Anchor Investor Structures in IBC Resolution Plans

Vikrant D. Shetty

14 minutes ago

11 min read

Anchor Investor Structures in Resolution Plans: The SEBI and IBC Intersection

An anchor investor structure in an Insolvency and Bankruptcy Code, 2016 resolution plan is an arrangement in which a lead investor commits the core capital needed to implement the plan while co-investors contribute alongside, and every participant must independently satisfy the Section 29A eligibility conditions before the plan can be approved. Where the corporate debtor is a listed company, the structure must also navigate the Securities and Exchange Board of India's takeover, preferential allotment, and lock-in requirements, though several are relaxed for plan implementation. The committee of creditors retains discretion over whether a funding structure is acceptable. This article explains how these requirements interact for a resolution applicant adding co-investors.

Resolution Applicant Eligibility and Co-Investor Arrangements

Section 29A of the Insolvency and Bankruptcy Code, 2016 sets out the eligibility conditions for resolution applicants, disqualifying persons with connected relationships to NPA accounts, wilful defaulters, and persons convicted of certain offences, among others. The provision was introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2018 to prevent promoters and connected parties from reacquiring corporate debtors at a steep discount through the insolvency process.

Where a resolution plan involves multiple investors, each investor and each person acting in concert with the resolution applicant must individually satisfy the Section 29A eligibility conditions. The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 require the resolution professional to verify the eligibility of the resolution applicant and all persons acting in concert with it. An arrangement in which an ineligible party commits capital alongside an eligible resolution applicant does not cure the ineligibility, the NCLT will examine the totality of the arrangement and may reject a plan where an ineligible party holds a substantive economic or control interest.

What Legally Counts as an Anchor Investor in IBC Proceedings?

The term anchor investor is not defined in the IBC or the IBBI Regulations. In primary market parlance under SEBI's Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018, an anchor investor is a qualified institutional buyer who applies for shares in an IPO at an anchor investor price before the issue opens. In the resolution plan context, the term is used informally to describe a co-investor who commits a defined quantum of capital to the resolution applicant's plan, typically as part of a consortium, without assuming the lead role in plan implementation.

The IBC framework does not prescribe a formal anchor investor mechanism for resolution plans. Co-investors in resolution plans participate through consortium arrangements, joint venture agreements, or investor rights agreements executed alongside the resolution plan. The resolution plan submitted to the CoC must clearly identify all consortium members, the quantum of their proposed investment, and the ownership structure that will result from plan implementation. The CoC evaluates the plan as a whole, including the credentials and financial capacity of all co-investors.

SEBI Intersection: Publicly Listed Corporate Debtors

Takeover Code Implications

Where the corporate debtor is a listed company, the acquisition of shares or voting rights by the resolution applicant and its co-investors as part of plan implementation may trigger the obligation to make an open offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The Takeover Code requires an acquirer who acquires 25 per cent or more of the voting rights in a listed company, or who acquires control, to make a public announcement to acquire at least 26 per cent of the remaining voting rights from public shareholders.

SEBI has recognised that the mandatory open offer requirement can create practical difficulties in the IBC context. Through amendments and clarifications, SEBI has provided an exemption from the open offer obligation for acquisitions made pursuant to a resolution plan approved by the NCLT under Section 31 of the IBC. The exemption is available provided the resolution plan was approved in accordance with the Code and the acquisition is in compliance with the NCLT's order. Co-investors in the resolution applicant consortium benefit from this exemption to the same extent as the lead resolution applicant.

SEBI Preferential Allotment Norms

Where the resolution plan involves the issuance of new shares or securities by the listed corporate debtor to the resolution applicant and co-investors, SEBI's ICDR Regulations, 2018 govern preferential allotments. SEBI has issued specific relaxations for companies undergoing resolution under the IBC to enable implementation of resolution plans that would otherwise be difficult to structure within the standard preferential allotment framework. These relaxations cover pricing norms, lock-in requirements, and the conditions for issuance of shares to resolution applicants.

Lock-In Obligations for Co-Investors

Shares allotted to the resolution applicant and co-investors pursuant to a resolution plan are subject to lock-in restrictions under the ICDR Regulations. SEBI's framework distinguishes between the promoter and the non-promoter category of allottees for purposes of lock-in duration. Co-investors who are classified as promoters in the post-resolution shareholding structure will be subject to longer lock-in periods. The resolution plan must therefore address the post-implementation promoter classification and lock-in obligations of each co-investor, and the SEBI filing requirements that flow from that classification.

What Happens When IBC and SEBI Requirements Conflict?

