MOBILISATION OF FUNDS FOR REDEMPTION OF DEBENTURES :

If no provision is made for mobilising additional funds required for the redemption of the debentures, the company may find great difficulty in discharging the liability when the debentures become due for payment. When the debentures become due for payment, the company may not have sufficient cash to discharge the liability. Even
if it is assumed the liquid position of the company would permit such redemption, the working capital and
consequently the profits of the company would be adversely affected if a large sum of money is withdrawn from
the business at a time.

In order to overcome the above difficulties the following courses of actions are open to the company for mobilising the additional funds required at the time of redemption:

1. Utilising a part of the profits of the company: A part of the profits may be withheld and utilised by the company for the purpose of redemption of the debentures. Here again, the company is having the following options:

(a) The amount of profits withheld by the company may be retained in the business itself as owned capital in the form of General Reserve.

(b) The amount of profits withheld by the company may be withdrawn from the business and the same may be invested either (i) in readily convertible securities or (ii) in taking out an insurance policy to provide funds when needed.

2. Raising the capital: In order to provide for additional funds required for the redemption of the debentures, the company may issue new shares or debentures for the purpose. Old debentures will be redeemed out of the proceeds of fresh issue and the new share capital or debentures will take the place of the old debentures.

3. Disposing of the assets of the company: Additional funds required for the redemption of debentures may also be provided by the company by disposing of some of its fixed assets.