New Delhi Money-losing companies may be allowed to sell shares at a discount to raise much-needed capital to mitigate the financial crisis, according to a set of amendments to the Companies Act that the government is working on.
The proposals of the Ministry of Corporate Affairs, part of the draft bill to amend the existing law, offer operational flexibility to businesses, reduce red tape and strengthen the framework of tribunals and the National Financial Reporting Authority (NFRA), a person who Aware of this, discussions within the government said, requesting anonymity.
One of the key proposals is to allow businesses to sell losses-reporting shares at a discount for three consecutive years, a flexibility that is currently available only to convert debt into equity as part of a rescue package approved by a tribunal or the Reserve Bank of India. available to do.
Once implemented, it would allow distressed businesses to issue shares below their face value.
Other proposals to be included in the draft bill include doing away with the requirement of filing affidavits under several provisions of the Companies Act and replacing them with self-declarations, making it easier to reinstate companies that have been delisted from records, Manufacturers of Limited Liability Partnerships (LIPSs) LLP) start-up. Broadening the concept and regulatory scope of NFRA for agriculture sector companies.
An email sent to the ministry spokesperson in the early hours of Tuesday remained unanswered at the time of publication.
He said that a cabinet note will be prepared soon to propose the amendments.
“The government should be an enabler so that enterprises can focus on economic activities. The proposals will lead to ease of doing business,” the person said.
Allowing distressed businesses to sell shares at a discount is expected to help companies secure needed funding when other means of raising funds become challenging.
It may allow the government to infuse capital into an enterprise for shares at a discounted price when such a move is in the public interest.
In the case of companies going through bankruptcy proceedings, the ability to raise interim finance can help them run their operations and avoid slipping into liquidation.
According to Yogendra Eldak, partner at Lakshmikumaran and Sreedharan Attorneys, interim financing is important for a company going through corporate insolvency resolution as it is required to meet routine expenses for sourcing goods and services critical to running the business and maintaining the state of the concern. helps in
He said such interim financial assistance would enable the debtor to stand on his own feet during insolvency resolution proceedings.
Aldak said allowing such companies to issue shares at a discounted price would certainly help in raising capital.
The ministry intends to replace affidavits with self-declarations, except where an affidavit is required before a judicial or quasi-judicial authority.
Also, the NFRA is likely to get more powers to take action in cases where the nature of the violation does not fall under the category of ‘professional or other misconduct’.
An example is the lapse in filing of annual returns by the auditors.
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