ABSTRACT
The classification and reclassification of promoters into the listed companies plays a crucial role in the Merger and acquisition (M&A) and corporate governance . Regulation 31(A) of the LODR Regulation prescribes stringent regulations and reclassification of outgoing promoters which lead to the complexities in the M&A transactions. The ongoing article creates an inconsistency between SEBI ( Listing Obligation And Disclosure Requirement ) and SEBI (Substantial Acquisition Of Shares And Takeover) Code ,2011 and causes unnecessary complexity. This article will give clarity and confidence among the investors and also protects the shareholders interest.
KEY WORDS : Promoter , Key Managerial Personnel (KMP),Merger & Acquisition (M&A), Listing Obligation and Disclosure Requirement ( LODR), Substantial Acquisition of Shares and Takeover (SAST), Issues Of Capital And Disclosure Requirement (ICDR),
INTRODUCTION
The concept of promoters and promoters group that is given under the SEBI plays a very crucial role under the Merger and Acquisition involved into the listed company . Regulation 31A of the SEBI (LODR) 2015 set out the detailed process relating to promoters re classification . However these regulations are more misaligned to the practical realities . These regulations have created regulatory complexities that can delay the transactions and it creates a inconsistency with the SEBI ( SAST) Regulations,2011 due to which it creates an impact compliance with the minimum public shareholding norms.
CHALLENGES WITH THE CURRENT FRAMEWORK AND ISSUES
- Continuance of the outgoing promoters in the role of KMP :- in the current framework the outgoing promoters if they are in the KMP then they are not classified under the outgoing promoters which creates a misleading in the markets and and there small % of shareholding is counted under the minimum promoter shareholding and in minimum promoters shareholding requires at least 25% shareholdings.
- Different definition of Control in different regulations : The definition of control differs in the different SEBI regulations like LODR,SAST,ICDR and due to this there creates an uncertainty in M&A transactions . For example the LODR regulation requires a reclassification threshold at 10% shareholding . whereas the SEBI (SAST) Requires 25% of the shareholding to trigger an open offer .
- Elimination of Automatic reclassification as a promoter : Under Regulation 31(A) 4 of the LODR regulation there are various frameworks that have been decided which automatically reclassify it as a promoter and it conflicts with the takeover regulation .
SUGGESTED REFORMS IN THE SEBI REGULATION
The reclassification should be permitted if the outgoing promoter continues as a promoter within 2 years of its post-deal closure provided that the sole control of the company as disclosed in the transaction document and the outgoing promoter is not required to be classified as the promoter or the part of the promoter group .
While relating to the LODR and SAST regulation there should be increase of the promoter shareholding from 10% to 25% so that it align with the takeover regulation there should be the prohibition on appointing nominee director and acting as a KMP because the Takeover regulation clarify that the holding an executive role does not imply the control .There should be removing of Regulation 31A(4) entirely as control should be the sole determining factor for the promoter classification and the acquisition of control of the outgoing promoter should be assessed under the takeover code rather than the automatic reclassification.
CONCLUSION
Regulation 31A of the LODR regulation requires a reform so that it can align with the other SEBI Regulations the amendments permits the outgoing promoters to act as KMP for a limited period of time and while making the reclassification and aligning with the SEBI (SAST) Regulations will create a seamless M&A transactions. This type of approach will create confidence among the market participants , reducing the compliance burden.
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WRITTEN BY PRINCE KUMAR
