Millions of public shareholders in listed companies that go through the Corporate Insolvency Resolution Process are being protected, according to market regulator SEBI (CIRP). The CIRP has so far mainly served the interests of banks and significant creditors, with shareholders losing control of a company the moment it entered the debt restructuring process and the new owner gaining complete control of the entity after the restructuring. In a consultation document published on Thursday, SEBI now suggests that current public shareholders of a firm undertaking CIRP should also become shareholders in the company following its restructuring and should have a right to participate in the process equal to their shareholding.
According to SEBI, the existing public shareholders should be given the chance to invest in the new organization at the same price as the new acquirer. According to SEBI, current shareholders shall have the right to own at least 5% of the stock at the cost or value at which the new owner bought 95% of the holding if a company must stay listed after restructuring. MANY COMPLAINTS Minority shareholders who claimed to have lost their value and rights after a business was admitted into CIRP, according to SEBI, have made several objections and representations.
In the case of listed companies undergoing CIRP, “it is currently felt that there is a need to adopt necessary steps to protect the interests of public equity shareholders,” according to the SEBI study. The agency added that under its new regulations, minority shareholders will have an equal opportunity to take part in the resolution process under the same pricing conditions as the resolution applicant. However, even current shareholders who wish to participate in the new firm must purchase new shares at the price paid by the purchaser for their shares following the restructuring.
“Although this suggestion looks novel, it could not be widely accepted for the resolution procedure. The bidder may not be interested in having other nonpromoter shareholders as part of the shareholding. The public shareholders would likely not be interested in putting more money into shares that have already been knocked down from their investment price,” said Shriram Subramanian, founder, and MD, InGovern Research
According to SEBI, 52 listed companies have been delisted as a result of the resolution plan’s approval, while 23 companies have continued to be listed as a result of the approval, leaving 28 listed companies in liquidation. Furthermore, the CIRP is currently being conducted on about 70 listed companies. Minority shareholders’ investments totaling several thousand crores of rupees have lost all value as a result of companies joining CIRP.