Sebi mandates listed companies to disclose family pacts
Mumbai, July 14, 2023
In a decision aimed at boosting corporate governance by seeking stricter disclosures from promoter-led companies, Sebi has made it mandatory for listed entities to disclose all family agreements, which could potentially impact the management or control of these firms.
Under a new Sebi rule, which comes into effect on July 14, these disclosures will have to be made even if the listed company is not a party to such agreements. This would effectively mean that promoters will have to disclose their family arrangements to the listed entity. The Sebi requirement will have a major impact on family-run businesses in the country, analysts said.
“Determination of whether certain pacts would impact, even potentially, the management or control of the listed company would be a matter of subjective judgment on part of the key stakeholders,” said Binoy Parikh, executive director of Katalyst Advisors. “While subjectively determining the same, it would also require evaluation of whether there is even an ‘indirect’ impact on the listed company,” he added.
Parikh noted that since the existing shareholder arrangements seem to be disclosed, the new rule applies to retrospective agreements. He said that portfolio investors or private non-promoter families/ high net worth individuals, even though holding large blocks in a listed company, but not in management or control, may not be required to disclose such agreements.
Sebi on Thursday unveiled disclosure formats for shareholder agreements. It said that disclosures should include details of the parties involved, date of entering the agreement, the terms of the arrangement, purpose for entering the agreement, the impact on the management of a listed company or creation of a liability on it and any subsequent changes to the pacts. The markets regulator stated that disclosures should also cover reasons for amending or revoking the pacts.
“There are three broad areas to the new rule. First is ownership. Promoters have been known to lose control of a company when a share pledge is exercised. Then there is control, the right to appoint board members or support the appointment or reappointment of a CEO. And finally, any arrangement that impacts the company’s operations. The most obvious example being ‘noncompete’,” Amit Tandon, MD of Institutional Investor Advisory Services, said.
[The Times of India]
