How Sebi plans to ease compliance for insolvent companies

The Securities and Exchange Board of India (Sebi) will consider a raft of proposals to ease various compliance procedures for listed insolvent companies—especially with regard to trading, listing and de-listing norms, and declaration of financial results—at its board meeting on Thursday, official sources told FE. The proposals include relaxing the requirement of a minimum 25% public shareholding and the stringent procedures to de-list a stressed company, if that is part of the resolution plan. The need for mandatory disclosures of “all material events which might have bearing on the market prices” to stock exchanges and the announcement of financial results in the absence of a board of directors could also be reviewed to provide relief, said the sources. Currently, a company, stressed or not, can be de-listed only after getting approval from the board of directors and then by shareholders through a special resolution by 75% or more votes. There are also other procedures to be followed. In case of a stressed company, once the resolution process commences under the Insolvency and Bankruptcy Code, 2016 , the board of directors’ control ceases to exist.

Since it is difficult for the acquirer of a stressed company to ensure the minimum public holding within one year, as mandated by extant rules, Sebi could grant a larger time-frame. “The idea is to help the insolvency professional and the lenders focus better on firming up a resolution plan to turn around the company in a time-bound manner, without having to worry too much about every compliance procedure,” said one of the sources. The proposals are based on the deliberations Sebi officials have had with officials at the Insolvency and Bankruptcy Board of India (IBBI). Separately, the IBBI is holding discussions with the ministry of corporate affairs to facilitate easier compliance regime for unlisted insolvent firms, said the sources. For instance, the mandatory practice of submitting annual results of unlisted firms with the MCA could be relaxed in case of a company under insolvency resolution, they added.

“The requirement of completing resolution process in just six months (which can be extended by three months) is quite an onerous task. As such, the IBC imposes several responsibilities on an insolvency resolution professional, including managing the affairs of a company as a going concern, apart from drawing up the resolution plan along with the committee of creditors,” said Manoj Kumar, partner and head (M&A and Insolvency Resolution Services) at consultancy firm Corporate Professionals Capital. “So, it’s justified that the professional be freed from responsibilities of ensuring compliance of several corporate laws to focus more on the insolvency resolution.”