9 January, 2018
Conversion of Debt into Equity – Review
The Reserve Bank of India (“RBI”) has issued notification dated November 23, 2017, pursuant to which Asset Reconstruction Companies (“ARCs”) are now exempted from limiting the shareholding at 26 (twenty six) per cent post converted equity of the borrower company provided ARCs meets the following criteria:
(i) The ARC complies with Net Owned Fund (NOF) requirement of INR 100 crore on an ongoing basis;
(ii) At least half of the Board of Directors of the ARC comprises of independent directors;
(iii) The ARC frames policy on debt to equity conversion with the approval of its Board of Directors and delegates powers to a Committee comprising majority of independent directors for taking decisions on proposals of debt to equity conversion;
(iv) The equity shares acquired under the scheme should be periodically valued and marked to market. The frequency of valuation should be at least once in a month.
In addition to above, ARCs need to be compliance with the provisions of the SARFAESI Act, 2002, Guidelines/ Instructions issued by RBI from time to time as applicable to ARCs as well as Foreign Exchange Management Act, 1999, Reserve Bank of India Act, 1934, Companies Act, 2013, SEBI Regulations and other relevant statutes. The extent of shareholding post conversion of debt into equity should be in accordance with permissible Foreign Direct Investment (FDI) limit for that specific sector under Foreign Exchange Management Act, 1999 and its related regulations.
Directions – Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs
The RBI has issued notification dated November 09, 2017, pursuant to which it has issued Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs.
For further information, please contact:
Vineet Aneja, Partner, Clasis Law
vineet.aneja@clasislaw.com