The NCLT's approval of a resolution plan under Section 31 of the IBC is binding on all stakeholders, including regulatory authorities. The Supreme Court has confirmed in the context of the IBC that an approved resolution plan takes precedence over statutory claims that have not been provided for in the plan. However, SEBI's jurisdiction over listed securities and the ongoing regulatory obligations of a listed company are not extinguished by the IBC process. The resolution applicant and co-investors must comply with SEBI's continuous disclosure obligations, insider trading prohibitions, and other ongoing requirements after plan implementation.

Where a conflict arises between an IBC resolution plan requirement and a SEBI regulation, the courts have generally applied the principle that the IBC, as a later and special legislation, prevails over general securities law to the extent of the inconsistency. However, this principle has limits, and practitioners should not assume that all SEBI obligations are automatically overridden by an IBC approval order. Each regulatory interface must be analysed on its own facts.

Why Does the Committee's Commercial Wisdom Govern Anchor Investor Structures?

Anchor-investor and similar funding structures in a resolution plan are ultimately a matter for the commercial judgment of the creditors, and the governing principle comes from Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [(2020) 8 SCC 531]. The Supreme Court held that the committee of creditors' commercial wisdom in approving a resolution plan, including how the plan is funded and how value is distributed, is paramount and is not to be second-guessed by the adjudicating authority on its merits. This means that the way a resolution applicant raises money to fund its plan, whether through an anchor investor, a consortium, or its own resources, is part of the commercial package the committee evaluates, and a plan that the committee approves on that basis carries strong protection.

What an Anchor Investor Structure Achieves

An anchor-investor structure is a way of underpinning a resolution plan with a committed source of funds, where a lead investor commits to provide or arrange the capital needed to implement the plan, often anchoring the confidence of the committee of creditors in the applicant's ability to perform. Such structures can make a plan more credible by demonstrating that the money to pay creditors and to revive the business genuinely exists, and they can allow a resolution applicant to marshal resources it could not raise alone. The committee assesses the reliability of the anchor commitment as part of its evaluation, because a plan is only as good as the funding behind it, and an anchor that is firmly committed strengthens the plan considerably.

Regulatory and Disclosure Considerations

Anchor-investor arrangements do not exist in a vacuum, and depending on the nature of the corporate debtor and the securities involved they can engage company-law, securities-regulation, and disclosure requirements that must be satisfied for the structure to be lawful and enforceable. Where the debtor is a listed company or where securities are issued as part of the plan, the applicant must consider the applicable regulatory approvals and disclosure obligations, and where competition thresholds are crossed, the necessary clearances. The prudent course is to map these requirements at the structuring stage, so that the anchor arrangement that the committee approves can actually be implemented without falling foul of a regulatory requirement discovered only after approval.

Frequently Asked Questions

Must every co-investor in a resolution applicant consortium satisfy Section 29A eligibility conditions?

Yes. Every person who is part of the resolution applicant consortium, including co-investors and persons acting in concert, must individually satisfy the eligibility conditions under Section 29A of the IBC. The resolution professional is required to verify this before placing the plan before the CoC, and the NCLT will examine eligibility before approving the plan under Section 31.

Is a mandatory open offer required when a resolution plan acquires a controlling stake in a listed company?

No, not if the acquisition is made pursuant to an NCLT-approved resolution plan. SEBI has provided an exemption from the mandatory open offer obligation under Regulation 10 of the Takeover Code, 2011 for acquisitions pursuant to a duly approved IBC resolution plan. The exemption is not automatic and requires compliance with specified conditions, including filing a report with SEBI within a prescribed period after the acquisition.

What SEBI filings are required after a resolution plan is implemented for a listed company?

The resolution applicant and the listed company must make disclosure filings under SEBI's Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 relating to the change in promoters and shareholding, allotment of shares, and any material changes to the company's capital structure. SEBI and the stock exchanges must be notified as required under those Regulations, and the company's compliance calendar with SEBI resumes from the effective date of plan implementation.

Can co-investors exit their investment in the corporate debtor before the lock-in period expires?

Shares allotted pursuant to the resolution plan are subject to lock-in under the ICDR Regulations, and co-investors cannot sell or transfer those shares during the applicable lock-in period. Transfers among promoter group entities may be permitted subject to conditions. Any exit before the lock-in expiry requires specific SEBI approval or falls within a prescribed exemption.

Does SEBI's prior approval need to be obtained before submitting a resolution plan for a listed company?

SEBI's prior approval is not a formal prerequisite for submitting a resolution plan to the CoC or for NCLT approval under Section 31. However, practitioners advising resolution applicants in listed company CIRPs invariably seek informal SEBI guidance at the structuring stage to identify regulatory issues that could impede plan implementation. Formal filings with SEBI are made after NCLT approval, within the timelines specified by SEBI's regulations and circulars.

