The Securities and Exchange Board of India (SEBI) has amended the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code), SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR) and SEBI (Delisting of Equity Shares) Regulations, 2009 (Delisting Regulations), to provide for exemptions (as provided below) to resolution plans (Approved Resolution Plan) approved under section 31 of the Insolvency and Bankruptcy Code, 2016 (Code), with effect from 31 May 2018:
1. Takeover Code – Acquisitions to take shareholding beyond maximum permissible non-public shareholding
Under the Takeover Code, there is an embargo for acquirers (holding shares between 25% to maximum permissible non-public shareholding) to not 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 the acquisition above the maximum permissible non-public shareholding. This embargo has been relaxed for acquisitions pursuant to the Approved Resolution Plan.
2. Delisting Regulations – Exemptions for Approved Resolution Plans for delisting and re-listing
A. The provisions of the Delisting Regulations have been made inapplicable to any delisting of equity shares of a listed entity made pursuant to the Approved Resolution Plans:
(i) Specific process laid in the Approved Resolution Plan. If the Approved Resolution Plan lays down any specific procedure to complete the delisting of such share; or
(ii) Exit to public shareholders. If the Approved Resolution Plan provides an exit option to the existing public shareholders at a price specified in the Approved Resolution Plan, however,
(a) exit to the shareholders should be at a price (“Exit Price”) which is not 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 Code;
(b) if the existing promoters or any other shareholders are proposed to be provided an opportunity to exit under the Approved Resolution Plan at a price higher than the Exit Price, 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;
(c) 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 the Approved Resolution Plan.
B. An application for listing of delisted equity shares can be made in respect of a company which has undergone corporate insolvency resolution process under the Code.
3. ICDR – Exemption extended to issue of convertible securities too
Requirements under Chapter VII of ICDR deal with various obligations in relation to preferential issue of specified securities (equity shares and convertible securities) by a listed company. As per the amendment, such requirements except the lock-in requirements are not applicable to the preferential issue of specified securities 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 Approved Resolution Plan, whichever applicable. Earlier provisions had extended the exemption only to issuance of equity shares and not convertible securities.
The amendments are available here:
(i) SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2018 dated 31 May 2018;
(ii) SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2018 dated 31 May 2018; and
(iii) SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2018 dated 31 May 2018.