SEBI Releases a Breather for Stressed Companies in COVID-19

Must Read

What is the Real Estate (Regulation and Development) Act, 2016?

The Real Estate (Regulation and Development) Act, 2016 (“RERA”) is an Act of the Parliament. It seeks to protect...

Should the Exorbitant Amounts Charged for RT-PCR Tests be Refunded?

Introduction A plea has been filed in the Honourable Supreme Court of India seeking a refund of exorbitant amounts charged...

Should CCTV’s be Installed in the Police Station?

Introduction In a recent judgment, the bench led by Justice Nariman issued directions to both the state and Union Territory...

A Legal Analysis of the West Bengal Political Crisis on IPS Deputation

The Ministry of Home Affairs (MHA) has recently summoned three IPS officers of West Bengal (WB). The decision was...

Explained: Postal Ballot for NRIs

At the end of November 2020, Election Commission sent a proposal to the law ministry to amend the Representation...

Explained: Constitutional Provisions and Legislations With Regards to a Person with Disabilities

The world celebrates December 3 as International Day of Persons with Disabilities (IDPD). This day is also called World...

Follow us

Resuscitation of companies in COVID-19 is the most herculean of all tasks. SEBI had introduced easing out fund norms for stressed companies. This comes with a proviso that the promoter is willing to find a new owner. The economic turmoil’s effects are evenly spread everywhere. Although, only stressed companies have got relief, the move came from a Consultation Paper in April. The paper stated the dire need for raising capital, especially in the pandemic. The pandemic has led to a stark decline in share prices, making fund-raising difficult. The amendment followed the RBI’s Draft Comprehensive Framework for Sale of Loans.

Preferential allotment in these times is very difficult due to the pandemic. The guidelines for the preferential allotment route were also changed. Pricing of the preferential issue is also mandated under the SEBI Regulations, 2018. The 26-week weighted average was too done away with. The weighted average of the last 2 weeks would form the basis for adding prices.

Another relief is the exemption of investors from the open offer. It’s helpful when the acquisition limit is beyond Regulation 3 (1) of the Takeover Regulations. This will ease the financial burden on investors to avoid the buyer-seller clash. These open offers are also regulated under SEBI (SAST) Regulations, 2011.

It’s one thing to provide relaxation and another to actually relax the companies. Yet, the SEBI’s easing out such norms are a welcome step at least for stressed companies.

What are these ‘stressed’ Companies’?

According to the Consultation Paper, the definition of stressed companies must be objective. Hence, if two of the three criteria get fulfilled, the company becomes eligible:

  1. If it is defaulting on a loan from a bank or non-bank lender.
  2. A company whose lenders have an inter-creditor agreement with the RBI.
  3. A company whose credit rating is as low as a ‘D’.

Other than these, SEBI has listed several other conditions. One of them is that the allotment must be outside the promoter group. Restrictions on the allotment to wilful defaulters or fugitives also exist. Other requirements include disclosure of the purpose of raising funds. The resolution must have got approval from the majority of minority shareholders. The funds get locked in for 3 years.

A period of 2 quarters is long. Especially when the investors are ready to buy and companies are ready to sell. An issue also exists with inter-creditor agreement, as this would need commercial negotiations. The Listing Obligation and Disclosure Requirements can also be an eligibility criterion. Even companies on the verge of getting stressed should get relief.

Was there a Need for the Stress Buster?

Listed stressed companies need fund infusion as COVID 19 has ripped them off. The decline in share prices can be a major disruption in the functioning of these companies. The 26-week wide gap in pricing as per Regulation 164 of the ICDR Regulations, 2018 is too burdensome. Etihad had sought relaxations for infusing more funds. Jet Airways had a crisis because no exemptions from open offers were given to Etihad

The pricing regulations allow issuance to Qualified Institutional Buyers. But the same is also limited to 5. According to the Consultation Paper, making an open offer will create fiscal obligations. This will increase the costs of financial intrusion and avoid bankruptcy. Hence, the reforms in the wake of COVID-19 are much needed. However, even non-stressed companies yearn for more relaxation. 

According to Mrs. Richa Kashyap, Business Law Professor at NMIMS School of Law,

“The relaxations brought by SEBI are in consonance with the RBI draft regulations. In these fragile economic conditions, companies need more such breathers from regulators. But regulators must also consider other issuers before they become stressed. However, the lock-in period for 3 years could get reduced or relaxed.”

