By Rohit Sharma (email@example.com)
That any Act or Statute evolves and gaps in it are removed while the same become effective and is implemented – is a known theory.
With the implementation of the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”) and with passing days of such implementation, the gaps in the Code / linked statutes are being realized and accordingly corresponding amendments are being brought.
As we know, since IBC has now already seen almost nine months of implementation and that a good number of admitted cases are already matured / about to mature for finalization of resolution plan – amendments have been brought in the SAST and ICDR regulations relaxing the provisions for acquisition of shares pursuant to a resolution plan for a listed company.
For the “resolution” of the corporate debtor and keeping it as a “going concern” even beyond the moratorium – a resolution plan has to be proposed and approved by the NCLT. The resolution plan is a comprehensive plan which may consist of different types of arrangements with the lenders and the promoters of the debtor inter alia conversion of the debt to equity or selling of such converted debt to a third party or selling acquisition of the corporate debtor by third party.
While the aforesaid permutation combination is worked out in a resolution plan of a listed company during its stress period, if the provisions of laws applicable on conversion / acquisition of debt is not relaxed – a third party or for that matter even the lender itself will not be motivated to convert / acquire equity of such listed company making distressing of such companies difficult.
Accordingly, amendments have been brought in Regulation 10 of SAST Regulation, 2011 which deals with exemptions from open offer and also clause (5) and (6) of Regulation 70 of ICDR, 2009.
Further exemptions provided to destress a listed company in the following cases:
- where equity shares of a listed company is being acquired / loans of a listed company gets converted to equity shares vide a “resolution plan” approved u/s 31 of IBC – obligation of public announcement and open offer is exempted – complete exemption
- where equity shares of listed company is being acquired / allotted as per the guidelines specified by RBI:
- acquired by lenders pursuant conversion of debt. (subject to compliance of reg 70(5) of ICDR inter alia lock in for 1 year
- allotted either to the lender or to any third person who purchases the shares from lenders who intends to enforce change in ownership (subject to compliance of reg 70(6) of ICDR inter alia lock in for 3 years
To our understanding where the term “allotted” is used – it seems the intent is to refer to fresh allotment and not allotment pursuant to conversion since explicit provision has been provided for allotment pursuant to conversion
It is pertinent to note that there are following guidelines as per RBI vide which the stressed companies can be revitalized:
- Framework for Revitalising Distressed Assets in the Economy
- Strategic Debt Restructuring Scheme (SDR) 
- Change of ownership of borrowing entities (Outside Strategic Debt Restructuring Scheme)
- Scheme for Sustainable Structuring of Stressed Assets (S4A)
Amendment in clause 5 and 6 of section 70 of ICDR pertaining to private placement
It should be noted that both the clauses were inserted vide amendment dated 5.5.2015 by when only SDR was into place and effective and therefore debt restructuring vide other modes as aforesaid was not taken into consideration. Hence the current amendment wherein the following essential changes have been made:
- The clauses are now applicable to not only “SDR” cases but to “any debt restructuring scheme implemented in accordance with RBI guidelines”
- the conversion price shall while being in line with RBI guidelines shall additionally also be in conformity with the provisions of Companies Act, 2013
- since registered valuer has now been defined under section 247 of Companies Act, 2013 – the conversion price has to be certified by such valuers
- now the debt can be converted not only to “equity shares” but to “specified securities” which means any security which is either equity or convertible to equity
- also to be noted that in case the specified securities are being allotted to lenders or the third party additional disclosures pertaining to the proposed acquirer have to be made in the explanatory statement of the notice calling for general meeting proposed for passing special resolution which inter alia would include:
- the identity including of the natural persons who are the ultimate beneficial owners of the shares proposed to be purchased and/ or who ultimately control the proposed acquirer(s);
- the business model;
- a statement on growth of business over the period of time;
- track record in turning around companies, if any;
- the proposed roadmap for effecting turnaround of the issuer