SEBI Circular for signing of inter-creditor agreement

By INSOL India - Editorial Team Posted On : October 29, 2020

The resolution process stipulated under the RBI Prudential Framework for Resolution of Stressed Assets (“Prudential Framework”) dated June 7, 2019 requires the signing of an inter-creditor agreement (“ICA”). In furtherance of the same, lenders often approach investors of debt securities, being financial creditors, to sign the ICA. However, since the Prudential Framework is not applicable to holders or investors of debt securities, there is no uniform approach adopted by them, thereby making the effective implementation of the debt resolution difficult.  
In order to address this issue, the SEBI released a circular on October 13, 2020, which provides for standardization of the procedure to be followed by debenture trustees in case of default by issuers of listed debt securities. The circular makes reference to the SEBI (Listing Obligations and Disclosure Requirements) 2015, which defines default as the ‘non-payment of interest or principal amount in full on the pre-agreed date which shall be recognized at the first instance of delay in the servicing of any interest or principal on debt’. In case of such default, the procedure to be followed by the debenture trustees is provided for. The debenture trustee may execute the ICA and/ or seek the enforcement of security on behalf of the investors of listed debt securities. Further, the circular also lays down conditions to be followed by the debenture trustee for signing of the ICA on behalf of the investors.