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Schemes of arrangement: Sebi mulls framework for entities that have only listed their debt securities

“When a listed issuer undergoes restructuring, it impacts investors, irrespective of the security invested in. Hence a holder of debt securities/ NCRPS’ is impacted as much as a holder of specified securities; this necessitates affording a similar protection to the former,” Sebi said.

Scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors.
Scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors.

Markets regulator Sebi on Friday proposed introducing a framework for ‘schemes of arrangement’ for entities that have only listed their debt securities.
Scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors.

Presently, for schemes of arrangement involving merger and amalgamation certain safeguards are available in LODR (Listing Obligations and Disclosure Requirements) rules and Listing Regulations. These are to protect the interest of investors of the entities that have listed specified securities — equity shares and convertible securities.

There is no separate framework prescribed for entities that have only listed debt securities or Non-Convertible Redeemable Preference Shares (NCRPS) under Sebi’s NCS rules or Issue and listing of Non-Convertible securities norms.

In a discussion paper, Sebi said it is proposing to bring about a regulatory framework providing for schemes of arrangement for only debt listed entities in the listing regulations.

“When a listed issuer undergoes restructuring, it impacts investors, irrespective of the security invested in. Hence a holder of debt securities/ NCRPS’ is impacted as much as a holder of specified securities; this necessitates affording a similar protection to the former,” Sebi said.

The regulatory framework for filing and processing would be on the same lines as for entities that have listed specified securities, where the regulator offers comments on the schemes of arrangement. Further, these stipulations would not be applicable to a restructuring proposal approved as part of a resolution plan by the tribunal under the Insolvency Code, as per the consultation paper.

The Securities and Exchange Board of India (Sebi) has sought comments on the proposals till June 19.
As on February 2022, around 700 entities have listed only debt securities and have outstanding debt securities listed on the stock exchange.
According to the discussion paper, the listed entity should file the draft schemes of arrangement with exchange for obtaining the no-objection letter. This will be subject to certain conditions.

“The proposed period for processing schemes filed by entities that have listed only debt securities/NCRPS’ and have raised money only by way of a private placement of debt securities/NCRPS’ is proposed to be co-terminus with the filing period of schemes filed with any court or tribunal,” Sebi said.

The entities that have listed debt securities or NCRPS’ by way of a public issue, however, should comply with the stipulations as to filing and processing in a manner similar to that of schemes filed by entities with listed specified securities before any court or tribunal.

Stock exchanges should forward the draft scheme of arrangement received from the listed entity along with no-objection to Sebi.
Further, Sebi should provide comments on the draft scheme, which should be in relation to the listed debt securities/NCRPS’ of such entities to the stock exchange concerned. Subsequently, the stock exchange should issue a no-objection letter to the listed entity, incorporating the comments received from the regulator.

While processing the draft scheme, Sebi may seek clarifications from any person relevant in this regard, including the listed entity or the stock exchange and may also seek an opinion from an expert such as practicing company secretary, practicing chartered accountant and lawyer.

The validity of the no-objection letter should be six months from the date of issuance. Upon receipt of the letter from the exchange, the listed entity should ensure that the same is submitted immediately but not later than two working days from such receipt, to the court or tribunal to avoid any delay, as per the consultation paper.

The proposed regulatory framework is expected to protect the interest of holders of debt securities/NCRPS’ and guide such listed entities through a procedural framework.

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