RBI outlines the conditions for Asset Reconstruction Companies (ARCs) to get exemption from the limit of shareholding at 26% of post-converted equity of the borrower company. In order to get the exemption the following condition should be fulfilled :
- ARC should be in compliance with Net Owned Fund (NOF) requirement of ` 100 crore on an ongoing basis.
- At least half of the Board of Directors of the ARC should be comprised of independent directors.
- ARCs are required to frame policy on debt to equity conversion with the approval of its Board of Directors and may delegate powers to a Committee comprising majority of independent directors for taking decisions on proposals of debt to equity conversion
- The equity shares acquired under the scheme should be periodically valued and marked to market. The frequency of valuation should be at least once in a month.
RBI further directs that ARC to prepare a panel of sector-specific management firms/ individuals having expertise in running firms/ companies which could be considered for managing the companies.
RBI also highlights that the shareholding post conversion of debt into equity should be in accordance with the prescribed limit by FDA for specific sector.
For more understanding refer to Circular issued by RBI dated January 23, 2014 stating about the conversion of debt into shares, consent level of security enforcement actions and permission to acquire debt from other SC/RCs.