Lawyer Monthly Magazine August 2020 Edition

Vineet Aneja Managing Partner E: vineet.aneja@clasislaw.com Dinesh Gupta Senior Associate E: dinesh.gupta@clasislaw.com For any clarification or further information, please contact Disclaimer: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to herein. This publication has been prepared for information purposes only and should not be construed as a legal advice. Although reasonable care has been taken to ensure that the information in this publication is true and accurate, such information is provided ‘as is’, without any warranty, express or implied, as to the accuracy or completeness of any such information. 15 AUG 2020 | WWW.LAWYER-MONTHLY.COM REGULATORY UPDATE OF THE MONTH unlike the IBC where the promoters are removed from the position of control of the distressed entities. Further, SEBI appears to have taken a leaf from section 29A of the IBC since the relaxations from pricing norms and open offer rules for Eligible Stressed Companies would not be available in case the preferential allotment is made to promoters/promoter entities or wilful defaulters, undischarged insolvents etc. However, in case of listed companies other than the Eligible Stressed Companies, while temporary relaxations have been granted from pricing norms, SEBI has not provided any relief from the mandatory open offer norms set out under the Takeover Code ( other than providing a relaxation in the creeping acquisition limit ). This would certainly impact the size and terms of investment which a friendly investor can make in such listed companies. Further, the investment made by non-promoter investors pursuant to the optional pricing norms is required to be locked in for a period of 3 years as against 1 year which would be applicable in case pricing norms set out under Regulation 164 are followed. This condition could also throw a challenge for the listed entities in raising funds from investors. Nonetheless, the relaxations/reliefs announced by SEBI are likely to provide some respite and flexibility to the listed companies in attracting ‘white knights’ which would, in turn, spur innovative restructuring and M&A activities in listed companies. shareholders’ approval shall follow the same pricing method. Our thoughts In view of the complete ban on the initiation of fresh insolvency proceedings in respect of any default arising on or after 25 March 2020 and six months thereafter (which may be further extended to 1 year), the option for resolution of stressed assets under the Insolvency and Bankruptcy Code, 2016 ( IBC ) would no longer be available in cases where default arises during the aforementioned period of suspension. The pricing norms for preferential allotment and mandatory open offer requirements have often proved to be roadblocks in the resolution of stressed entities outside the IBC framework. While SEBI had earlier proposed ( in the consultation paper issued on 22 April 2020 ) to exempt the acquisition of 25% or more shares or voting rights from the mandatory open offer norms, the final amendments have provided an exemption from the open offer requirement in case of acquisition of control as well and thus, paved the way for strategic investments in such Eligible Stressed Companies. In this way, the relaxations announced by SEBI for stressed listed companies are likely to enable such entities to find friendly investors. This would also promote the friendly resolution of stressed assets outside the IBC framework which would, in turn, help the promoters retain the ownership and control of the stressed company, The pricing norms for preferential allotment and mandatory open offer requirements have often proved to be roadblocks in the resolution of stressed entities outside the IBC framework.”