I.   Delisting Regulations

Amendment

Analysis

Sub- regulation 3 has been inserted to Regulation 3 of the Delisting Regulations.

"(3) Nothing in these regulations shall apply to any delisting of equity shares of a listed entity made pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016], if such plan, –

(a) lays down any specific procedure to complete the delisting of such share; or
(b) provides an exit option to the existing public shareholders at a price specified in the resolution plan:

Provided that, exit to the shareholders should be at a price which shall not be less than the liquidation value as determined under regulation 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 after paying off dues in the order of priority as defined under section 53 of the Insolvency and Bankruptcy Code, 2016[No. 31 of 2016]:

Provided further that, if the existing promoters or any other shareholders are proposed to be provided an opportunity to exit under the resolution plan at a price higher than the price determined in terms of the above proviso, the existing public shareholders shall also be provided an exit opportunity at a price which shall not be less than the price, by whatever name called, at which such promoters or other shareholders, directly or indirectly, are provided exit:

Provided also that, the details of delisting of such shares along with the justification for exit price in respect of delisting proposed shall be disclosed to the recognized stock exchanges within one day of resolution plan being approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016].”

Insertion of sub -regulation (2A)in Regulation 30
"(2A) Notwithstanding anything contained in sub-regulation (1), an application for listing of delisted equity shares may be made in respect of a company which has undergone corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016]."

Through the amendment, sub-regulation (3) has been inserted, wherein SEBI has exempted the applicability of provisions of Delisting Regulations for delisting of securities pursuant to implementation of resolution plan u/s 31 of the Insolvency and Bankruptcy Code, 2016 (“Code”), subject to the condition that

• The plan has to specify the procedure to complete the delisting of shares &
• Exit opportunity is being provided to the public shareholders

CP Comment: SEBI has eased the procedure of delisting of securities of the corporate debtor but this smoothening of process doesnot absolve the resolution applicant from giving exit to the public shareholders. However the strict provisions related to pricing/ success of delisting offer/ postal ballot etc. will be a big relief to the resolution applicant. Accordingly now delisting by way of a resolution plan can be said to be a single window clearance system where there will be no requirement to comply with the provisions of Delisting Regulations. Consequent to this amendment, resolution applicants who were reluctant to apply for resolution for a listed entity undergoing CIRP owing the price manipulation in stock prices may get a relief. Now, it will be less cumbersome for such resolution applicants to comply with the extant Delisting Regulations which were both time consuming and attracted hefty cost and also widened the scope for the resolution of the corporate debtor. “

Further, the amendment provides that the price at which the shareholders are given an option to exit should not be less than liquidation value as determined under regulation 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 due to the shareholders.  Section 53 of the Code specifies the order of priority in which the proceeds from the sale of liquidation assets are distributed and equity shareholders are placed at the end in the said list. However, considering the practical scenario where majority of the resolution plans are approved, liquidation value due to the shareholders is generally nil due to the erosion of net worth of such company. In such a scenario, what would be the exit price which will be available to equity shareholders of such company is delusional.

In second provisoinserted after sub regulation 3 of Regulation 3 of the Delisting Regulations, it is provided that in case existing promoters or other shareholders are provided an opportunity to exit at price higher than the price determined in terms of clause (b) of sub regulation 3, then the existing shareholders shall also be provided an exit opportunity at the price not less than the price offered to promoters. 

CP Comment This amendment puts the all the shareholders at par including promoters with regard to any preferential exit price if made available to any specific shareholder. In a scenario where pursuant to approval of resolution plan and delisting of securities therefore, a deal is made with the existing promoters or specific shareholders and resolution applicant to acquire their shareholding in the corporate debtor, safeguard has been put in place for the public shareholders who will get equal opportunity in terms of price for such exit.

The amendment further provides that details of delisting of shares along with the justification for exit price shall be disclosed to the recognized stock exchanges within one day of resolution plan being approved under section 31 of the Code.

Further, Regulation 2A has been inserted in Regulation 30 of Delisting Regulations through which application can be made for listing the delisted equity shares in respect of a company which has undergone CIRP.   

