Sebi has also proposed to ease the delisting process for companies facing bankruptcy under the insolvency and bankruptcy code. Photo: Reuters
Mumbai: The Securities and Exchange Board of India (Sebi) has proposed to ease compliance norms for companies undergoing resolution under the Insolvency and Bankruptcy Code (IBC) framework.
The regulator is going to release a discussion paper that will examine whether there should be trading restrictions on such companies.
It will also examine whether to allow restructured companies to get their promoter shareholding to 75% within one year. Sebi norms for regular listed firms mandate that 25% of shares are held by the public.
“Since there is no board, all Sebi norm compliances will come to the Resolution Professional. And the question of whether the trading should be restricted or not. So consultation is needed. We are trying to be cautious,” said Sebi chairman Ajay Tyagi.
When a company is admitted for bankruptcy, its board is superseded by a so-called resolution professional till the resolution process is complete.
However, experts do not agree to measures on trade restrictions for such firms.
“In such a scenario it is important to monitor and enhance surveillance to prevent undue volatility but in a free economy, businesses should be allowed to conduct its affairs including continued trading rather than a blanket ban on trading,” said Rakesh Nangia, founder and managing partner of Nangia and Co. Llp, a consulting firm which also does some IRP (insolvency resolution professional) work.
The regulator has also proposed to ease the delisting processes as the IRP and National Company Law Tribunal will now decide the delisting process instead of the current reverse book building exercise.
The discussion paper is based on the suggestions of an internal Sebi committee recommendations which had representations from Insolvency and Bankruptcy Board of India.
“A very positive move that Sebi will be initiating a public consultation process on a discussion paper for addressing various issued pertaining to Sebi matters such as disclosures, suspension of trading and delisting etc for companies undergoing CIRP process. Insolvency professionals and legal fraternity have made several suggestions on these aspects and I am glad that Sebi has taken cognizance of these pertinent issues. We look forward to some quick and positive solutions in the coming weeks,” said Ashish Chhawchharia, partner and national head (restructuring services) at Grant Thornton in India.
These measures assume importance in the wake of Rs10 trillion of stressed assets clogging the banking system. The discussion paper will remain open for discussion for 15 days. The shorter consultation is to ensure that exemptions are fast-tracked as majority of the companies currently under resolution through the IBC mechanism are listed ones.