Debt finance

Debt finance can be summarised as funding provided in the form of borrowings lent by creditors. Debt finance can take the form of loans to the company or in the form of the issue of debentures by the company.

The issue of debentures by the company is subject to specific rules under the Corporations Act 2001 (Cth) including the use of a trust deed and the appointment of a trustee.

It is also common for companies to raise debt finance by the use of quasi-equity or hybrid instruments. For example, some companies may use convertible/converting notes or equity-finance facilities to raise debt finance that is structured like equity finance.

The obligation to repay debt finance may be secured over the company's assets or unsecured. The practice of taking security interests and registering such interests under the Personal Property Securities Act by companies is common.

The Corporations Act 2001 (Cth) has in place a number of provisions to protect providers of debt finance, such as priority of repayment over members' claims, imposing of personal liabilities on directors for insolvent trading and restricting certain corporate transactions that could adversely affect creditors' rights.

See Debt finance.