In the corporate world, restructuring or re-organization of the corporates is a substantial and corporate practice in existence for the corporate entities business development and expansion - to effectively handle with various internal and external threats posed and to survive the stiff competition faced by these entities from the contemporaries in their line of business.
For such re-organization or restructuring of listed corporates are in requisite to concoct a scheme of arrangement and have to comply with certain stringent regulatory procedures for sanction and implementation of the scheme.
A scheme of arrangement (Scheme) is a court-approved agreement between a company and its shareholders or creditors. It may affect mergers and amalgamations and may alter shareholder or creditor rights.
The Securities Exchange Board of India (SEBI) issued a directive reducing to bare bones certain procedures related to Scheme with the objective to shorten the compliance process for facilitating hassle-free Scheme approval and execution by the listed entities.
The underlying intent in issuance of the directive is to speed up the dispensation of draft schemes and averting any misuse of schemes to bypass regulatory requirements.
Relaxation of the norms related to scheme of arrangement is reflection of receipt of representations of various stakeholders emphasizing the necessity to strengthen existing regulatory charter and simplify the norms related to Scheme.
Glimpse of key amendments introduced by SEBI in relation to Scheme of arrangement for the benefit of listed entities:
· Mandatory obligation of filing certain documents related to Scheme by listed entities with the stock changes following the approval of Scheme by National Company Law Tribunal is detached with the intent to elude duplication of such filings.
· Clause 37 filing requirements will no longer be applicable to merger of wholly owned subsidiary or its division with the parent company.
· If Scheme composed of listed and unlisted entities - for evaluating 25 percent of public shareholding in the merged entity - shareholding percentage of public shareholders of the merged entity (post Scheme) to be calculated without considering dilution on account of outstanding convertible securities. .
· Shareholding percentage of pre-scheme public shareholders of the listed entity and qualified institutional buyers (QIBs) of the unlisted entity shall not be less than 25 per cent on fully diluted basis in the merged entity.
· Lock-in provision shall be applicable to reverse merger (merger of a listed entity into an unlisted entity and demerger of a listed company into an unlisted entity).
· Entities are permitted to pledge locked-in shares with banks / public financial institutions.
· Promoters has been granted the freedom to transfer Locked-in shares inter-se amid promoters.
· The locked-in shares shall continue in hands of transferee promoter entity for the balance period.
· Duration is extended to 60 days following the receipt of NCLT order approval of Scheme to commence listing and trading transactions by the listed entities.
One can look forward to a serious implementation of these relaxed norms as it will certainly accelerate the process of sanction and execution of the Scheme by removing outdated steps involved in the process.
Research and inputs by Paruchuri Baswanth Mohan