Existing shareholders may get a pie of stake in the new entity post-CIRP
The Securities and Exchange Board of India (Sebi) has proposed that existing public equity shareholders of a corporate debtor should be provided an opportunity to acquire equity of the fully diluted capital structure of new entity to the extent of up to the minimum public shareholding percentage (currently 25%), on the same pricing terms as agreed upon by the resolution applicant.
According to the proposal, the new entity should endeavour to achieve at least 5% public shareholding through such mode of offer made to the non-promoter public shareholders. The offer to acquire shares/allotment would be made in an equitable manner to such public equity shareholders.
The capital market regulator has proposed the mechanism to be an integral part of the resolution plan submitted by resolution applicant for all listed entities undergoing corporate insolvency resolution plan (CIRP).
“The proposal aims to provide an opportunity to minority shareholders to participate in the resolution process on the same pricing terms as available to the resolution applicant,” says the Sebi.
Sebi came up with the proposal after it received numerous grievances in respect of companies that have been delisted pursuant to approval of resolution plan.
According to the market regulator, 52 listed companies have been delisted pursuant to approval of the resolution plan, while 23 companies continued to remain listed pursuant to approval of resolution plan. About 70 listed companies are currently undergoing the CIRP. So far, 28 listed companies have ended in liquidation pursuant to CIRP.
The proposal further says that in cases where successful bidder/resolution applicant is unable to muster 5% public shareholding as per the above process, the company shall go for delisting after the cancellation of the offer made to the existing public equity shareholders and shall refund the consideration received from the public equity shareholders through the said, offer before proceeding further with CIRP.
In order to identify public equity shareholders, following category of shareholding will be excluded:
- Promoter and Promoter Group
- Shares held by associate companies and subsidiaries
- Family members of Promoter and Promoter group not covered under definition of promoter group
- Trusts managed by Promoter and Promoter group
- Directors and Director’s Relatives
- KMPs of the Company vii. Public shareholder representing (nominating) member (i.e. Director) on Board
Also read: Post-Ruchi Soya, Sebi rethinks exemptions given to listed CIRP companies
