Stock exchanges lay down rules to curb share price manipulation of listed CIRP companies
The stock exchanges have in a guidance note asked the Resolution Professional to inform through the Exchange platform any impact of a resolution plan on the existing holders/investors of listed securities, on areas such as status of listing, the value of holding of existing holders, write off/ cancellation/ extinguishment of existing equity shares/ preference shares/ debentures, etc. without any payment to such holders, where applicable.
They have also asked the resolution professional to disclose the fact of approval of resolution plan on oral pronouncement or otherwise of the order on immediate basis and not later than 30 minutes to the stock exchanges.
The guidance came after the stock exchanges noted that there were instances where the approved resolution plan provides for delisting of the company or write off/ cancellation/ extinguishment of existing equity shares without any payout/consideration to the existing shareholders. However, they observed that there is a considerable time lag between the pronouncement of oral Order by NCLT and the final written order by NCLT.
“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 the stock exchanges in a statement.
Further, the guidance note provides that the Companies/ the Resolution Professional should be guided by the provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulation and maintain the confidentiality of the resolution plan until details are not submitted on the Exchange Platform.
It elaborates that as soon as company is admitted into CIRP, the Exchanges should identify and tag the security in a manner, which will be easy for the members and market participants to know that the security is currently into IBC proceedings.
The Exchange will continue to provide an alert at the time of order entry informing the market participants that the scrip is undergoing CIRP. Members will also be advised to incorporate this alert promptly in their front-end systems. Since this alert will be available from the day of admission into CIRP till the day of suspension of the company/ exit from CIRP proceedings pursuant to NCLT order, the market participants shall be clearly aware of the status of the company and shall exercise necessary due diligence will trading in the security.
In instances where the Resolution Plan provides that the value of the listed securities is considered zero and company to be delisted or where the entire equity capital is reduced/ cancelled/ extinguished without any payment to the existing equity shareholders, exchanges in coordination with each other, based on the intimation of the oral order from the Company/RP confirming the aforesaid provision in the Resolution Plan, will suspend the trading in the company on immediate basis.
The Exchange will be monitoring on a regular basis the compliance of all companies under CIRP from a disclosure perspective, and any non-compliances observed will be reported to SEBI for further action.
Also read: A deep dive into the resolution plan of Jet Airways