CP Comment: Delisting Provisions provides for a cooling period of 5/10 years for listing of securities of the companies which are voluntarily/ compulsory delisted respectively, where these companies/ Promoters and companies promoted by these promoters are not allowed to apply for listing during the said cooling off period. However now a big relief will be available to such companies, who have been delisted pursuant to approval of resolution plan as such embargo is not applicable to these companies.  

II. SAST Regulations

Amendment

Analysis

Insertion of proviso in Regulation 3(2) of SAST Regulations

"Provided further that, acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016] shall be exempt from the obligation under the proviso to the sub regulation (2) of regulation 3”

Through the insertion of second proviso to Regulation 3(2) of the SAST Regulations, SEBI has permitted to acquire the shares or voting rights above the maximum permissible non public shareholding, if such shares or voting rights are acquired pursuant to a resolution plan approved under section 31 of the Code, which otherwise was not permissible under the first proviso of Regulation 3(2) of the SAST Regulations.

III  ICDR Regulations

Amendment

Analysis

Omission of clause (c) and proviso of Regulation 70(1)  of the ICDR Regulation and insertion of Sub regulation 1(A)

"(1A) The provisions of this Chapter, except the lock-in provisions, shall not apply where the preferential issue of specified securities is made in terms of the rehabilitation scheme approved by the Board of Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 [1 of 1986] or the resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016] whichever applicable.

Through the amendment, clarification is given by SEBI that only ‘lock in provisions’ will be applicable on the preferential issue of specified securities made pursuant to scheme approved by BIFR or the resolution plan approved u/s 31 of the Code.   

CP comment “This lock-in-provision (either for 3 years or 1 year, as the case may be) is necessary as trading in such securities should be restricted for certain period and no speculation in shares should be allowed.”

IV LODR Regulations

Amendment

Analysis

Insertion of Sub-regulation 2A & 2B in Regulation 15 of LODR

"(2A) The provisions as specified in regulation 17 shall not be applicable during the insolvency resolution process period in respect of a listed entity which is undergoing corporate insolvency resolution process under the Insolvency Code.

“Provided that the role and responsibilities of the board of directors as specified under regulation 17 shall be fulfilled by the interim resolution professional or resolution professional in accordance with sections 17 and 23 of the Insolvency Code”

(2B) The provisions as specified in regulations 18, 19, 20 and 21 shall not be applicable during the insolvency resolution process period in respect of a listed entity which is undergoing corporate insolvency resolution process under the Insolvency Code:

Provided that the roles and responsibilities of the committees specified in the respective regulations shall be fulfilled by the interim resolution professional or resolution professional."

Through amendment, provisions of regulation 17 of LODR regulations are not made applicable for the companies undergoing CIRP. Regulation 15 deals with the applicability of the provisions of LODR Regulations and 17 deals with the composition of board of directors, numbers of meetings to be held, compliance report pertaining to applicability of other laws on listed entities, fees or compensation payable to directors and independent  directors etc.  IPR/RP is not required to comply with all such requirements. However, they cannot escape from the role and responsibilities of board of directors, which otherwise is also provided under the Code that the board of directors will be suspended and their powers shall be exercised by the IRP/RP. 

Further the Regulation 18, 19, 20 and 21 of the LODR Regulations deals with Audit committee, Nomination committee, stakeholders relationship committee and Risk Management committee respectively will not be applicable during the CIRP, however their roles and responsibilities have  been shifted to IRP/RP 

CP Comment “Burden on IRP/RP has been reduced by providing such clarification, so that they can peacefully carry out the resolution process without getting into compliance related work.”

Insertion of proviso to sub-regulation 23(4) of LODR Regulations
"Provided that the requirements specified under this sub-regulation shall not apply in respect of a resolution plan approved under section 31 of the Insolvency Code, subject to the event being disclosed to the recognized stock exchanges within one day of the resolution plan being approved;"

Regulation 23 deals with related party transactions and sub regulation (4) states that all the material related party transactions shall require approval of shareholders and related parties are abstained from voting. However, through this amendment, requirement of getting the approval from the shareholders of company has been eliminated but if there is any related party transaction that should be disclosed to stock exchanges within one day of approval of resolution plan u/s 31 of the Code.

