansion, or operations but may also wish to repay those obligations later when financially capable.

For example, a company could issue ₦100 million worth of redeemable debentures payable after ten years. Alternatively, it could make them redeemable earlier if profits improve or market conditions change. This gives companies flexibility to manage debt based on financial performance and economic conditions.

Redeemable debentures stand in contrast to irreedeemable (or perpetual) debentures, which never have to be repaid. Section 199 ensures that companies may issue both types — redeemable, for investors seeking eventual repayment, and irreedeemable, for those comfortable with perpetual interest payments.

The key benefit of redeemable debentures is that they allow companies to tailor their debt obligations while reassuring investors that their money will eventually be returned. This flexibility improves both financial planning and market confidence.

Section 200 — Power to Reissue Redeemed Debentures in Certain Cases

Once a company repays or redeems debentures, the normal assumption is that the debt is fully extinguished and the debenture ceases to exist. However, CAMA 2020 gives companies the power to reissue previously redeemed debentures under certain conditions. This prevents unnecessary waste of instruments and administrative work, while maintaining full transparency and legality.

Section 200 outlines six subsections explaining how this process works and what safeguards are in place.

Subsection (1): The Basic Rule and Its Exceptions

This part establishes that a company may reissue redeemed debentures — whether the redemption happened before or after CAMA 2020 came into force — unless one of two conditions applies:

  1. There is a clear (express or implied) restriction in the company’s Articles of Association or in any contract the company has entered into that forbids such reissue; or

  2. The company has formally indicated — through a resolution or any other act — that the redeemed debentures are cancelled.

If neither of these situations applies, the company automatically retains the power to reissue its redeemed debentures. This can be done either by reissuing the same certificates or by issuing new ones in their place.

This provision gives companies flexibility in financial management. A business that redeems debentures during a profitable period but later needs capital again can simply reissue those debentures instead of going through the cost and process of creating new debt instruments from scratch.

Subsection (2): Priority Rights of Reissued Debentures

Subsection (2) ensures that when a company reissues debentures, the new holders of those reissued debentures retain the same legal rights and priorities as if the debentures had never been redeemed.

This means that if the original debentures were secured by a mortgage or charge over company property, that same security continues to apply upon reissue. The ranking and enforceability of the debt remain intact.

In practice, this guarantees fairness and protects investor confidence — no creditor loses their position just because a debenture was reissued.

Subsection (3): Debentures Used as Security

Sometimes, companies deposit debentures with a bank or another financial institution as security for a loan or advance. Subsection (3) clarifies that this does not count as redemption, even if the company’s account goes into credit.

In other words, the mere act of depositing debentures as collateral does not extinguish them. They remain active and valid until formally withdrawn or replaced.

This provision prevents confusion and premature cancellation of debentures that are tied to ongoing security or financing arrangements.

For instance, if a company uses debentures to secure a ₦50 million credit facility and later clears part of that loan, the debentures remain in force until they are officially released.

Subsection (4): Stamp Duty and Legal Treatment of Reissued Debentures

This part focuses on stamp duty — the tax paid to the government on certain legal documents. It states that when a company reissues a redeemed debenture, or issues a new one in its place, that transaction is treated as a new issue for the purpose of stamp duty.

This means the company must properly stamp and register the document again, ensuring compliance with Nigerian tax laws.

However, this reissue is not regarded as a new issue for the purpose of limiting how many debentures the company is allowed to issue. In other words, reissuing old debentures does not count toward the company’s overall borrowing limit.

This ensures the government gets its due fees while allowing companies to recycle debt instruments freely within their authorized capital structure.

Subsection (5): Protection of Lenders and Enforcement Rights

Subsection (5) protects lenders who provide money to a company in good faith based on reissued debentures.

If a lender accepts a duly stamped debenture as security and later finds out it was improperly stamped — but had no knowledge of the defect — the lender’s right to enforce the security remains valid.

However, once the error is discovered, the company must pay the unpaid stamp duty and any penalties.

This provision protects innocent lenders from being penalized for technical errors that were not their fault while ensuring the company remains responsible for compliance.

It upholds fairness in commercial transactions, ensuring lenders can rely on the apparent validity of documents provided by companies.

Subsection (6): Preservation of the Company’s General Borrowing Power

Finally, subsection (6) clarifies that nothing in Section 200 limits a company’s general right to issue new debentures in the future.

If a company pays off or satisfies existing debentures, it can still issue new ones later to raise funds again. The act of redeeming previous debt does not permanently restrict its borrowing powers.

This ensures that a company can continue to access financing whenever necessary, as long as it complies with the law and its own Articles of Association.

Financial and Practical Importance of Sections 199 and 200

Sections 199 and 200 together form a comprehensive legal framework for how Nigerian companies manage long-term borrowing through debentures.

Section 199 enables the creation of redeemable debentures, giving companies the freedom to borrow money and repay it later under agreed terms. This flexibility helps them plan debt repayment strategically without overcommitting in the short term.

Section 200 extends that flexibility further, allowing companies to reissue redeemed debentures or replace them with new ones when the need for funding arises again. It ensures that reissued instruments retain their legal validity, that creditors’ priorities are preserved, and that administrative or procedural mistakes do not unfairly harm lenders.

For companies, this promotes capital efficiency, since they can recycle existing instruments and maintain flexibility in their financing structure. For investors and creditors, it guarantees transparency and legal protection, ensuring their claims remain enforceable even if circumstances change.

Ultimately, these sections strengthen Nigeria’s corporate debt framework by balancing two key objectives: empowering companies to raise capital flexibly and safeguarding the rights of creditors and investors.

To explore more in-depth analyses of Nigerian company law, accounting standards, and financial reporting practices, visit bahasbooks.com — your trusted partner for professional clarity and compliance.

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