Market regulator SEBI has carved out a way to protect millions of public shareholders of listed companies that undergo the Corporate Insolvency Resolution Process (CIRP). Until now, the CIRP catered only to the interests of banks and other big creditors, but shareholders lost their rights over a company the moment it got admitted into the debt restructuring process, and the new owner, post-restructuring, gained 100 per cent control of the entity.
In a consultation paper issued on Thursday, SEBI has now proposed that the existing public shareholders of a company under CIRP should also become shareholders in the company post its restructuring, and they should have a right to participate in the process in proportion to their shareholding.
SEBI has said that the existing public shareholders should also have the opportunity to acquire capital in the new entity at the same cost at which the new acquirer has come in. As per SEBI, if a company has to remain listed post-restructuring, then existing shareholders should have a right to hold at least 5 per cent of the equity in the company at the cost or value at which 95 per cent of the holding was acquired by the new acquirer. SEBI said it received numerous complaints and representation from minority shareholders, who lost their value and rights once a company was admitted into CIRP.
“It is now felt that there is a need to take suitable measures to protect the interests of public equity shareholders in case of listed companies undergoing CIRP,” SEBI said in its proposal. The regulator further said that its new rules will give minority shareholders an equal opportunity to participate in the resolution process on the same pricing terms as available to the resolution applicant.
But even the existing shareholders who want to participate in the new company will have to buy fresh shares at the price at which the acquirer has got them post restructuring.
“While this proposal by SEBI seems to be refreshing, it may not readily find acceptance for the resolution process. The bidder may not be interested in having other non-promoter shareholders as part of the shareholding. The public shareholders would likely not be interested in putting more money into shares that have already been knocked down from their investment price,” said Shriram Subramanian, founder and MD, InGovern Research.
SEBI said 28 listed companies have ended in liquidation pursuant to CIRP, 52 listed companies have been delisted pursuant to the approval of the resolution plan, and 23 companies continued to remain listed pursuant to the approval. Further, about 70 listed companies are currently undergoing the CIRP. Several hundreds and thousands of crore rupee worth investment of minority shareholders have become zero as companies went into restructuring.