June 23, 2021
On August 19, 2020, SEBI released a Consultation Paper on ‘Recalibration of threshold for Minimum Public Shareholding Norms in Companies which undergo Corporate Insolvency Resolution Process (CIRP)’.
Existing legal position: Relaxations provided to listed entities undergoing CIRP
For ensuring the smooth revival of the corporate debtor post-approval of the resolution plan, SEBI has provided relaxations under various regulations. These exemptions are exclusive to entities involved in IBC cases and are not even provided when companies seek approval for schemes of arrangement. Some of them are:
In cases where the decrease in public shareholding is as a result of a resolution plan being implemented under the IBC:
(a) If the public shareholding is below 10%, within
18 months- it should be 10% and within,
3 years- it should be 25%
(b) If the public shareholding is between 10%-25%, within
3 years- it should be 25%.[1]
Concerns and Issues:
Proposals:
(a) Option 1: Mandate such companies to achieve-
10 percent- in six months
25 percent- in three years
(b) Option 2: Mandate such companies to achieve-
5 percent- at the time of listing
10 percent- in twelve months
25 percent- in twenty-four months
(c) Option 3: Mandate such companies to achieve-
10 percent- at the time of listing
25 percent- in three years
A proposal has also been made to standardize reporting framework under SEBI (LODR) Regulations, 2015 pursuant to approval of a resolution plan.
~ Sara Jain
[1] Rule 19A(5), Securities Contract (Regulation) Rules, 1957
[2] Preferential issue means an issue of specified securities by a listed issuer to any select person or group of persons on a private placement basis. It does not include ESOPs, depository receipts and sweat equity shares.
[3] Regulation 158(2), SEBI (Issue and Capital Disclosure Requirements) Regulations, 2018
[4] The lock-in period for shares contributing toward minimum promoter contribution i.e. 20% of total capital is 3 years. The lock-in period for any shareholding exceeding 20% is 1 year.