Listing on a stock exchange enables companies to access capital from public markets. However, raising capital in this manner comes at a cost – listed entities are subject to extensive disclosure obligations, ongoing regulatory oversight and significant compliance costs. As businesses mature, their reliance on public fundraising often diminishes, with private capital and alternative funding becoming more readily available. In such circumstances, remaining listed may no longer be commercially efficient, prompting the majority shareholder to consider delisting as a strategic option.
Voluntary delisting can be prejudicial to minority shareholders. If delisting is permitted too easily, minority shareholders may be exposed to the risk of being left with illiquid investments following a decision driven by the controlling shareholder. This risk can undermine investor confidence in public markets and deter participation. Globally, therefore, voluntary delisting frameworks are carefully regulated to balance corporate flexibility with the protection of public shareholders and the integrity of capital markets.
Voluntary delistings were previously governed by the Securities and Exchange Commission of Sri Lanka Rules, 2001. Under these rules, minority shareholders were afforded protection through a requirement that at least seventy-five percent (75%) of the shareholders present at a general meeting (counted by number and not by votes held) approve both the resolution to delist and the exit price at which the company had arranged to purchase the securities of those shareholders who wished to exit upon delisting.
This “one person, one vote” approach was inconsistent with the fundamental principle of company law, which follows “one share, one vote”. As a result, minority shareholders could, in some cases, exercise disproportionate influence over delisting decisions, giving them greater control than their economic stake would justify.
These rules were recently repealed by a Gazette Extraordinary bearing No. 2440/14 dated 11th June 2025.
In place of the previous framework, the Colombo Stock Exchange introduced a new section 14 to the Listing Rules, titled the “Delisting Rules”.
Under the new rules, a resolution to delist must be approved by a Special Resolution of the company’s shareholders – meaning that seventy-five percent (75%) of the company’s voting rights must be cast in favour of such resolution. However, the rules have included two additional safeguards to protect the interests of minority shareholders.
First, the exit price offered to shareholders wishing to exit upon delisting must be equal to or higher than the highest value determined and recommended by a Corporate Finance Advisor licensed by the Securities and Exchange Commission, or a firm of auditors, based on the following valuation methodologies:
Second, the exit price determined above must be approved by a Special Resolution of the Public Shareholders of the company – meaning that at least seventy-five percent (75%) of the voting rights of shareholders who have no connection to the company or the majority shareholder must be cast in favour of the exit price.
Another notable feature introduced under the new rules is a limited trading window after obtaining shareholder approval to delist a company.
Previously, once the company’s board announced its decision to delist, the Colombo Stock Exchange would immediately suspend trading of its shares. For shareholders who invested in these shares on the basis that they were liquid investments, this sudden suspension meant their holdings became illiquid overnight and they were effectively “locked in” until the delisting process was completed. In many cases, this process took several months since an aggrieved shareholder had a right of appeal against the delisting to the Securities and Exchange Commission, and the company had to follow a lengthy administrative procedure with the Colombo Stock Exchange to rematerialize the shares and complete the delisting.
To address this issue, the new rules introduce a limited trading window of seven (07) days after obtaining shareholder approval. Accordingly, while shareholders remain protected by the mandatory offer at the exit price approved by the public shareholders, the trading window provides an additional avenue for exit, restores market liquidity, promotes price discovery and ensures a more fair and orderly transition from a listed to an unlisted company.
