SEBI proposes changes to reclassification of promoters, related disclosure provisions
November 24, 2020
In a consultation paper, SEBI has proposed several changes to Regulation 31A of the LODR Regulations pertaining to the reclassification of promoter and promoter group entities, basis concerns raised by stakeholders with respect to implementation of the extant provisions. Instead of granting a case to case relaxation, SEBI has suggested changes that would pre-empt/minimise that need and facilitate ease of implementation. Public comments have been invited to the proposed changes by 24 December 2020.
The changes suggested by SEBI are as follows:
- Change in threshold of voting rights : The promoter(s) and persons related to the promoter seeking reclassification shall not hold more than 15% (instead of extant 10%) of the total voting rights in the listed entity. The rationale for this being that persons who may have been promoters but are no longer in day-to-day control, having shareholding of less than 15% may “opt-out” from being classified as “promoters” without having to reduce their share-holding
- Reduction in time gap for considering request for reclassification : The time gap of at least three months between the date of board meeting and the shareholder’s meeting for considering the request of the promoter(s) seeking re-classification be reduced to at least one month. This is with a view to reduce costs and time.
- Exemption in case of government order or operation of law : The exemptions from regulations 31A(3) (conditions to be satisfied for reclassification), 31A(4) (conditions to be satisfied for reclassification subsequent to reclassification as public) and 31A(8)(a) and (b) (disclosure to stock exchange) of LODR Regulations 2015, extended in case of re-classification of promoter pursuant to a resolution plan approved under section 31 of the I&B Code 2016, may also be extended to re-classification pursuant to an order/ direction of the Government / regulator and/or as a consequence of operation of law, subject to the condition that such promoter(s) seeking re-classification shall not remain in control of the listed entity;
- Exemptions in case of Open Offer : Where re-classification is pursuant to an open offer made in accordance with the provisions of SAST Regulations, exemption may be granted provided that (a) the intent of the existing promoter(s) to re-classify has been disclosed in the letter of offer; and (b) the promoter / person(s) related to the promoter being reclassified fulfil the conditions mentioned at regulation 31A (3)(b) and the listed entity fulfils the conditions stipulated at regulation 31A(3)(c) of the LODR Regulations.
Exemption from the procedure for re-classification, may be granted in cases where, pursuant to an open offer, a listed entity intends to re-classify erstwhile promoter(s)/ promoter group entities but the ‘promoters/ promoter group entities’ are not traceable or are not co-operative. However, the listed entity should be able to demonstrate that efforts have been taken to contact the promoter(s) such as through issuance of notices in newspapers, Stock Exchange websites, etc.; and provided such promoter(s) seeking re-classification shall not remain in control of the listed entity;
- Timeline for placing of reclassification request before the Board : The Listed entity shall place the reclassification request before its board within one month of receiving the request from its promoter(s)/ promoter group entities. Presently there is no definitive timeline for doing so.
- Disclosure of ‘Nil’ shareholding : It is clarified that the separate disclosure of shareholding pattern of promoter/promoter group entities, mandated under Regulation 31(4) of LODR Regulations 2015, shall also include names of those promoter/promoter group entities having ‘Nil’ shareholding. Listed entities are to obtain a declaration, on a quarterly basis, from their promoters on the entities / persons forming part of the ‘promoter group’.
To refer to the Consultation paper dated 23 November 2020, click here.