Summary: Plasma Ltd., contemplating an open offer for Tic Toc Ltd., seeks clarification on the fate of its escrow account if it fails to meet its obligations under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The regulations state that in the event of non-compliance, SEBI has the authority to direct the offer manager to forfeit the escrow account, either partially or entirely. The funds in the escrow account are not released until 30 days after the payment of consideration to shareholders, unless specific conditions are met. The regulations specify the circumstances under which the escrow amount can be released. The entire amount can be released to the acquirer if the offer is withdrawn under Regulation 23, or if the offer is for an exchange of shares and payment of consideration has been completed. A portion of up to 90% can be transferred to a special escrow account. In cases of forfeiture due to non-fulfilment of obligations, the entire amount is transferred to the manager to the offer and then distributed. The distribution is as follows: one-third to the target company, one-third to the Investor Protection and Education Fund, and one-third is distributed proportionally among the shareholders who accepted the open offer. Therefore, SEBI can direct forfeiture and the funds are released as per the specified distribution criteria.
CASE STUDY -JUNE 01- SEBI(SAST) REGULATIONS 2011
QUERY: Plasma Ltd. is contemplating making an open offer to acquire shares of Tic Toc Ltd. Director of Plasma Ltd. has approached you to understand that in the event of non-fulfilment of obligations under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 (or Takeover Regulations) by the Company, can SEBI direct the manager to the open offer to forfeit the escrow account or any amounts lying in the escrow account, either in full or in part ? If yes, whether the amount lying in the escrow account can be released ?
| PAYMENT OF CONSIDERATION.
REGULATION 21 OF SEBI(SAST) REGULATIONS, 2011 (1) For the amount of consideration payable in cash, the acquirer shall open a special escrow account with a banker to an issue registered with the Board and deposit therein, such sum as would, together with cash transferred under clause (b) of sub-regulation (10) of regulation 17, make up the entire sum due and payable to the shareholders as consideration payable under the open offer, and empower the manager to the offer to operate the special escrow account on behalf of the acquirer for the purposes under these regulations. (2) Subject to provisos to sub-regulation (11) of regulation 18, the acquirer shall complete payment of consideration whether in the form of cash, or as the case may be, by issue, exchange or transfer of securities, to all shareholders who have tendered shares in acceptance of the open offer, within ten working days of the expiry of the tendering period. (3) Unclaimed balances, if any, lying to the credit of the special escrow account referred to in sub-regulation (1) at the end of seven years from the date of deposit thereof, shall be transferred to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009. WITHDRAWAL OF OPEN OFFER. REGULATION 23 OF SEBI(SAST) REGULATIONS ,2011 (1) An open offer for acquiring shares once made shall not be withdrawn except under any of the following circumstances,— (a) statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer under these regulations having been finally refused, subject to such requirements for approval having been specifically disclosed in the detailed public statement and the letter of offer; (b) the acquirer, being a natural person, has died; (c) any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, and such agreement is rescinded, subject to such conditions having been specifically disclosed in the detailed public statement and the letter of offer; or (d) such circumstances as in the opinion of the Board, merit withdrawal. Explanation.—For the purposes of clause (d) of sub-regulation (1), the Board shall pass a reasoned order permitting withdrawal, and such order shall be hosted by the Board on its official website. Provided that an acquirer shall not withdraw an open offer pursuant to a public announcement made under clause (g) of sub-regulation (2) of regulation 13, even if the proposed acquisition through the preferential issue is not successful. (2) In the event of withdrawal of the open offer, the acquirer shall through the manager to the open offer, within two working days,— (a) make an announcement in the same newspapers in which the public announcement of the open offer was published, providing the grounds and reasons for withdrawal of the open offer; and (b) simultaneously with the announcement, inform in writing to,— (i) the Board; (ii) all the stock exchanges on which the shares of the target company are listed, and the stock exchanges shall forthwith disseminate such information to the public; and (iii) the target company at its registered office. |
REPLY: As per the provisions of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, the manager to the open offer shall not release the escrow account until the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, save and except for transfer of funds to the special escrow account as required under regulation 21 of the Takeover Regulations
In the event of non-fulfilment of obligations under the Takeover Regulations, by the acquirer SEBI may direct the manager to the open offer to forfeit the escrow account or any amounts lying in the special escrow account either in full or in part.
The escrow account deposited with the bank in cash shall be released only in the following manner:
- the entire amount to the acquirer upon withdrawal of offer in terms of regulation 23 of the Takeover Regulations as certified by the manager to the open offer;
- for transfer of an amount not exceeding ninety per cent of the escrow account, to the special escrow account in accordance with regulation 21 of the Takeover Regulations;
- to the acquirer, the balance of the escrow account after transfer of cash to the special escrow account on the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, as certified by the manager to the open offer;
- the entire amount to the acquirer upon the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer upon certification by the manager to the open offer, where the open offer is for exchange of shares or other secured instruments;
- the entire amount to the manager to the open offer, in the event of forfeiture for non-fulfilment of any of the obligations under these regulations;
- for distribution in the following manner after deduction of expenses, if any, of registered market intermediaries associated with the open offer
(a) one third of the escrow account to the target company;
(b) one third of the escrow account to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations; and
(c) one third of the escrow account to be distributed pro-rata among the shareholders who have accepted the open offer.
Accordingly, SEBI may direct the manager to the offer to forfeit the escrow account and the funds may be released in the circumstances mentioned above.
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