India’s two major stock exchanges BSE and NSE on Friday directed companies undergoing the insolvency process to make timely disclosures including those on approval of resolution plans within 30 minutes of a tribunal’s order.
It is observed that there is a considerable time lag between the pronouncement of a verbal order by National Company Law Tribunal and the final written order by NCLT, both the exchanges said in separate statements.
"Companies generally hold on to the information and do not make any/timely disclosure to the stock exchanges until receipt of a written copy of the order. By this time, the information may be available to a select group of people and may create information asymmetry and confusion in the market," one of the statements said.
In a bid to address information asymmetry among investors, BSE and NSE on Friday came out with a framework for dealing with companies undergoing corporate insolvency resolution process (CIRP).
Asking the resolution professional (RP) of such insolvent firms to comply with market regulations, the exchanges said, “The RP shall inform through the exchange platform any impact on the existing holders/investors of listed securities, on areas such as status of listing, the value of holding of existing holders, writeoff/cancellation/extinguishment of existing equity shares/preference shares/debentures, etc. without any payment to such holders, where applicable,” the statement said.
Further, the RP shall maintain the confidentiality of the resolution plan until details are not submitted on the exchange platform.
In the recent past, the exchanges have come across instances where the approved resolution plan provides for delisting of the company or writeoff/cancellation/extinguishment of existing equity shares without any payout or consideration for the existing shareholders.
Hence, as soon as the company is admitted into CIRP, the exchange shall identify and tag the security in a manner which will be easy for the members and market participants to know that the security is currently into bankruptcy proceedings.
The list of securities will also be available on the exchange website.
The exchange will continue to provide an alert at the time of order entry informing the market participants that the scrip is undergoing CIRP. Members shall also be advised to incorporate this alert promptly in their front-end systems.
The measures have been taken to make market participants aware of the status of the companies from the day of admission into CIRP till the day of suspension of the company/exit from bankruptcy proceedings.