Insolvency and Related Considerations for Directors

Directors of a company in financial difficulty should be aware that their conduct may be subject to close scrutiny if the company is subject to insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, as amended. The directors of such companies should take all steps to ensure that the company continues as a going concern. This is relevant as courts have held that unless all measures have been taken to revive a company, the making of a winding-up order may not be in the best interests of creditors, and going concern values may result in higher repayments to the creditors. In this regard, directors of a company in financial difficulty should be aware that their conduct may be subject to close scrutiny if the company falls into insolvency and such directors should be able to defend their actions provided that they were made in good faith.


Conflicts of Interest of Investor Nominee Directors

Investors or other stakeholders routinely participate in the governance of an investee entity through nominees, often appointing a nominee as a director to safeguard its interests through the exercise of a veto or an affirmative vote (that is the right to approve or reject an act or resolution concerning the business and governance of the investee company).


Closing Trading Windows: To Trade or not to Trade

The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations) require listed companies to use a trading window for monitoring trades by designated persons and their immediate relatives. The compliance officer is responsible for closing the trading window under certain circumstances when designated persons are reasonably expected to be in possession of unpublished price sensitive information.


Analyzing SEBI’s Paper on Rewarding Whistleblowers

The Securities and Exchange Board of India (SEBI) faces numerous challenges in investigating and determining insider trading violations. Lack of direct or conclusive evidence of violations is a key challenge in most cases. On 10 June 2019, SEBI issued a discussion paper on a proposed informant mechanism under which whistleblowers will be rewarded for reporting instances of insider trading.


Watching the Watchmen: Evolving Role of Auditors

The roles of various gatekeepers of corporate governance, such as auditors, independent directors and credit rating agencies, has increasingly come under scrutiny as a response to the various financial scandals that shook corporate India – from Satyam to IL&FS, and more recently, in the case of the auditor resigning from Reliance Capital.


Empowering Shareholders on Executive Compensation

Recent shareholder activism and regulatory action have focused attention on the issue of executive compensation in India. The Companies Act, 2013 (act), restricts the total managerial remuneration payable by a public company to its directors and managers in a financial year to no more than 11% of its net profits for that financial year.


Information Sharing Under SEBI’s Insider Trading Rules

The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (PITR), prohibits communication of unpublished price sensitive information (UPSI) to any person except where it is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.