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In a bid to curb speculative trading, stock exchanges have mandated listed companies undergoing insolvency processes to inform them within 30 minutes of an NCLT approving their debt resolution plan.
Currently, there is a considerable time lag between the pronouncement of an oral order by an NCLT and the final written order. “Companies generally hold on to the information and do not make any/timely disclosure to the stock exchanges until receipt of a written copy of the order. By this time, the information may be available to a select group of people and may create information asymmetry and confusion in the market,” said a National Stock Exchange statement.
Violation of the guideline will attract penalties under SEBI’s Listing Obligations and Disclosure Requirements, which mandate disclosures at various stages by companies undergoing the CIRP. Exchanges will monitor the CIRP companies, and any non-compliance will be reported to SEBI for action.
New guidelines
The stock exchanges issued a new set of guidelines for companies undergoing the Corporate Insolvency Resolution Process (CIRP) wherein the Resolution Professional has to inform through the exchange platform any impact on the status of listing, the value of holding of holders of various instruments, write off/cancellation/extinguishment of equity/preference shares or debentures, etc., without any payment to their holders.
Where the resolution plan says the value of the listed securities is considered zero or extinguished, without any payment to the existing equity shareholders, stock exchanges, based on the intimation by the company of the oral order of the NCLT, shall immediately suspend trading in the company.
“As soon as the company is admitted into the CIRP, exchanges will provide an alert at the time of order entry informing the market participants that the scrip is undergoing CIRP,” the BSE said in a statement. Since this alert on the company will be available from the day of CIRP admission till the resolution plan is approved, market participants will be clearly aware of the status of the company and can exercise due diligence when trading in its securities, it added.
Makarand Joshi, Partner, MMJC, said market speculation begins immediately after the IBC bidding process starts and continues till the resolution plan is approved. Tight secrecy needs to be maintained in the whole process with timely disclosures. The regulator must track the trades of Resolution Professionals, Committee of Creditors members, persons aware of sensitive information, their immediate relatives and connected entities, he added. In the past, there have been instances of a company undergoing the IBC process seeing sudden increase in its share price. For instance, Ruchi Soya was listed at ₹17 on January 27, 2020. On June 10, the share at ₹839 — a staggering 4,835 per cent rise after the Patanjali group acquired the company through the insolvency process.
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