Disadvantages of Redeemable Debentures

  1. Liquidation of Company – Redeemable debentures are repaid at the end of a certain specified period or at any time within the specified period by giving them notice of redemption. If the company fails to arrange the necessary amount to redeem them the debenture holders can take action for its winding up. The company’s existence is always at stake if its financial positions is not sound enough.
  2. Uncertainty of Redemption – If debentures are repayable at any time within a specified period under the terms of issue, it may create a problem before the debentures holders to invest the amount immediately as soon as it is repaid by the company. There remains uncertainty in the minds of debentures holders regarding its redemption.
  3. Adverse effect on liquidity of Assets – If a company has to repay a large sum at the time of redemption of debentures it may adversely affect the liquidity of assets unless it is planned wisely by creating sinking fund so that the company may get the required amount at the time of redemption of debentures at the end of the specified period.
Disadvantages of Redeemable Debentures by

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