Market regulator SEBI issues operational guidelines on 'scheme of arrangement' for entities with listed debt securities

Markets regulator Sebi has put in place operational guidelines pertaining to "scheme of arrangement" by entities who have listed their debt securities -- non-convertible debt securities or non-convertible redeemable preference shares.

Scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors.

The guidelines came after the Securities and Exchange Board of India (Sebi), earlier this week, amended rules with respect to scheme of arrangement, involving merger, amalgamation among others by entities who have listed their Non-Convertible Debt securities (NCDs) or Non-Convertible Redeemable Preference Shares (NCRPS).

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The amended rules provide that the entity that has listed NCDs or NCRPS, which intends to undertake a scheme of arrangement or is involved in a scheme of arrangement would file the draft scheme with stock exchanges for obtaining the no-objection letter, before filing such scheme with any court or tribunal.

Further, the exchange would have to forward such draft schemes to Sebi.

In case of entities that are debt listed and have raised money by way of a public issue or private placement of NCDs/ NCRPS, they are required to comply with certain requirements before the scheme of arrangement is filed with the National Company Law Tribunal (NCLT), Sebi said in a circular made public on Friday.

As per the operational guidelines, listed entities would have to choose one of the stock exchanges having nationwide trading terminals as the designated bourse for the purpose of coordinating with Sebi.

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The listed entity would have to submit documents, including draft scheme of arrangement, valuation report, fairness opinion on the valuation of assets done by a registered valuer, report from the board of directors of the listed entity recommending the draft scheme, audited financials for the last 3 years and auditor's certificate to the stock exchanges.

Further, the listed entity is required to disclose the draft scheme along with all the documents on its website simultaneously while filing it with the stock exchange. Also, the entity would have to disclose the no-objection letter of the bourse on its website within 24 hours of receiving the same.

All listed entities would have to ensure that all dues and fines imposed by Sebi, stock exchanges and the depositories have been settled before filing the draft scheme with the bourse.

In case of scheme of arrangement between listed and unlisted entities, the listed entity would include information pertaining to the unlisted entity involved in the scheme in a specified format.

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in the proposal to be sent to the holders of NCDs/ NCRPS while seeking an approval for the scheme.

After receiving the draft scheme and documents, the exchange would have to forward the same to Sebi within three working days and the bourse can seek clarifications, if any, from the registered valuer or the statutory auditors of the listed entity, within 10 working days.

The exchange would have to provide the 'no-objection' letter to Sebi on the draft scheme within seven working days from the date of receipt of satisfactory reply on clarifications.

"The stock exchanges shall ensure that the maximum number of days taken for providing the 'no-objection' letter to Sebi shall not exceed 30 days from the date of receipt of the draft scheme of arrangement," the regulator said.

Pursuant to receipt of the 'no-objection' letter from the bourse, Sebi will have to provide comments on the draft scheme to the exchange.

While processing the draft scheme, Sebi may seek clarifications from any person relevant in this regard, including the listed entity, exchange and may also seek an opinion from an expert.

After this, Sebi will provide comments on the draft scheme to the exchange within 30 days.

The listed entity or resultant entity would have to ensure that steps for listing of NCDs or NCRPS issued pursuant to the scheme of arrangement, are completed and trading commences within 60 days of receiving NCLT's order, simultaneously on all the exchanges, where the NCDs/ NCRPS are listed.

The new guidelines would come into force with immediate effect.