Market regulator Sebi on Friday proposed introducing a framework for “schemes of arrangement” for entities that have only listed their debt securities.
A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors.
Currently, for schemes of arrangement involving amalgamation and amalgamation, certain safeguards are available in the LODR rules (registration obligations and disclosure requirements) and registration regulations. These are intended to protect the interests of investors of entities that have listed specified securities – stocks and convertible securities.
There is no separate prescribed framework for entities that have only listed debt securities or non-convertible redeemable preferred stock (NCRPS) under Sebi’s NCS Rules or the Issuance and Listing Standards of non-convertible securities.
In a discussion paper, Sebi said it proposes to put in place a regulatory framework providing for schemes of arrangement for only publicly traded entities in listing regulations.
“When a listed issuer undergoes a restructuring, it has an impact on investors, regardless of the security invested. Therefore, a holder of debt securities/NCRPS is as much impacted as a holder of specified securities; it requires offering similar protection to the first,” Sebi said.
The regulatory framework for filing and processing would be of the same order as for entities that have listed specified securities, where the regulator offers commentary on schemes of arrangement. In addition, these stipulations would not apply to a restructuring proposal approved as part of a resolution plan by the court under the Insolvency Code, in accordance with the consultation document.
The Securities and Exchange Board of India (Sebi) has invited comments on the proposals until June 19.
As of February 2022, approximately 700 entities have listed debt securities only and have publicly traded debt securities outstanding.
According to the discussion paper, the listed entity must file the draft exchange arrangement drawings to obtain the letter of no objection. This will be subject to certain conditions.
“The proposed period for the treatment of schemes filed by entities that have only listed debt securities / NCRPS ‘and raised funds only through a private placement of debt securities / NCRPS’ is proposed to coincide with the filing period for schemes filed with any court or tribunal,” Sebi said.
Entities that have listed debt securities or NCRPS through a public offering must, however, comply with the filing and treatment stipulations in a manner similar to schemes filed by entities with specified listed securities. before any court or tribunal.
Exchanges must forward the draft plan of arrangement received from the listed entity together with a notice of no objection to Sebi.
In addition, Sebi should provide comments on the draft scheme, which should be in relation to the listed debt securities/NCRPS of these entities on the relevant exchange. Subsequently, the exchange must issue a letter of no objection to the listed entity, incorporating the comments received from the regulator.
When processing the draft plan, Sebi may seek clarification from any person affected in this regard, including the listed entity or the stock exchange and may also seek the advice of an expert such as a practicing corporate secretary, a practicing accountant and a lawyer.
The validity of the letter of no objection should be six months from the date of issue. Upon receipt of the letter from the exchange, the listed entity shall ensure that it is submitted immediately, but no later than two business days from such receipt, to the court or tribunal to avoid delay, in accordance to the consultation document.
The proposed regulatory framework should protect the interests of debt securities/NCRPS holders and guide these listed entities through a procedural framework.