Kept in the dark and starved at the death

Stuart Wilson

The Australian

10 September 2002

The plight of shareholders in failed companies has been largely ignored until recently. When companies suddenly slide into the proverbial black hole of administration and liquidation shareholders are left with nothing.

Worse, they are rarely told anything about the fate of their companies and they have no way of knowing whether they can claim their capital loss as a tax deduction or not.

The Australian Shareholders’ Association and other organisations such as ASIC, ASX and the Insolvency Practitioners Association field many calls from frustrated shareholders who have been left in the dark. Indeed, the development of a new website had its genesis in a spate of such calls to the ASA several years ago.

The website www.delisted.com.au has been established to keep shareholders up to date with the progress of companies in receivership, administration or liquidation and to provide liquidators’ declarations that enable the crystallisation of a capital loss for tax purposes.

The first sign of trouble with a listed company is often a rather bland release to the stock exchange that the shares will be suspended from quotation at the request of the company. While the market may subsequently be advised of the appointment of an administrator or receiver, the information flow to shareholders often then dries up completely as the interests of creditors take priority. But shareholders still have a residual interest in the outcome. Some companies suspended because of solvency problems are eventually relisted and soldier on. Others end up in liquidation, which prima facie gives some possibility of a distribution to shareholders, although in practice, this rarely happens.

However, shareholders have one other vital stake in a company liquidation. As a general rule a shareholder in a failed company may claim a capital loss (providing the shares were acquired on or after 20 September 1985) if a liquidator has issued a declaration pursuant to Section 104-145 of the Income Tax Assessment Act 1997 or if the company in which the shares are held is deregistered.

Usually a liquidator’s declaration is the trigger for the claiming of a loss. The declaration has to be in writing and to the effect that the liquidator has reasonable grounds to believe that the company’s shareholders will not receive any distribution in the course of winding up the company. The shares are then deemed to have been disposed of and reacquired for no consideration, which gives effect to the crystallising of a capital loss. Any subsequent distribution is assessed as a capital gain.

The delisted.com.au website is a free website providing most of the liquidators’ declarations for listed companies that have failed over the past ten years, or at least an indication of their status for tax purposes. Declarations for example can be viewed and printed for companies like HIH, One.Tel, Clifford, Liberty One and The Satellite Group.

This website is still a work in progress but shareholders will also find a useful summary of developments and status for companies such as Pasminco, Kingstream Steel and Normans Wines. They can also monitor the progress of shareholder class actions with Harris Scarfe and HIH.

There are certainly lessons to be learnt from companies going into liquidation. Probably the most important one is to know the background and experience of the management team and directors. Also be aware that self-promotion of a company's shares as a ‘good buy’ may well be ‘good bye’ investment.