Scheme of system: SEBI creates framework only for listed entities

Market regulator SEBI on Friday proposed a framework for a ‘system scheme’ for companies listing their debt securities.
An arrangement scheme is a court-approved agreement between a company and its shareholders or creditors.

Currently, some protections are available in the LODR (Listing Obligations and Disclosure Requirements) Rules and List Regulations for schemes involving mergers and acquisitions. These are to protect the interests of investors in entities that list certain securities – equity shares and convertible securities.

Under SEBI’s NCS Rules or Issues and Non-Convertible Securities Rules, there is no separate structure for entities listing only Debt Securities or Non-Convertible Redeemable Preference Shares (NCRPS).

In a discussion paper, SEBI said it was proposing to introduce a regulatory framework which would provide scheme schemes in the enrollment regulations only for debt listed entities.

“When a listed issuer goes through a restructuring, it affects investors, regardless of the security invested. Therefore, one holder of Debt Securities / NCRPS is affected just like the holder of certain securities; This requires the same protection as before, “said Sebi.

The regulatory framework for filing and processing will be on the same lines as for specific securities listed entities, where the regulator provides comments on system schemes. Furthermore, according to the consultation paper, these conditions will not apply to the restructuring proposal approved by the tribunal as part of a resolution plan under the Bankruptcy Code.

The Securities and Exchange Board of India (SEBI) has until June 19 to comment on the proposals.
As of February 2022, about 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 has to file a draft scheme of format in exchange for receiving a letter of no-objection. It will be subject to certain conditions.

“The proposed period for processing of schemes submitted by entities which have listed only Debt Securities / NCRPS and raised funds only through private placement of Debt Securities / NCRPS is proposed to be co-terminated with the filing period of submitted schemes. With any court or tribunal, ”said Sebi.

Companies that have listed debt securities or NCRPS through a public issue, however, must comply with the terms and conditions of filing and processing of schemes filed by companies with specific securities listed before a court or tribunal.

The stock exchange should send the draft format of the format received from the listed entity to SEBI with no objection.
Further, SEBI should comment on the draft scheme, which should be related to the debt securities / NCRPS of such entities listed on the respective stock exchanges. Subsequently, the stock exchange should issue a no-objection letter to the listed entity, including comments received from the regulator.

While processing the draft project, SEBI may seek clarification from any relevant entity, including the listed entity or stock exchange, and may seek the opinion of experts such as company secretaries, practitioners, chartered accountants and lawyers.

The validity of the no-objection letter should be six months from the date of issue. Upon receipt of the letter from the Exchange, the listed entity must ensure that it has been submitted immediately but not later than two working days of such receipt, to avoid any delay in the court or tribunal, as advised.

The proposed regulatory framework is expected to protect the interests of holders of loan securities / NCRPS and guide such listed entities through a systematic framework.

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