INSUBCONTINENT EXCLUSIVE:
The Securities and Exchange Board of India (Sebi) has proposed a framework to protect the interests of public equity shareholders in case
of listed companies undergoing insolvency proceedings.
In a discussion paper, the capital markets regulator has proposed that public equity
shareholders should get an opportunity to acquire shares of the entity created, following the completion of the corporate insolvency
resolution process (CIRP).
Sebi has said the price offered to these shareholders should be the same as the one agreed upon by the resolution
applicant.
The framework, once in effect, will help small stakeholders get an opportunity to participate in the revival process of the
company going through insolvency.
Under the current process, existing shareholders get squeezed out as the CIRP results in huge equity
dilution and even delisting.Sebi has proposed that public equity shareholders be given the opportunity to acquire a minimum of 5 per cent
and up to 25 per cent in the new entity
shareholding becomes 100 per cent pursuant to the CIRP process, the minimum offer required to be made for existing public shareholders will
be 25 per cent and the minimum acceptance 5 per cent.
In the event there is no interest even for 5 per cent of shares, the resultant entity
will be allowed to delist
to make an offer to public investors as their holding will already be at 25 per cent.
The offer to acquire shares of the resultant entity
will not be available to associate companies, family members of promoter group companies, trusts managed by promoters, key managerial
intimation or even the opportunity to present their case to a committee of creditors (CoC).
On numerous occasions, representations have
been made before Sebi to intervene to protect the interests of existing shareholders.
However, under the Insolvency and Bankruptcy Code,
equity holders are considered owners of the insolvent company, and thus fall last in the resolution plan approved by a court to receive any
dues at the time of liquidation.
In case of insolvency, the CoC and the resolution professional steer the insolvency process since their
rights are considered superior.
So far, 28 listed companies have ended in liquidation under CIRP
About 52 listed companies have been delisted according to the resolution plan and 23 companies continued to remain listed
About 70 listed companies are undergoing CIRP.
The new framework can help the regulator protect the interests of retail investors
For instance, in the matter of delisting of Dewan Housing Finance Corporation (DHFL), retail investors filed an appeal at the National
Company Law Appellate Tribunal for adequate information
of public equity shareholders in the case of listed companies undergoing CIRP
In this regard, a proposal taking into account the interests of all stakeholders, including minority public shareholders, while opening a
new avenue for raising funds for the corporate debtor, without compromising the speed and efficiency of CIRP process, is placed for public
