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 :

• Notice to investors: A notice is to be sent by the DT to investors within 3 days of the event of default, seeking their consent for enforcement of security and/or entering into an Inter Creditor Agreement (ICA). The notice shall contain (i) Negative consent for proceeding with the enforcement of security; (ii) Positive consent for signing the ICA; (iii)The time period within which the consent needs to be provided, namely, within15 days from the date of notice; and (iv) The date of meeting to be convened
  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.

• Convening of investors’ meeting for enforcement of security : A meeting of investors shall be convened by the DT within 30 days of the event of default. However, where the default has been cured since the date of the notice but before the date of the meeting, then such meeting may be dispensed with.

• Enforcement of security:

• • In case where the majority of investors express their dissent against enforcement of the security, the DT shall not enforce the security.
  • In case where majority of investors express their consent to enter into ICA, the DT shall enter into the ICA.
  • In case consents are not received for enforcement of security and for signing ICA, DT shall take further action as per the decision taken in the meeting of the investors.
  • The DTs may form a representative committee of the investors to participate in the ICA or to enforce the security or as may be decided in the meeting

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.

• Conditions for signing of ICA on behalf of investors : The DT shall sign the ICA and consider the resolution plan subject to compliances under the Companies Act 2013, and the SCRA 1956, SEBI Act 1992 and rules and regulations made thereunder. If the resolution plan imposes conditions inconsistent with the aforesaid Act and regulations, the DT shall be free to exit the ICA with the same rights as if it had never signed the ICA and the resolution plan will not be binding on the DT.
  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.