SEBI moves to ease corporate insolvency resolution process

Corporate insolvency resolution process (CIRP) in India will get a boost with SEBI now amending its ‘Takeover Code’ to remove capital infusion hurdles in companies with approved resolution plans under the Insolvency and Bankruptcy Code (IBC)

The latest change will enable acquirers of shares under approved resolution plan to go beyond the maximum permissible non-public shareholding, that is, 75 per cent.

The SEBI move is expected to smoothen the implementation of successful resolution plans, say corporate observers.

Hitherto, the ‘Takeover Code’ barred acquirers of shares in a company from entering into any transaction that would take their aggregate shareholding above the maximum permissible non-public shareholding limit.

Delisting norms

The regulator also exempted listed companies from having to comply with its deslisting regulations if such delisting is part of a resolution plan approved by the National Company Law Tribunal and any of two conditions are met.

The conditions are (a) the resolution plan provides a specific procedure to complete the delisting of such share; or (b) the resolution plan provides an exit option to the existing public shareholders at a price specified in the resolution plan.

Sumit Naib, Director, Nangia Advisors LLP, said: “Both the amendments were necessary to ensure that there not be any conflict between the terms provided under the resolution plan and the takeover/delisting regulations.”

This would ensure that the implementation of the resolution plan, which is a time-bound exercise, does not get stuck in procedural hurdles, Naib added. This is in line with the intent of the law behind bringing the Bankruptcy Code, which is time-bound resolution of NPAs, he said.

Pankaj Mahajan, Head-Restructuring & Insolvency, Mazars, said the SEBI amendment to exempt successful resolution applicants from the maximum non-public shareholding limit will have a “far-reaching positive impact.”

This will be a huge positive in terms of better price discovery in the case of the listed entities undergoing the CIRP as it will generate a lot of interest among the applicants who were seeking maximum control to maximise their returns against the huge risk being assumed by them while bidding for the target companies whose future remains uncertain in spite of all the due diligence being carried out, Mahajan said.

Harman Walia, Principal Associate, Induslaw, a law firm, said the latest amendments had been awaited for long to provide a comprehensive and clear legal framework to facilitate the takeover of public listed companies undergoing insolvency resolution process.

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