SEBI headquarters in Mumbai (Photographer: Santosh Verma/Bloomberg)

SEBI Eases Listing Norms For Insolvent Companies

In a relief to companies under the insolvency process, India’s stock market regulator has reduced the compliance burden for such firms under its ‘Listing Obligations and Disclosure Requirements’. The move comes days after the Securities and Exchange Board of India made delisting norms easier for such companies.

SEBI, in a notification, has enlisted the following changes to the Listing Regulations for companies facing insolvency proceedings:

Change Of Guard

Regulation 17 lays down requirements relating to composition of the Board of Directors, number of meetings of Board of Directors, recommendation of fees by them for non-executive directors, information to be placed before them by the chief executive officer and the chief financial officer, etc.

But these requirements have not been done away with; the role and responsibilities of the Board of Directors will now need to be carried out by resolution professionals.

Insolvent companies no longer need to have an Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee. But their responsibilities have now been shifted to resolution professionals.

Relief For Related Party Transactions

Material related party transactions require shareholder approval under the listing regulations. Such transactions, proposed in approved resolution plans, will no longer require shareholder approval. Resolution plans proposing such transactions need to be disclosed to the stock exchanges within one day of being approved.

Dealings In Subsidiaries

If a listed entity sells its shareholding in a material subsidiary such that its shareholding falls below 50 percent or it ceases to have control, approval of shareholders is required via a special resolution for such a transaction .This requirement has been done away with for approved resolution plans. Similarly, shareholders approval won’t be required for resolution plans that envisage leasing/selling/disposing of assets of a material subsidiary.

Promoter Reclassification

For reclassification of promoters, the listing regulations lay down requirements such as shareholder approval, giving up of control and special rights by promoters, promoters and their relatives can hold key managerial positions only for three years subject to shareholder approval, etc.

All these requirements have been done away with for companies under insolvency process only if existing promoter or promoter group seeking reclassification doesn’t remain in control. Information of reclassification and rationale will need to be disclosed to the stock exchanges within one day of the resolution plan being approved.

Restructuring Relief

Listing regulations require a no-objection letter from stock exchanges before any scheme of arrangement can be placed before courts for approval. Companies under the insolvency process will not be required to do so.

This is a welcome relief for all the bidders who propose a variety of restructuring proposals in resolution plans, Anshul Jain, a corporate law partner at Luthra & Luthra, told BloombergQuint.

These schemes include reduction of capital, merger, reclassification of share capital, etc., and with this amendment, all such restructurings can easily be implemented without waiting for any stock exchange approval which otherwise would have resulted in delay in the implementation as well as added another level of scrutiny and uncertainty in the entire bidding process.
Anshul Jain, Partner-Corporate Law, Luthra & Luthra

While allowing for these relaxations, SEBI has also notified a list of disclosures that listed insolvent companies will need to make. These include information on initiation of insolvency and default amount, amount claimed by financial creditors, admission or rejection of insolvency application, list of creditors, resolution plans received, and its details.

Also read: Attention Shareholders Of Insolvent Companies - Here’s What Your Paper’s Worth