India: Insolvency Round-up - Other Amendments

1) Representation of class of financial creditors in the existing Corporate Insolvency Resolution Process.

Section 21(6A)(b) of the I&B Code 2016 read with Regulation 16A of I&B (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Regulations) provides for the mechanism w.r.t representation of class of financial creditors where the number of such financial creditors are of such number as prescribed through Authorized Representative. It provides that the obligation to offer a choice of Resolution Professional who should represent the class of financial creditor is on the Interim Resolution Professional. In Insolvency Resolution Professional will be required to provide the name of three Insolvency Professional in the public announcement and creditors belonging to such class need to name one of such Insolvency Professional. The Insolvency Professional having the maximum votes will accordingly get appointed as Authorised Representative of such class of creditors.

The Insolvency and Bankruptcy of Board of India (IBBI/Board) has recently issued a Circular using its powers given under Section 196(1) (aa) of the Insolvency and Bankruptcy Code 2016 in consultation with Ministry of Corporate Affairs. In the circular, the Board had clarified that in case of ongoing Corporate Insolvency Resolution Process (CIRP) where the class of financial creditors are not represented through Authorized Representative, the Insolvency Resolution Professional will take necessary steps so that the class of financial creditors are duly represented through Authorized Representative by exercising the rights given to him under Section 23(2) which states that Resolution Professional will have all powers and performs the duties as vested or conferred on the Interim Resolution Professional.

Further, the board had further clarified that in cases where the approval of Resolution Plan is at least 15 days away (under Regulation 39(3)), the steps w.r.t appointment of authorized representative to present the interest of class of financial creditor should be taken expeditiously through electronic means.

2) Amendment in Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements), 2009

The Securities and Exchange Board of India (SEBI) has issued the guidelines for preferential issues for prevention of allotment of shares by a company at a low price as compared to the market price. Regulation 70 to 79 under Chapter VII of SEBI (Issue of Capital and Disclosure Requirements), 2009, (ICDR'), have been framed to deal with such intentions of SEBI.

To align with the provisions of the Insolvency and Bankruptcy Code (IBC), 2016, the SEBI on May 31, 2018, has issued notification wherein it had amended Regulation 70 of SEBI (ICDR) Regulations, 2009 as follows:

  1. The provisions of Chapter VII of SEBI (ICDR), 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 or the resolution plan approved under section 31 of the Insolvency and Bankruptcy Code (IBC), 2016 whichever applicable.
  2. Earlier under clause (c) Regulation 70(1),the provisions of this Chapter was not applicable where the preferential issue of equity shares was made in terms of the Tribunal under the Insolvency and Bankruptcy Code, 2016. Now the same has been substituted with reference to the resolution plan that will be approved under section 31 of the Insolvency and Bankruptcy Code (IBC), 2016;
  3. Sec. 31(1) of IBC 2016 states that if, the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

3) Amendment in Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (Commonly known as Takeover Regulations)

To give ease for the implementation of approved Resolution Plan in case of Corporate Debtor under CIRP and to keep in align with the spirit of I&B Code 2016 had inserted a proviso to Regulation 3, sub regulation (2) of Takeover Regulations. The newly inserted proviso reads "provided further that, acquisition pursuant to a resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 shall be exempt from the obligation under the proviso to the sub regulation (2) of regulation 3". Regulation 3 of the Takeover Regulations provides for the requirement of making public announcements wherever there is a substantial acquisition of shares or voting rights.

Proviso to the sub-regulation 2) provides that where an acquirer even though if following the procedure prescribed under Regulation 3 shall not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to acquisition above the maximum permissible non-public shareholding.

4) Amendment in Securities and Exchange Board of India (Delisting of Equity Shares) Regulations 2009

SEBI had vide its notification dated 31st May 2018, had amended the Delisting Regulations in order to give a way for approved Resolution Plan of a listed entity. A sub-regulation (3) has been inserted under regulation 3 of the Delisting Regulations. As per the new sub regulations, the regulations will not apply to any delisting of equity shares of a listed entity who is undergoing CIRP and whose plan has been approved under Section 31 of the I&B Code 2016 and such resolution plan provides for procedure to complete the delisting of the shares or provides an exit option to the existing public shareholders at a price specified in the resolution plan.

The new sub regulation further provides that the price to be given for exit to the shareholder should not be less than the liquidation value 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 I&B Code 2016.

Furthermore, in order to give a parity, the sub regulation provides in second proviso 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 on the basis of liquidation value less the paying off dues then the existing public shareholders shall also be provided an exit option at a price which shall not be less than the price, by whatever name called, at which such promoter or other shareholders, directly or indirectly are provided to exit.

The details w.r.t delisting of such shares along with the justification of exit price in respect of delisting proposed needs to be disclosed to the recognized stock exchanges within one (1) day of resolution plan being approved under Section 31 of the I&B Code 2016. An amendment has also been made in Regulation 30 (Listing of delisted Equity Shares), by inserting sub regulation 2A wherein it has been permitted that an application for listing of delisted equity shares may be made in respect of a company which has undergone CIRP.

5) Amendment in Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015

SEBI had vide amendment dated 31stMay2018,and relaxed the listing obligation regulations to be complied by Listed Companies for those companies who are undergoing CIRP. The relaxation includes:

  1. Board of Directors: Insertion of sub-regulation (2A) under regulation 15 which relaxes representation of executive, non­ executive, independent, women directors on board of the Company, committees to be formed by listed companies, etc. considering as per the mandate of I&B Code 2016, during the CIRP the powers of the board vests with Resolution Professional however, the said Resolution Professional shall fulfill all roles and responsibilities which otherwise has been conferred by the regulations on the board.
  2. Approval of shareholder in related party transactions: Further related party transactions which are to be carried out due to Resolution Plan under section 31 of I&B Code 2016 will not require approval of shareholders however the necessary disclosure in this regard needs to be given to the recognized stock exchanges within one (1) day of the resolution plan being approved (sub-regulation 4 to regulation 23).
  3. Disposal of shares of material subsidiary: Company undergoing CIRP is allowed to dispose shares in its material subsidiary resulting in reduction of its shareholding to less than fifty per cent or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting if same is the condition of approved resolution plan under Section 31 (sub regulation 4 to regulation 24)
  4. Similarly amendments have been made to Regulation 35A, 37 (draft scheme of arrangement and scheme of arrangement).

In Schedule III, part A (Disclosure of events or information: specified securities) a sub clause 16 has been inserted which details the events in relation to CIRP of a listed corporate debtor under the insolvency code which needs to be disclosed to the stock exchanges as and when they occur in terms of Regulation 30.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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