Are IBC and NCLTs in Cold Storage?

Delay in implantation of resolution plans was the biggest failure of IBC. IBC was a rescue route for insolvent companies. The Consultation Paper did not mention about the pending cases of IBC and NCLT, nor about the process. Yet, Mr. Shardul Shroff in a panel discussion had stated that proceedings are ongoing, and appeals are also heard. The Supreme Court is also hearing matters. However, the object of the consultation paper is not to restrict exemptions. Especially those exemptions under Takeover Regulations under the IBC and NCLT route.

Conclusion and Recommendations

The SEBI reforms with RBI draft regulations are a big step. Recapitalization of stressed companies will toughen them in the blackout period. The easing out norms through amendments in SEBI Regulations will rescue companies. Also, it will infuse in much-needed finance.

With some more relaxations, companies will be in a better position to bounce back. Even after the 4 months blank out period. The criteria for stressed companies and the conditions attached make it somewhat restrictive. The first criteria that the company must have a loan for at least 90 days, may be too long a period. Especially if the company is already an NPA for banks. Inter -credit agreements may also be a hurdle for getting banks together. Green-shoe options could also help in reviving back companies. The 3-year lock-in period must also get reduced. Such steps can help businesses resuscitate and bounce back after COVID 19.


Libertatem.in is now on Telegram. Follow us for regular legal updates and judgements from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe for our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

WhatsApp Emails Delhi HC Judge Asking Her Not To Hear the Plea Challenging New Privacy Policy

The Delhi High Court raised strong objection to an E-mail sent by WhatsApp asking a judge not to hear the plea which challenges its new privacy policy. Justice Pratibha Singh said that the e-mail that was withdrawn later was totally unwarranted as she was anyway going to recuse from hearing the plea which was filed by Rohilla Chaitanya who contends that the new privacy policy of WhatsApp provides 360-degree access to a customer’s virtual activity and is against the fundamental right of privacy.

TRP Scam Case: Bombay HC Extends Protection To Arnab Goswami and Other Employees Till the Next Hearing

On Friday, the Bombay High court extended the protection that was given, to Republic TV’s Editor in Chief Arnab Goswami and other employees of ARG Outlier Media Private Limited till January 29th in the alleged case of Television Rating Point manipulation. A status report was submitted by the police to the division bench of Justices S.S.Shinde and Manish Pitale by the Police on the ongoing case.

Plea Seeks FIR Against Maharashtra Minister Dhananjay Munde in Bombay HC for False Info

A plea has been filed in Bombay High Court seeking an FIR against Maharashtra minister Dhananjay Munde who is undergoing times of trouble due to his extra-marital affair. Recently, an FIR had been lodged against Munde by a woman, accusing him of raping her sister. Munde clarified that he was actually in a relationship with that woman and had two children. He accused the two women of blackmailing him.

Writ Petition for Compensation Accepted by Calcutta High Court 

Introduction The Petitioner Purna Ch. Biswas filed a Writ Petition with the complaint that their claims for a higher quantum of compensation have not yet...

No Members Could Be Disqualified Without Authorisation by Political Party: Gujarat High Court

Excerpt The dispute application no.7 of 2020 filed by respondent no.2 before designated authority. Thereafter the designated authority order dated 28.10.2020 disqualified the petitioner and...

Delhi High Court Directs Delhi Jal Board To Make Supply of Potable Drinking Water

The High Court of Delhi in the matter of Delhi Sainik Cooperation Housing Ltd. v. Union of India & Ors held that right to...

Punjab & Haryana High Court Orders Security To BJP Leader Alleged for Not Supporting Farmers Protest

The Order had come in the form of a Writ Petition filed by Tikshan Sood under Article 226 of the Constitution. The petition before...

Lahore High Court Outlaws Two-Finger Virginity Test

The Lahore High Court in Pakistan has outlawed the use and conduct of virginity tests, namely, the use of the “two-finger” virginity test and...

London Court Rejects Assange’s Extradition – What Happens Now? 

Earlier last week, District Judge Vanessa Baraitser, sitting in the Westminster Magistrates’ Court denied the Government of the U.S.A.'s request to the U.K. to...

Calcutta High Court Decides in Favor of Contractor as He Accidentally Pays an Excessively High Amount

Introduction The present writ petition has been filed for a writ in the nature of mandamus commanding the Respondents to revoke the Petitioner’s offer as...

More Articles Like This

- Advertisement -