The Securities and Exchange Board of India vide its notification dated 22nd October 2020 has created a ‘Recovery Expense Fund’ in order to enable the Debenture Trustee(s) to take prompt action for enforcement of security in case of ‘default’ in listed debt securities and recovery expense fund shall be used in the manner as decided in the meeting of the holders of debt securities.
The issuers
of listed or proposed to be
listed debt securities would have to deposit 0.01% of the issue size or maximum
of Rs 25 lakh towards creation of recovery expense fund. The issuer will deposit cash or cash equivalent,
including bank guarantees, towards contribution to this fund at the time of
making the application for listing of debt securities. The issuer will ensure
that the bank guarantee remains valid for a period of six months post the
maturity date of the listed debt security.
In the event of a default, the debenture trustee
shall obtain the consent of holders of debt securities for enforcement of
security and shall inform the same to the designated exchange. The
exchange will release the amount lying in the REF to the Debenture
Trustee/Lead Debenture Trustee within 5 working days of receipt of such
intimation.
The Debenture Trustee shall keep a proper account of all expenses incurred out of the funds received from REF towards Legal expenses, the cost for hosting meetings etc. towards enforcement of security.
These directions shall come into force from 1st January, 2021and all the applications for listing of debt securities made on or after January 01, 2021 shall comply with the condition of creation of REF and the existing issuers whose debt securities are already listed on Stock Exchange(s) shall be given additional time period of 90 days to comply with this circular for creation of REF.
