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The National Stock Exchange and the Bombay Stock Exchange have come up with guidelines to be followed in case a company goes into bankruptcy.

This step has been taken to caution investors and provide all required information about the insolvency process of the bankrupt companies to them.

In separate statements, both the exchanges said: "In the recent past, we have come across instances where the approved resolution plan provides for delisting of the company or write off/cancellation/extinguishment of existing equity shares without any payout/consideration to the existing shareholders."

However, it is observed that there is a considerable time lag between the pronouncement of oral order by the NCLT and the final written order by the NCLT.

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."

The bourses said that they would issue a detailed guidance note to CIRP companies and the Resolution Professional (RP) on compliance and disclosure requirements as per the SEBI LODR Regulations, which will be uploaded on the exchange website, and an email shall be sent to all the companies which are under CIRP informing them about the guidance note.

The guidance note provides that the resolution professional has to comply with SEBI LODR Regulations and in compliance, shall disclose the fact of approval of resolution plan on oral pronouncement, or otherwise of the order, on immediate basis and not later than 30 minutes.

Additionally, the resolution professional shall inform through the exchange platform any impact on the existing holders or investors of listed securities, on areas such as status of listing, the value of holding of existing holders, write off or cancellation or extinguishment of existing equity shares or preference shares or debentures, etc, without any payment to such holders, where applicable.

Further, the guidance note provides that the companies, the resolution professional shall be guided by the provisions of the SEBI LODR Regulations and shall maintain the confidentiality of the resolution plan until etails are not submitted on the exchange platform.

As soon as 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 IBC 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.

Since this alert will be available from the day of admission into CIRP till the day of suspension of the company or exit from CIRP proceedings pursuant to the NCLT order, the market participants shall be clearly aware of the status of the company and shall exercise necessary due diligence will trading in the security.

In cases where the resolution plan provides that the value of the listed securities is considered zero and company to be delisted or where the entire equity capital is reduced, cancelled or extinguished without any payment to the existing equity shareholders, exchanges in coordination with each other, based on the intimation of the oral order from the company or RP, shall immediately suspend trading in the company.

The exchange will be monitoring on a regular basis the compliance of all companies under CIRP from a disclosure perspective, and any non-compliances observed will be reported to the SEBI for further action.

The development comes against the backdrop of the delisting of shares of Jet Airways and DHFL after the resolution plans for these two companies were approved by the National Company Law Tribunal. The delisting was done as part of the resolution plans.

KS Legal & Associates Managing Partner Sonam Chandwani noted that realising the adverse impact on investors in case of insolvency, exchanges have initiated steps to deal with information asymmetry on companies undergoing the Corporate Insolvency Resolution Process.