Securities and Exchange Board of India issued a circular the process to be followed by Debenture Trustee

The Securities and Exchange Board of India (SEBI) issued a circular to prescribe the process to be followed by the Debenture Trustee(s)in case of 'Default' by issuers of listed debt securities including seeking consent from the investors for enforcement of security and/or entering into an Inter-Creditor Agreement (ICA).

Some mandates have been put forth with regard to the process to be followed for seeking such consent which include the following aspects-The Debenture Trustees shall send a notice to the investors within 3 days of the event of default; The notice has to contain the negative consent for proceeding with the enforcement of security; positive consent for signing the ICA; the time period within which the consent needs to be provided, viz. consent to be given within 15 days from the date of notice; and the date of meeting to be convened.

Elaborating on the aspect of the manner of calling 'event of default', due to the presence of multiple ISIN's which may have been issued under the same Information Memorandum(s) or a single ISIN which may have been split across multiple IM(s), it has been clarified that 'event of default' shall be reckoned at the ISIN level, as all terms and conditions of issuance of security are same under a single ISIN even though it might have been issued under multiple IMs.

As per this Circular, Debenture Trustees shall convene the meeting of all investors within 30 days of the event of default. But it has also been provided that in case the default is cured between the date of notice and the date of meeting, then the convening of such a meeting may be dispensed with.

Moreover, the Debenture Trustees shall take necessary action to enforce security or enter into the ICA or as decided in the meeting of investors subject to some specification as mentioned in the circular. As far as the consent of the majority of investors is concerned such consent 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.

This Circular, which is to come into force with immediate effect, has also mentioned that the Debenture Trustee(s) may sign the ICA and consider the resolution plan on behalf of the investors upon compliance with certain conditions.

Some of them are-If the resolution plan imposes conditions on the Debenture Trustees that are not in accordance with the provisions of Companies Act, 2013, the Securities Contracts (Regulations) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the rules, regulations and circulars issued thereunder from time to time, then the Debenture Trustees shall be free to exit the ICA altogether with the same rights as if it had never signed the ICA. Under these circumstances, the resolution plan shall not be binding on the Debenture Trustees.

Also, in case the resolution plan is not finalized within 180 days from the end of the review period, then the Debenture Trustees shall be free to exit the ICA altogether and the resolution plan shall not be binding on the Debenture Trustees. However, if the finalization of the resolution plan extends beyond 180 days, the Debenture Trustees may consent to an extension beyond 180 days subject to the approval of the investors regarding the total timeline. The total timeline should not exceed 365 days from the date of commencement of the review period.

If any of the terms of the approved Resolution Plan are contravened by any of the signatories to the ICA, the Debenture Trustees shall be free to exit the ICA and seek appropriate legal recourse or any other action as deemed fit in the interest of the investors.