Standardisation of procedure to be followed by Debenture Trustee(s) in case of ‘Default’ by Issuers of listed debt securities

The Securities and Exchange Board of India (SEBI) on October 08, 2020 has issued the Securities and Exchange Board of India (Debenture Trustees) (Amendment) Regulations, 2020 to further amend the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993. These amendments have been made as per the various representations received by SEBI by Debenture Trustee(s) regarding the process to be followed in case of ‘Default’ by issuers of listed debt securities. After consultation with stakeholders including investors, Debenture Trustee(s), Issuers etc., procedures to be followed by the Debenture Trustee(s) in case of ‘Default’ by issuers of listed debt securities has been decided. This circular prescribes the process to be followed by the Debenture Trustee(s)in case of ‘Default’ by issuers of listed debt securities including seeking consent from the investors for enforcement of security and/or entering into an Inter-Creditor Agreement (“ICA”).

The following amendments have been made:

  • Clarification for Event of Default under Regulation 51: SEBI has clarified that in case of multiple ISIN, event of default’ shall be considered at the ISIN level, as all terms and conditions of issuance of security are same under a single ISIN even though it might have been issued under multiple IM.
  • Consent of investors for enforcement of security and for signing the ICA: The second part of the circular looks into Consent of investors for enforcement of security and for signing the ICA. This part of the circular takes into consideration the circular by RBI dated 7th June 2019 in which the process for the resolution of stressed assets by Lenders was stated, inter alia. In this respect, debt securities holders, who are financial creditors, are invited by other lenders to sign an agreement, referred to as the Inter Creditor Agreement ('ICA'), in compliance with the particular terms defined in the structure provided for by the RBI. The circular also takes into consideration Regulation 59 of the LODR Regulations specifies that a substantial improvement in the structure of debt securities must be made only after the appropriate majority of investors have obtained their consent. In the case of a roll-over of debt securities, the circular in parity with Regulation 18 provides for a period of fifteen days for circular and further provides for approval to be obtained from not less than 75% of the holders by value of such debt securities. The procedure for seeking consent from the investors have been discussed in great length in the circular. The debenture trustee need to send a notice via post or currier within three days specifying negative consent for security compliance proceedings, positive consent for the signing of the ICA, the time during which consent must be granted, i.e. Consent to be granted within 15 days of the notice date and the meeting date to be convened. As according to the circular, The Debenture Trustee(s) shall convene all investors' meetings within 30 days of the default event. In the case(s) in which the majority of investors have expressed their opposition against security compliance, security shall not be implemented by the debenture trustee(s). In situations where the majority of investors have expressed their consent to join the ICA, the debenture trustee(s) must join the ICA.
  • Conditions for signing of ICA by Debenture Trustee(s)on behalf of investors: The last part of the circular lays down the provision that if the resolution plan imposes conditions on the Debenture Trustee(s) which do not comply with the provisions of the Companies Act, 2013 and its laws, the Securities Contracts (Regulations) Act, 1956 and the Securities and Exchange Board of India Act, 1992, and the rules , regulations and circulars provided thereunder from time to time, then the Debenture Trustee(s) shall be free to exit. The resolution plan shall be finalized within 180 days from the end of the review period that can be extended to a maximum of 365 days.

The SEBI circular dated October 08, 2020 can be accessed here.

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