The Securities and Exchange Board of India has notified the Securities Exchange Board of India (Debenture Trustee Amendment) (Amendment) Regulation, 2020 on 08 October 2020.
The Amendment to Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993 [‘SEBI DT‘] was notified after decisions were taken in the SEBI Board Meeting held on 29 September 2020 to strengthen the role of Debenture Trustees [‘DT‘]. A summary of the changes introduced by this 3rd Amendment is as under:
The obligation of Debenture Trustees
Regulation 14 of SEBI DT, has been substituted and the Obligation of every debenture trustee shall amongst other matters, is now to accept the trust deeds which shall contain the matters as specified in section 71 of Companies Act, 2013 and Form No. SH.12 specified under the Companies (Share Capital and Debentures) Rules, 2014.
The amendment has now mandated the presence of two parts to Such Trust deed which shall consist of:
- Part A: Containing statutory/standard information pertaining to the debt issue
- Part B: Containing details specific to the particular debt issue
Duties of Debenture Trustee – Debt Recovery Expense Fund
SEBI has substituted one of the duties of the Debenture Trustee in Regulation 15(1)(h) to make it mandatory for Debenture Trustee to ensure that the issuer company creates a recovery expense fund at the time of issuance of debt securities that may be utilized by DT(s) in the event of default, for taking appropriate legal action to enforce the security.
Duties of Debenture Trustee – Debt secured by receivables
Further, in line with the theme of the amendment, which is strengthening the role of DT(s), the duties of the trustees have been widened in Regulation 15(1)(t) in cases where listed debt securities are secured by way of receivables/ book debt. The DTs shall in such cases:
- On a Quarterly basis: Carry out the necessary due diligence and monitor the asset cover in the manner as may be specified by the Board from time to time.
- On a Half-Yearly basis: Obtain a certificate from the statutory auditor of the issuer giving the value of receivables/book debts including compliance with the covenants of the Offer Document/Information Memorandum in the manner as may be specified by the Board from time to time
Duties of Debenture Trustee – Convening meeting for Breach of covenants
As per Regulation 15(2) a debenture trustee shall call or cause to be called by the body corporate a meeting of all the debenture holders on the happening of any event, which constitutes a default or which in the opinion of the debenture trustees affects the interest of the debenture holders.
As per the Amendment to SEBI DT, the Trustees shall call such a meeting for any breach of covenants (as specified in the Offer Document/Information Memorandum and/or debenture trust deed).
Duties of Debenture Trustee – New Additions
In the Amendment to SEBI DT Regulation, SEBI has added two new duties for a Debenture Trustee to fulfill, namely:
- Before creating a charge on the security for the debentures, the debenture trustee shall exercise independent due diligence to ensure that such security is free from any encumbrance or that it has obtained the necessary consent from other charge-holders if the security has an existing charge, in the manner as may be specified by the Board from time to time.
- The debenture trustee, on behalf of the debenture holders, may enter into inter-creditor agreements provided under the framework specified by the Reserve Bank of India subject to the approval of the debenture holders and the conditions as may be specified by the Board from time to time.
