BSE, NSE initiate steps to deal with info asymmetry on companies undergoing insolvency resolution process

By: |
July 09, 2021 3:05 PM

In the recent past, the exchanges have come across instances where the approved resolution plan provides for delisting of the company or write off/cancellation/extinguishment of existing equity shares without any payout or consideration to the existing shareholders.

BSE, sensexThe guidance note will be uploaded on the exchanges' websites, an email will be sent to all the companies which are under CIRP informing them about the guidance note.

In a bid to address information asymmetry among investors, stock exchanges, BSE and NSE, on Friday came out with a framework for dealing with companies undergoing corporate insolvency resolution process. In the recent past, the exchanges have come across instances where the approved resolution plan provides for delisting of the company or write off/cancellation/extinguishment of existing equity shares without any payout or consideration to the existing shareholders. However, it is observed that there is a considerable time lag between the pronouncement of verbal order by NCLT and the final written order by NCLT, the exchanges said in separate statements.

“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,” the exchanges said.

Under the framework, the exchanges will issue a detailed guidance note to companies undergoing Corporate Insolvency Resolution Process (CIRP) and the Resolution Professional (RP) on compliance and disclosure requirements as per Sebi’s (Listing Obligations and Disclosure Requirements) LODR Regulations.

The guidance note will be uploaded on the exchanges’ websites, an email will be sent to all the companies which are under CIRP informing them about the guidance note.

The guidance note provides that the Resolution Professional has to comply with LODR rules and in compliance, will 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.

Additionally, the RP will have to inform through the exchange platform any impact on the 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 or preference shares or debentures without any payment to such holders.

Further, the guidance note provides that the companies/ the Resolution Professional will be guided by the provisions of the LODR Regulations and will maintain the confidentiality of the resolution plan until details are not submitted on the exchange platform. Sebi LODR rules mandated disclosures at various stages by companies undergoing CIRP.

As soon as company is admitted into CIRP, the exchanges said they will 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 list of securities will also be available on the exchanges’ websites. The exchanges said they will continue to provide an alert at the time of order entry informing the market participants that the scrip is undergoing CIRP.

Further, trading members have been 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,” the bourses said.

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 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 provision in the Resolution Plan, will suspend the trading in the firm on immediate basis. The exchanges said they will monitor on a regular basis the compliance of all companies under CIRP from a disclosure perspective, and any non-compliances observed will be reported to capital markets regulator Sebi for further action.

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