WHAT IS DELISTING? Delisting is totally the reverse of listing. Delisting is not specifically defined but in simple words delisting means permanent removal of securities of a listed company from a stock exchange. It is not only a structuring tool but also a possible corporate strategy to achieve greater control with less accountability to public (shareholders) at large. The securities of that company that is delisted would no longer be tradable at that stock exchange. "Delisting" i.e. the said removal from a Stock Exchange, may be Voluntary (i.e. at the will of the Company) or Compulsory (i.e. out of a penal action by the Stock Exchanges, for the reason of any violations). REGULATORY FRAMEWORK OF DELISTING: SEBI(Delisting Of Equity Shares) Regulations, 2009; Securities Contract( Regulation Act), 1956; Companies Act, 2013; SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 2011. TYPES OF DELISTING: Delisting Compulsory Delisting Voluntary delisting Voluntary Delisting from all the exchanges. Voluntary delisting from few exchangebut remains listed on at least one stock exchange having nation wide terminals Exit opportunity No exit opportunity Small Company (whether listed at any of the Exchanges) No Bidding, but exit opportunity is there
A. Compulsory Delisting: In case of compulsory delisting, the securities of a company are removed from a stock exchange as a penal measure for not making submissions/complying with various requirements set out in the SEBI (Listing and Obligatory Disclosure Requirements), 2015 erstwhile Listing agreement within the time frames prescribed. The main non compliances that lead to compulsory delisting are as follows: Non payment of listing fees. Non compliance with listing requirements. Non redressal of investor s complaints despite repeated reminders. Unfair trading practices of the promoters/ management. Other malpractice such as fake, original or duplicate share certificates deliberately issued by the management. Reduction in the number of public holders of securities. B. Voluntary Delisting: In voluntary delisting, a company decides on its own to remove its securities from a stock exchange. There are many reasons why company wants to delist its securities, some are stated as follows: A Listed Company finds the listing fees payable to the stock exchanges burdensome and disproportionate to the benefits accruing to the company or its stock holders. Negligible trading or total absence of trading for a considerable long period of time. The company has either suspended its business or is under closure or has become sick industrial company. Mergers, Amalgamations, Takeovers, etc. CONDITIONS FOR DELISTING: A company cannot go for delisting of its equity shares unless three years has not lapsed since the equity shares of the company are listed on the stock exchange. A company cannot apply for delisting of its equity shares under the following situations: - After commencement of buy back of equity shares. - After commencement of preferential allotment. - In case where company has issued convertible securities and where equity share are pending to be allotted against the securities. A company can delist its securities without giving exit opportunity to its shareholders in the following cases:
- If it gets delisted from one or more of the Exchanges where its equity shares are listed but it remains listed on atleast one Exchange having nationwide trading terminals. - If it falls within the definition of Small Company as defined under the delisting Regulations. Appointment of Merchant Banker is mandatory for all types of delisting except in company voluntarily from one or more exchanges provided it shall remain listed on at least one exchange having nationwide trading terminal. PROCEDURE FOR COMPULSORY DELISTING OF EQUITY SHARES: 1. Constitution of Panel: The decisions with regards to delisting of securities shall be taken by the panel constituted by the recognized stock exchange. The panel shall consist of two directors of the recognized stock exchange (one of whom shall be a public representative); One representative of the investors; One representative of the Ministry of Corporate Affairs or Registrar of Companies; and The Executive Director or Secretary of the recognized stock exchange. 2. Public notice before delisting order: The stock exchange before making delisting order shall issue notice in the following one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located display such notice on its trading systems and website.
3. Time period of making representation: Any person aggrieved by the proposed delisting shall be given not less than 15 working days within which he can made representations to the recognized stock exchange which has issued a notice for the delisting. 4. Delisting Order by the Recognized Stock Exchange: After taking into consideration the representation received from the company and the aggrieved public and the following points, the recognized stock exchange shall pass an order: Nature and extent of the alleged non-compliance of the company and the number and percentage of shareholders who may be affected by such noncompliance. The status of compliance of the company with the office of the concerned Registrar of Companies. 5. Public notice after Delisting Order: After issuing delisting order by the Recognised Stock Exchange, the copany shall; Publish a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located. Inform all other stock exchanges where the equity shares of the company are listed, about such delisting and the surrounding circumstances. 6. Disclosures to be made in the notice: The following disclosures are required to be made in the notice: Facts of such delisting, The name and address of the company, The fair value of the equity shares. The names and addresses of the promoters of the company who would be liable. 7. Intimation to other stock exchanges: The recognized stock exchange shall intimate other stock exchanges where the company shares are listed about the delisting order. 8. Determination of Fair Value Once the shares are delisted, the company shall appoint an independent valuer or valuers who shall determine the fair value of the delisted equity shares at which shares may be tendered by the public shareholders.
