SEBI has, in consultation with stakeholders, prescribed the process to be followed by Debenture Trustees (DT) in case of default by issuers of listed debt securities, which is being implemented with immediate effect. This process includes seeking consent from the investors for enforcement of security and/or entering into an Inter-Creditor Agreement (ICA).
While “Default” has been defined under the SEBI LODR Regulations to mean the non-payment of interest or principal amount in full on the pre-agreed date, an ‘event of default’ will be reckoned at the ISIN level, even though it might have been issued under multiple Information Memorandums (IMs).
The resolution plan in the ICA may involve restructuring including roll-over of debt securities requiring the consent of the investors. The process to be followed for seeking consent for enforcement of security and/or entering into an ICA is as under :
In case of debt securities issued by way of public issue, the notice shall not contain the negative consent for proceeding with the enforcement of security and the requirement to convene a meeting will not apply.
For this purpose, consent of the majority of investors shall mean the approval of not less than 75% of the investors by value of the outstanding debt and 60% of the investors by number at the ISIN level.
The DT will also be free to exit the ICA if the resolution plan is not finalised within 180 days from the date of review. If the finalization of the resolution plan extends beyond 180 days the DT may consent to an extension beyond 180 days, subject to the approval of the investors regarding the total timeline, which shall not exceed 365 days from the date of commencement of the review period. In case of contravention of any of the terms of the approved Resolution Plan by any of the signatories to the ICA, the DT will be free to exit the ICA and seek appropriate legal recourse or any other action in the interest of the investors. These conditions shall be incorporated in the ICA itself.
To refer to the SEBI circular dated 13 October 2020, click here.
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