Skip to main content

Sebi team working on relaxation for IBC firms

Sebi team working on relaxation for IBC firms
Easing of delisting rules and exemption from public shareholding norms among key proposals
Market regulator Sebi has formed a team to look into securities law changes, after advent of the Insolvency and Bankruptcy Code. The team will collect inputs from all stakeholders and examine feasible proposals. The final report is expected by March.
The Securities and Exchange Board of India (Sebi) has formed a team to look into securities law changes, after advent of the Insolvency and Bankruptcy Code (IBC). The team will collect inputs from stakeholders and examine feasibility of proposals.
Sources said doing away with the tedious reverse book building process (RBB) for delisting of IBC companies, exemption from minimum public shareholding (MPS) norms and relaxation from some compliance requirements will be among the recommendations considered. The final report is expected by March.
The move comes after Sebi, the markets regulator, received requests from stakeholders, especially banks, to relax certain regulations in line with the newly enacted IBC. This would be the second round of relaxations for IBC companies. Previously, Sebi had exempted buyers of insolvent companies from making an open offer to minority shareholders during a takeover.
“We have been receiving several inputs from stakeholders to tweak some of the existing regulations for companies under IBC. Hence, we have formed an internal team,” said Ajay Tyagi, chairman, Sebi.Many companies undergoing insolvency proceedings are listed players. However, several prospective buyers are keen on delisting the sick companies after acquisition.This would reduce compliance burden, as therewould be no need for the new buyers to engage with minority shareholders for every important decision.
Several bankers had approached Sebi, seeking exemption from RBB and creating a scheme where the exit price is determined by independent valuation, by experts. A similar scheme was earlier proposed by Sebi in the compulsory delisting of regional stock exchange listed companies, which had not migrated to a recognised bourse.
In normal circumstances such an exercise needs to follow Sebi’s delisting guidelines. However, the framework is comparatively rigid. There is a good chance that a few minority shareholders could hold the delisting hostage.
RBB is a price discovery mechanism for minority shareholders. Shareholders bid for the price at which they are willing to tender shares. The final offer price for delisting is determined at which the highest number of shares has been offered. Hence, minority shareholders in tandem could derail a delisting process by jacking up prices and making the buyback unviable for the company.
While Sebi kept the delisting norms tight to discourage promoters from bulldozing their decision on minority shareholders, legal experts say IBC cases are very different, as public shareholders lose their say in the process itself.
“Sebi should review some of its regulations to make the IBC process smooth and successful. While a company is undergoing a turnaround through IBC, it is difficult to expect it to comply with normal Sebi regulations. Minority shareholders lose their voice in IBC companies, as most of such companies see 99 per cent of their equity wealth being wiped out,” said Sandeep Parekh, founder, Finsec Law Advisors.
Another suggestion under Sebi consideration is relaxing of the MPS requirements for companies under IBC. According to the current rules, every listed company should have a minimum 25 per cent public shareholding and if it falls below the threshold, the company is given one year to readjust and achieve the 25 per cent requirement.
The Business Standard, New Delhi, 11/01/2018

Comments

Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Firms with sales below Rs.50 crore out of ambit

The tax department has reiterated that the PoEM rules, which require foreign firms to pay taxes in India if the effective control is here, will not apply to companies withaturnover of Rs.50 crore or less inafinancial year. Last month, the tax department had come out with the longawaited Place of Effective Management (PoEM) rules, which require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes if their businesses are effectively controlled by Indians. Then the rules did not setathreshold above which they were to apply. However, the accompanying press release states that the rules will not apply to companies withaturnover of up to Rs.50 crore inayear. That created confusion whether the threshold will be adhered to. Inacircular to clarify things, the Central Board of Direct Taxes (CBDT) said the provision "shall not apply toacompany havingaturnover or gross receipts of ~50 crore or less inafinancial year".

PoEM rules essentially target shell …