9. Consequence of Compulsory Delisting: The company, promoters, person acting in concert, directors cannot access securities market or seek listing for a period of 10 years from the date of delisting. PROCEDURE FOR VOLUNTARY DELISTING OF EQUITY SHARES: There are three ways in which company can opt for voluntary delisting: Voluntary delisting from all stock exchanges. Voluntary delisting from few stock exchanges subject to listing at atleast one stock exchange having nationwide terminals. Voluntary delisting for Small Companies. A. Voluntary delisting from all stock exchanges:
Exit opportunity shall be given to all public shareholders holding equity shares. The outcome of the board meeting the Board of directors has proposed to delist the shares of the company from the exchanges is sent to the stock exchanges. Issue notice to the shareholders for convening General Meeting Pass special resolution by poastal ballot Company shall make application for obraining in-principle approval along with share capital audit report Stock exchange may dispose off the application and grant grant in-priciple approval within 5 days from the date of application. Appoint Merchant Banker. Provided merchant banker shall not form part of promoters group Open escrow account anddeposit the total consideration payable in the account Public announcement within 1 working day from receipt of approval in one english newspaper and regional newspaper Board of director shall determine specified date as on which whoever is the shareholders shall be given letter of offer The offer shall remain open for 5 working days The promoter shalll give public announcement iregarding acceptance, rejection, failure of offer within 5 working days from the closing of the offer. The company shall deposit the differntial amount in the ecsrow amount as per final price determined If final offer price is accepted by the promoter, special escrow account shall be opened and the amount lying in escrow account shall be transferred If final offer price is not accepted by the promoter. the shares tenered shall be returned within 10 working days from the date of closure of offer The company shall make payment to the shareholders who have tendered their shares The promoter shall make final application to the stock exchange for delisting of equity shares The stock exchange shall consider the application and issue delsiting order The remaining shareholders who have not tendered their shares can do so within one year from the date of passing delisting order
B. Voluntary delisting from few stock exchanges subject to listing at at least one stock exchange having nationwide terminals. The company shall not give exit opportunity to all public shareholders holding equity shares Intimation to the stock exchange about proposed Board meeting to consider delisting of equity shares The outcome of the board meeting that the Board of directors has proposed to delist the shares of the company from the exchanges is sent to the stock exchanges. The promoter shall make public announcement in ne english newspaper and one regional newspaper Application to stock exchange for obtaining approval for delisting of equity shares. The stock exchange shall dispose off the application within 5 working days and shall issue delisting order. C. Voluntary delisting for Small Companies: For the purpose of SEBI (Delisting of Equity Shares) Regulation, 2009, Small Company means a company which satisfies all of the conditions as mentioned below: 1. Paid up share capital of which does not exceed ten crore rupees and net worth not exceeding twenty five crore rupees as on the last date of the preceding financial year: 2. The Equity shares of the applicant company were not traded in any of the recognized stock exchange for a period of one year immediately preceding the date of board meeting in which the BOD has approved the proposal of Delisting; and 3. The applicant company has not been suspended by any of the recognized stock exchanges having nationwide trading terminals for any non compliance in the preceding one year. The procedure for delisting of small companies are as follows: Intimation to the stock exchange shall be given with regards to intention to delist the shares of the company. Appoint merchant banker to carry out due diligence Approval of board of directors by way of resolution for proposed delisting of equity shares.
