The Supreme Court (SC), on December 3, heard the petition filed by Franklin Templeton Mutual Fund (FT MF) and the fund house agreed that it would conduct unitholders’ voting to get consent on winding up of the six debt schemes, according to people in the know.
The voting is likely to be held in the next few weeks. "The Hon’ble Supreme Court on December 3, 2020 issued an interim order allowing the trustee of Franklin Templeton to seek consent of the unitholders for the winding up of the six schemes u/r 18(15)(c) of SEBI (Mutual Fund) Regulation 1996," a Franklin Templeton spokesperson said.
The stay on redemptions in the mutual fund schemes will continue till further notice. Franklin Templeton in its petition had requested the stay on redemptions to continue, to avoid ‘run’ on the schemes, which could trigger stress sale of the debt papers held in the schemes.
"We believe that the Supreme Court order will be helpful in ensuring orderly monetisation and distribution of scheme assets. We will issue the notice for seeking consent of unitholders shortly. We deeply appreciate the support of our investors and partners till date and hope to commence distribution of investment proceeds at the earliest," the spokesperson added.
The second round of hearing at SC will be held next week. According to sources, more parties have filed special leave petitions (SLPs) in the SC, including an investor, as well as the Securities and Exchange Board of India. An SLP is filed when an individual or entity wants to be heard in the apex court against an order passed by the high court.
If the fund house is able to get approval from the unitholders for the winding up, the next step would be to explore avenues for monetising the debt assets held in the schemes.
However, there is still no clarity on what will be the status of these schemes if unitholders do not approve the winding-up in the voting.
"In case, unitholders don't approve the winding up and schemes are re-opened, the fund house may have the option to put limits on redemption, to limit the impact of distress sale. However, any kind of stress sale will have a negative impact on schemes' net asset values, so it will be better to give mandate to the fund house to start selling assets in an orderly manner as part of the wind-up process," said Anup Bhaiya, founder of Money Honey Financial Services.
The Karnataka High Court (HC) in its order on October 24, said that unitholders’ approval was a must for winding of any mutual fund scheme.
The Karnataka HC had ordered a stay on redemptions from the schemes for a period of six weeks, after pronouncing its order. This stay was lapsing on December 5.
So far, the six schemes under the winding-up process have collected Rs 11,576 crore of cash flows. In November, the six schemes of Franklin Templeton Mutual Fund received Rs 2,836 crore of cash flows.
Four of the schemes of FT MF are cash positive. These schemes hold Rs 7,726 crore of cash, subject to fund-running expenses.