What happens if a co-investor fails the Section 29A eligibility test after the resolution plan has already been approved by the committee of creditors?

Section 29A of the Insolvency and Bankruptcy Code, 2016 requires every co-investor and person acting in concert with the resolution applicant to be eligible, and this requirement is not a one-time check satisfied only at the point of submission. If a co-investor is found ineligible after the committee of creditors has approved the plan but before the National Company Law Tribunal sanctions it under Section 31, the resolution applicant is ordinarily required to restructure the consortium to remove the ineligible party or address the disqualification before approval can proceed, since an ineligible resolution applicant cannot have its plan approved. Ineligibility discovered after sanction can expose the plan to challenge.

Can an anchor investor's funding commitment be made conditional on obtaining specific regulatory approvals?

A resolution plan can structure an anchor investor's or co-investor's funding commitment as conditional on defined regulatory approvals, such as competition clearance or a sectoral regulator's consent, provided the conditionality is disclosed to the committee of creditors and does not undermine the certainty of implementation the committee is entitled to expect. The committee, exercising its commercial wisdom, assesses whether a conditional commitment carries acceptable execution risk compared to an unconditional one, and plans with material unresolved conditions are often viewed less favourably in a competitive process. Once approved, the conditions become binding terms of the resolution plan itself.

Does a resolution plan for an unlisted corporate debtor also engage SEBI regulations?

SEBI's takeover, preferential allotment, and lock-in provisions apply specifically to listed companies, so a resolution plan for an unlisted corporate debtor does not, as a rule, engage these particular SEBI regulations. If the unlisted corporate debtor has listed debt securities, or the resolution plan contemplates a future listing or involves a group entity that is itself listed, SEBI's regulatory framework can become relevant at that later stage. The Insolvency and Bankruptcy Code, 2016 and the IBBI Regulations continue to govern the resolution process itself regardless of the corporate debtor's listing status.

What disclosure obligations apply to a co-investor who becomes a substantial shareholder through a resolution plan?

Where implementation of a resolution plan results in a co-investor acquiring shares or voting rights in a listed corporate debtor beyond the thresholds prescribed under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the co-investor becomes subject to the disclosure requirements that ordinarily follow substantial acquisition, including initial and continuing disclosures to the company and the stock exchanges. These obligations exist independently of any exemption a resolution plan may enjoy from the mandatory open offer requirement, since exemption from making an open offer does not exempt an acquirer from disclosing the acquisition once it has occurred.

Can the identity of co-investors be changed after the committee of creditors approves the resolution plan but before the NCLT sanctions it?

A material change to the consortium after the committee of creditors has approved a resolution plan is not treated lightly, because the committee approved the plan on the basis of the applicant and co-investors as presented, including their eligibility and financial capacity. Courts and the National Company Law Tribunal have generally required that any substitution or addition of a co-investor at this stage be placed back before the committee for fresh consideration, particularly where the change affects funding certainty or Section 29A eligibility, rather than allowing the resolution applicant to alter the consortium unilaterally after approval.

Is shareholder approval required for a preferential allotment of shares made under an approved resolution plan?

The Securities and Exchange Board of India has relaxed several ordinary preferential allotment requirements under the ICDR Regulations, 2018 for allotments made pursuant to an approved resolution plan, in recognition of the fact that the plan itself has already been through the committee of creditors and National Company Law Tribunal approval process under the Insolvency and Bankruptcy Code, 2016. The specific relaxations available, including in relation to shareholder approval and pricing norms, depend on the terms of the applicable SEBI relaxation in force at the time and should be confirmed against the current regulations before implementation.

What happens to existing public shareholders of a listed corporate debtor when a resolution plan is implemented?

Existing public shareholders of a listed corporate debtor are typically diluted, sometimes substantially, when a resolution plan involves fresh issuance of shares to the resolution applicant and co-investors, since the plan is designed to bring in new capital and control rather than to protect the pre-existing shareholding structure. Approved resolution plans have been upheld even where they result in significant or near-total dilution of public shareholders, on the basis that the alternative, liquidation, would ordinarily leave equity shareholders with little given their position at the bottom of the payment waterfall under Section 53 of the Code.

Do minority co-investors need to disclose their shareholding pattern to the committee of creditors before the resolution plan is approved?

The committee of creditors is entitled to satisfy itself about the structure and credibility of the consortium behind a resolution plan before approving it, and in practice resolution applicants are required to disclose the identity, shareholding, and funding commitment of co-investors, including minority participants, as part of the plan submission. This disclosure allows the committee to verify Section 29A eligibility for each participant and to assess whether the funding structure is genuine rather than a device to route funds through an otherwise ineligible party. Incomplete disclosure discovered after approval can expose the plan to challenge on this ground.