Intimation to the stock exchange regarding the decision of the board meeting that the Board of directors has proposed to delist the shares of the company. Issue notice to shareholders less than 21 clear days to convene a general meeting so as to pass Special resolution by way of postal ballot. Provided, the votes casted by public shareholders in favour of the resolution should be atleast twice the votes cast against the resolution. Make an application to the concerned stock exchange for obtaining in principle approval for delisting alongwith reconciliation of share capital audit report covering the period of last 6 months from the date of application. The promoters shall determine the exit price in consultation with the Merchant Banker. The price to be offered to the public shareholders for tendering their shares shall not be less than the exit price determined. The application made by the company for delisting shall be disposed off by the stock exchange within 5 days from the date of receipt of application for delisting. Consent of atleast 90% of public shareholders needs to be obtained for either to sell their shares to the promoters or to remain shareholders even after the shares are delisted. The process for delisting shall subsist is consent of shareholders is not obtained. Once the consent is obtained from the public shareholders, the company shall proceed with dispatch of letter of offer. Open an escrow account for making payment of delisting price. Make payment to the public shareholders who have tendered their shares in cash. A final application for delisting be made to the concerned recognized stock exchange accompanied with such proof of having given the exit opportunity in accordance with the above said provisions. The recognized stock exchange shall dispose off the application of the delisting complete in all respects and pass the delisting order. RELISTING EQUITY SHARES ON THE STOCK EXCHANGE: The company that has voluntarily delisted its securities can relist its securities only after a period of 5 years. The company that has been compulsory delisted by the exchange can relist its securities only after a period of 10 years. In case of Delisted companies who were sick in the past, can be given opportunity of listing through restructuring scheme passed by BIFR. The sick companies are exempted from the provision of cooling period. The application made by the company on the basis of the orders provided by BIFR to the stock exchange shall be treated as application for fresh listing of equity shares and the provisions with regards to listing of equity shares of unlisted company shall apply.
BENEFITS AND POSITIVE DEVELOPMENTS AFTER DELISTING: The costs of being a publicly traded company are substantial and are occasionally difficult to justify with a low market capitalization. As a result, deregistering can save a company millions and reward shareholders with a higher net income and earnings per share (EPS). Company shares may be trading below intrinsic value, compelling the company to acquire its own shares as a strategic move. This typically results in shareholders being rewarded with substantial returns over the short term. If a company does not meet those requirements, it may be forced to delist itself. Causes for delisting may include failure to file timely financial reports, lowerthan-required stock price, or insufficient market capitalization. In the end, companies can have a clear bottom-line incentive for delisting their stock from public exchanges - it's not always a bad thing! HINDRANCES AFTER DELISTING: Investors' decision should be guided by the price offered by the company. Generally it is advisable for shareholders to tender their shares if the company is offering a reasonable price. If they do not do so and the open offer is successful, they will be among minority shareholders. There will be no liquidity for the shares and no means of price discovery. Minority shareholders are then left with very few options for exiting the company. Further, if their shareholding is less than 10 per cent, this group of minority shareholders cannot approach the NCLT (National Company Law Tribunal) for redressal of grievances. If the price offered is not reasonable, shareholders may collectively refuse the proposal. Shareholders should also look at the shareholding structure to determine who the other shareholders are. Out of the total public shareholding, a major chunk may be held by institutions which may tender their shares. If the promoters are able to absorb 90 per cent shares from institutions, they will go ahead and delist. Retail investors will then find themselves reduced to the status of minority shareholders in the delisted entity. In such case the investor opts not to surrender his shares, he will be entitled to regular dividends and bonus shares. No check by the regulatory authorities on whether the payment has been made to the shareholders or not in case of compulsory delisting. It does not mention the penalties/ consequences in case of defaulting promoters in making the payment of the fixed fair value to the public shareholders. HOW DO WE HELP? We as professionals ensure that all the compliances with respect convening boards and shareholders meeting as per the Companies act, 2013 and secretarial standard
are done. We do liaising with the National Company Law Tribunal, Registrar of Companies, Stock Exchanges and various corporate bodies in order to ensure that the procedure is followed as per the law and there aren t any non-compliances with regards to the process of delisting. CONCLUSIONS: Though the procedure of delisting of equity shares is a tedious one, ways and measures are taken by SEBI by amending the regulations to bring about transparency in delisting of equity shares. SEBI has made overhauling changes since the commencement of delisting regulations, 2009. However, from our viewpoint, amendments should be made in order to make the procedure simpler and more public friendly. CONTRIBUTED BY: Ms. Jaya Sharma-Singhania Ms. Shonette Gilroy Misquitta Jaya Sharma and Associates, Practising Company Secretary Firm, Mumbai. BIBLIOGRAPHY: FAQ s on delisting Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 www.delisting.in www.valueresearchonline.com