Delisting of Listed Subsidiary Company

As discussed in the article titled ‘SEBI introduces SEBI (Delisting of Equity Shares) Regulations, 2021‘, new provisions with respect to delisting of shares of listed subsidiary company (‘Listed Sub Co.’)  have been introduced.

As per the Delisting Regulation 2021, delisting of Listed Sub Co., pursuant to a Scheme of Arrangement approved by an order of a Court or a Tribunal with its listed holding company (‘Listed Hold Co.’), such delisting process is exempted from applicability of Delisting Regulations 2021 including requirement of price discovery under reverse book building process. In order for availing the above exemption, following conditions are required to be satisfied for delisting of shares of a listed subsidiary company.

• Eligibility: 

1. 1. Listed Hold Co and Listed Sub Co are in the same line of business;
   2. The Listed Sub Co has been a listed subsidiary of the Listed Hold Co for the past 3 years;
   3. The shares of the Listed Hold Co and the Listed Sub Co are listed for at least 3 years and shall not be suspended at the time of taking this route; and
   4. No adverse orders have been passed by the Board in the past 3 years against the Listed Hold Co and the Listed Sub Co.

• Scheme of Arrangement:
  1. Equity shares of the Listed Sub Co. should be frequently traded;
  2. Upon such delisting, Listed Sub Co shall become a wholly owned subsidiary of the Listed Hold Co;
  3. Listed Hold Co shall issue its equity shares in lieu of cancellation of equity shares in the Listed Sub Co.;
  4. Listed Hold Co. and Listed Sub Co. needs to comply with regulations 11, 37 and 94 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Circulars issued thereunder;
  5. Approval through e-voting from shareholders of both the companies:
     1. In case of Listed Sub Co – Votes cast by public shareholders in favour of the scheme should be at least two times the number of votes cast against it; and
     2. In case of Listed Hold Co – Votes cast by the public shareholders in favour of the proposal should be more than the number of votes cast by the public shareholders against it;
  6. Valuation of shares of the Listed Sub Co per share shall not be less than sixty days volume weighted average price.
• Post Delisting : 
  1. No further restructuring shall be undertaken by the Listed Hold Co for a period of 3 years from the date of the Order of the Court or Tribunal approving the scheme of arrangement; and
  2. The equity shares of the Listed Sub Co so delisted, shall not be allowed to seek relisting for a period of three years from the date of delisting.

As all the above conditions needs to be satisfied before delisting of any Listed Sub Co., for availing exemption from the applicability of Delisting Regulation 2021, compliance burden is imposed on the Listed Sub Co. even after delisting its equity shares from the stock exchanges. Further, during the process of Scheme of Arrangement, the requirement of obtaining majority of public shareholder’s approval, in case of Listed Hold Co as well as Listed Sub Co., may compel both the Listed Companies to provide knowledge of valid intention and provisions of SEBI Regulations to such public shareholders, in order for them to take rational decision before voting adversely.

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