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Alerts:

Regulatory Alert: SEBI eases listing norms to facilitate the resolution process under IBC

12 June 2018

On 31 May 2018, Securities and Exchange Board of India (‘SEBI’) has vide a notification amended SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’), to relax certain compliances for Listed Companies undergoing Corporate Insolvency Resolution Process (‘CIRP’) under Insolvency and Bankruptcy Code, 2016 (‘IBC’).

Gist of such relaxations are as under:

  • Requirements laid down under regulation 17 to regulation 21 of LODR Regulations relating to Board of Directors, Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee and Risk Management Committee shall not be applicable to such Companies, provided the roles and responsibilities of the board of directors and such committees are fulfilled by the Interim Resolution Professional or Insolvency Resolution Professional.
  • Regulation 23 has been amended to provide that shareholder’s approval shall also not be required for undertaking material related party transactions pursuant to the resolution plan approved under section 31 of the IBC, provided the same is disclosed to stock exchanges within one day of approval of the resolution plan.
  • Regulation 24 has been amended to provide that shareholder’s approval shall also not be required for the disposal of shares of a material subsidiary which results in reduction of its shareholding to less than fifty percent or cease to exercise its control over the subsidiary, provided the same is disclosed to stock exchanges within one day of approval of the resolution plan.
  • Similarly, selling / disposing / leasing of more than 20% of the assets of a material subsidiary shall also not require prior approval of shareholders, provided the same is disclosed to stock exchanges within one day of approval of the resolution plan.
  • Regulation 31A has been amended to provide that shareholder’s approval shall not be required for re-classification of existing promoters as public shareholders, in terms of sub-regulation 5 and sub-regulation 6 of regulation 31A provided;
    • It is approved as part of the resolution plan;
    • Existing promoters being reclassified, no longer have control over the company;
    • Such reclassification and its rationale is disclosed to stock exchanges within one day of approval of the resolution plan.
  • Further such re-classification of existing promoters as public shareholders shall also be considered for determining the minimum public shareholding required for listed companies
  • Regulation 37 has been amended to provide exemption to such companies from obtaining NOC from stock exchanges in respect of the restructuring proposals as approved under resolution plan, provided the same is disclosed to stock exchanges within one day of approval of the resolution plan.

While SEBI has provided various relaxations, it has simultaneously ensured the disclosures of important events such as initiation of insolvency process, admission or rejection of insolvency application, public announcements, list of creditors, receipt of resolution plans etc. are made to the stock exchanges in a timely manner.

BDO Comments:

The above amendments are likely to provide major relief to the resolution of stressed companies since this will lead to minimizing transaction cost and easing/simplifying the CIRP process.