Insertion of words in sub -regulation 24(5) and sub regulation 24(6) of the Delisting Regulations

Sub -regulation 24(5)
“or under a resolution plan duly approved under section 31 of the Insolvency Code and such an event is disclosed to the recognized stock exchanges within one day of the resolution plan being approved”

Sub -regulation 24(6)
", or under a resolution plan duly approved under section 31 of the Insolvency Code and such an event is disclosed to the recognized stock exchanges within one day of the resolution plan being approved"

Regulation 24 deals with Corporate Governance requirements with respect to subsidiary of listed company. Through this amendment, listed entity can dispose its shares in its material subsidiary by more than 50% {sub regulation 24(5)} or sell/dispose/ lease assets to more than 20% of its material subsidiary {sub regulation 24(6)}  pursuant to the approval of resolution plan u/s 31 of the Code, which otherwise  would have required the approval of shareholders. 

Insertion of sub-regulation (9) in regulation 31A of the LODR Regulations
"(9) The provisions of sub-regulations (5), (6) and clause (b) of sub regulation (7) of this regulation shall not apply, if re-classification of existing promoter or promoter group of the listed entity is as per the resolution plan approved under section 31 of the Insolvency Code, subject to the following
Conditions;
(i) the existing promoter and promoter group seeking re-classification shall not remain in control of the listed entity; and
(ii) such re-classification along with the underlying rationale shall be disclosed to the stock exchanges within one day of the resolution plan being approved."

Regulation 31A deals with Disclosure of Class of shareholders and conditions for Reclassification, through amendment if there is any reclassification in the promoter or promoter group pursuant to the resolution plan, such company don’t not have to comply with the provisions of sub-regulations (5), (6) and clause (b) of sub regulation (7), which deals with reclassification of promoters/promoter group subject to certain conditions mentioned therein. 
However, once the resolution plan is approved and provides for reclassification of promoter/promoter group, such fact should be disclosed to stock exchange and the company should not be in control of the existing promoter and promoter group.

Insertion of sub-regulation (6) in Regulation 37 of LODR Regulations

"(7) The requirements as specified under this regulation and under regulation 94 of these regulations shall not apply to a restructuring proposal approved as part of a resolution plan by the Tribunal under section 31 of the Insolvency Code, subject to the details being disclosed to the recognized stock exchanges within one day of the resolution plan being approved."

Regulation 37 deals with the duties and obligation of listed entitles and Regulation 94 deals with the duties and obligation of recognized stock exchanges with regard to draft scheme of arrangement and scheme of arrangement. Through amendment, the requirements mentioned therein have been waved off and shall not apply on the restructuring proposal approved under the resolution plan.

Insertion of clause 16 in part a of schedule III of LODR Regulations

"16. The following events in relation to the corporate insolvency resolution process (CIRP) of a listed corporate debtor under the Insolvency Code:
(a) Filing of application by the corporate applicant for initiation of CIRP, also specifying the amount of default;
(b) Filing of application by financial creditors for initiation of CIRP against the corporate debtor, also specifying the amount of default;
(c) Admission of application by the Tribunal, along with amount of default or rejection or
withdrawal, as applicable
(d) Public announcement made pursuant to order passed by the Tribunal under section 13 of Insolvency Code;
(e) List of creditors as required to be displayed by the corporate debtor under regulation 13(2)(c) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations,
2016;
(f) Appointment/ Replacement of the Resolution Professional;
(g) Prior or post-facto intimation of the meetings of Committee of Creditors;
(h) Brief particulars of invitation of resolution plans under section 25(2)(h) of Insolvency Code in the Form specified under regulation 36A(5) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016;
(i) Number of resolution plans received by Resolution Professional;
(j) Filing of resolution plan with the Tribunal;
(k) Approval of resolution plan by the Tribunal or rejection, if applicable;
(l) Salient features, not involving commercial secrets, of the resolution plan approved by the
Tribunal, in such form as may be specified;
(m) Any other material information not involving commercial secrets."

Schedule III deals with disclosure of events or specified securities and through amendment SEBI in order to have more transparency has specified certain events which are required to be disclosed to stock exchanges.