Convertible Debenture Agreement Template for Australia

A Convertible Debenture Agreement is a sophisticated financing instrument that combines the security of debt with the potential upside of equity conversion. When your company needs capital but wants to defer immediate equity dilution, this agreement provides a strategic solution that complies with Australian corporate law requirements.

When do you need this document?

You need a Convertible Debenture Agreement when your company is raising capital from investors who want debt security with equity conversion rights. This is particularly common during growth phases when your company needs funding but equity valuations may be temporarily depressed. Start-ups and scale-ups often use convertible debentures during bridge financing rounds, allowing investors to participate with downside protection while maintaining upside potential. The agreement is also valuable when institutional investors or sophisticated parties want structured investment terms that provide flexibility around conversion timing and conditions.

Key legal considerations

Your agreement must clearly define conversion terms, including conversion ratios, trigger events, and valuation methodologies. Interest payment obligations need precise specification, covering calculation methods, payment dates, and default provisions. Security arrangements require careful documentation, particularly if the debentures are secured against company assets under the Personal Property Securities Act 2009. Consider anti-dilution provisions that protect debenture holders from future equity issuances at lower valuations. The agreement should address redemption rights, allowing the company to repay early under specified conditions. Default provisions must be comprehensive, covering payment failures, covenant breaches, and insolvency events. Transfer restrictions often apply, limiting how debenture holders can assign their rights without company consent.

Legal requirements in Australia

Under the Corporations Act 2001 (Cth), debenture issuance must comply with Chapter 2L requirements, including proper authorisation by directors and, where applicable, shareholder approval. If your offering exceeds disclosure thresholds, you may need a prospectus or product disclosure statement under Chapter 6D. ASIC notification requirements apply for certain debenture programmes, particularly if you're issuing to retail investors. The agreement must include mandatory disclosure provisions required under corporations law, covering material risks and company financial position. Security interests over company property require registration under the Personal Property Securities Register within specified timeframes. Tax implications under the Income Tax Assessment Act 1997 affect both interest deductibility for your company and tax treatment for debenture holders. Corporate governance obligations include board resolutions authorising the issuance and ensuring compliance with your constitution's borrowing powers.