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Regulatory Alert: SEBI amendments to facilitate the resolution process under IBC

05 June 2018

On 31 May 2018, Securities and Exchange Board of India (‘SEBI’) has vide various notifications amended SEBI (Delisting of Equity Shares) Regulations, 2009 (‘Delisting Regulations’), SEBI (Substantial Acquisition of Shares and Takeover), Regulations 2011 (‘Takeover Code’) and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (‘ICDR Regulations’) to facilitate the process of resolution under Insolvency and Bankruptcy Code, 2016 (‘IBC’).

Amendments to Delisting Regulations:

  • Regulation 3 has been amended to include a new sub-regulation (3) to exempt delisting of equity shares of a listed entity, made pursuant to a resolution plan approved under Corporate Insolvency Resolution Process under section 31 of the IBC, if such plan lays down any specific procedure to complete the delisting of such shares or provides an exit option to the existing public shareholders at a price specified in the resolution plan. The exemption shall be available only if:
    • Resolution plan provides an exit to the shareholders at a price which shall not be less than the liquidation value after paying dues in the order of priority, as required under section 53 of the IBC;
    • The price offered under the resolution plan to the public shareholders is not less than the price offered to the existing promoters or any other shareholders; and
    • The details of such delisting of equity shares along with the justification for exit price is disclosed to the recognized stock exchanges within one (1) day of said resolution plan being approved.
  • Regulation 30 has been amended to permit application for listing of delisted equity shares by a company which has undergone corporate insolvency resolution Process (‘CIRP’) under the IBC.

Amendment to Takeover Code:

Regulation 3(2) has been amended to now permit the acquirer to acquire shares or voting rights beyond the maximum permissible non-public shareholding, pursuant to a resolution plan approved under CIRP.

Amendment to ICDR Regulations:

It is now clarified that the provisions of preferential issue of “specified securities” under Chapter VII (except the lock-in provisions) shall not apply to the rehabilitation scheme approved by the Board of Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 or the resolution plan approved under CIRP.

Accordingly, such exemption, available to equity shares, now also applies to convertible securities.

BDO Comments:

The above amendments bring about a big respite considering the rising rate of matters being referred under IBC. The amendment under the delisting regulations, not only facilitates the acquirer in delisting process but also protects the rights of the public shareholders in respect of the exit price. However, the impact of such amendment may not be significant since most resolution plans do not provide any substantial value to the shareholders.