SEBI Press Release No. 61/2020 dated December 16, 2020

  • In order to recalibrate the Minimum Public Shareholding (MPS) requirements for listed companies which are presently going under Corporate Insolvency Resolution Process (CIRP), the Board of the Securities and Exchange Board of India (SEBI) concluded a meeting on December 16, 2020 wherein certain key decisions were taken to facilitate the shareholding norms for such listed companies which seek to continue to remain listed post the CIRP.
  • Presently, during CIRP where the Public Shareholding falls below 10%, such listed companies are required to bring the Public Shareholding to at least 10% within a period of 18 months from the said date and to 25% within 36 months. In this background, the SEBI, by the way of aforementioned press release, brought the following amendments:
    • Post the CIRP, such companies are now required to have a MPS of 5% at the time of their relisting, as against no minimum requirement at present.
    • Further, such companies will now be provided twelve months to achieve Public Shareholding of 10% and a further period of thirty-six months to reach 25% Public Shareholding from the date of admission of shares of these companies for re-trading on exchanges.
    • In furtherance to the above, it has been decided that the lock-in on equity shares allotted to the Resolution Applicant under the Resolution Plan shall not be applicable to achieve the requisite 10 % Public Shareholding requirement within twelve months.
    • Additionally, such companies seeking to continue to be listed on the stock exchange would also be required to make additional disclosures, such as specific details of Resolution Plan, including details of assets post-CIRP, details of securities continuing to be imposed on the companies' assets and other material liabilities imposed on the company. They shall also disclose the proposed steps to be taken by the incoming investor/acquirer for achieving the MPS and quarterly disclosure of the status of achieving the MPS.
  • The proposed changes serve as a vote of confidence regarding the standing and stability of the company, to the investors who plan to invest into the shareholding of such company which has essentially arisen from insolvency. The lock-in limitation in our opinion is to assure that the company is in real terms running and not just a devised mechanism backed up by within the house support.

Ministry of Corporate Affairs Notification dated December 22, 2020 for extension of the operation of Section 10A of the IBC

  • On June 05, 2020, President of India promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (Ordinance), wherein, Section 10A was inserted to the Insolvency and Bankruptcy Code, 2016 (IBC). The Section lays down that no Application for initiation of CIRP shall be filed for any default arising on or after March 25, 2020 for a period of six months or for a further period of up to one year, as may be notified.
  • The proviso to Section 10A provides that no Application for initiation of CIRP can ever be filed for a default occurring during the above-mentioned period. Hence, in effect, such defaults have been excluded from the ambit of 'default' under Section 3(12) of IBC. Consequently, any default arising in or after March 25, 2020 would be exempted from the rigors of the IBC for a period of six months i.e., up to September 25, 2020.
  • This period, which was due to expire on September 25, 2020 was further extended by the government for 3 months rounding up to December 25, 2020 via notification dated September 24, 2020 in the Gazette of India.
  • In continuation to the above extension of suspension of operation of Sections 7, 9 and 10 of the IBC to initiate a fresh insolvency proceeding and to provide more relief period to the companies suffering from financial distress, the Central Government, vide the Notification dated December 22, 2020, issued by the Ministry of Corporate Affairs, in exercise of its powers under Section 10A of the IBC, has further extended the period of suspension by another three months, with effect from December 25, 2020 until March 25, 2021.
  • This extension by the Central Government provides an extended breather to the companies going through financial distress in the wake of Covid-19. This is the third extension and now there is an imperative need to consider if such extensions are futile in nature and are just prolonging the inevitable outcome of initiation of CIRP of certain companies facing economic distress, especially when public money is involved.

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