Submission to Parliamentary Joint Committee on
Corporations and Financial Services

Subject:		Australia’s Insolvency Laws

Submitted by: 	Tony McLean 
delisted.com.au

Date: 			28 January 2003

Contents:

1. Background

2. The issues for shareholders  

3. Possible solutions

4. Responses from visitors to the website www.delisted.com.au

1. Background

This is a brief submission to alert the Parliamentary Joint Committee to concerns about the residual interests of shareholders in companies previously listed on the Australian Stock Exchange; companies that often end up subject to Australia’s insolvency laws.  

In my opinion any consideration of the operation of Australia’s insolvency laws is incomplete unless it takes account of the rights and interests of shareholders. 

Arising out of my exposure over many years to frustrated shareholders of companies in external administration, I have spent a great deal of time over the past twelve months establishing a free website (www.delisted.com.au) to keep shareholders informed about the fate of their companies.  The website has now been running for four months and, despite minimal public exposure, I have been swamped by the interest and by shareholder queries. 

Further background and the rationale for this development are available on the website itself. 

At the foot of this submission I have provided extracts from some of the responses to my website during the first two months of its operation.  I do not know any of the shareholders who have commented - the responses are entirely unsolicited and can be independently verified.  They demonstrate unequivocally, considerable shareholder disillusionment with the present system governing the external administration of companies.

2. The issues for shareholders  

I wish to confine my observations to entities listed or previously listed on ASX and seek to explain why I believe changes to the law are necessary.

In most cases where a company is initially suspended from quotation because of concerns about insolvency, the company eventually ends up in liquidation and is deregistered.  Very few public companies that go into external administration end up regaining quotation - most of those that do are “back door listed” with existing shareholders gaining little, if any, financial benefit from the process.  Almost invariably a shareholder’s most important residual interest is therefore the crystallisation of a capital loss for tax purposes.

But until a determination is made by a liquidator that it is unlikely there will be a return to shareholders (and a liquidators declaration issued pursuant to section 104-145 of the Income Tax Amendment Act 1997), shareholders have a legitimate interest and stake in the company. In those circumstances shareholders have a right to information about its financial position and arguably a right to an annual meeting with whoever has stewardship of the company’s assets. This is particularly the case where there is still a possibility the company will trade its way out of financial difficulties and regain quotation.  
 
In some cases legal actions are taken against directors and auditors by an administrator or a liquidator.  Strictly speaking this action should be mounted on behalf of the company in recognition that damage has been suffered by both shareholders and creditors.  Rarely is this the case – actions are taken almost invariably for the sole benefit of the creditors.  (Only recently have we seen the advent of class actions – a development which has potential to cause confusion in terms of the interests of both creditors and shareholders and their respective claims on available assets, including indemnities.)
    
Almost invariably, shareholders are left in the dark.  Their interests are ignored.  Seldom is there any communication from directors, receivers, administrators or liquidators. The Committee can readily confirm this by reviewing the “announcement” history of public listed companies suspended from quotation.  It is spotty even when a company is still listed and is prima facie obliged to comply with the listing rules. Also many companies change their name after suspension and the history of company announcements is then completely lost.

In reviewing the frequency and quality of information provided to the market by many suspended companies I have noted only three administrators over the past twelve months who, in my judgement, have been keeping the market reasonably informed – namely the administrators of Pasminco, Kingstream Steel and Waivcom.

Once a company is delisted from ASX there appears to be no public scrutiny whatsoever and communications to shareholders dry up completely. In the past, most shareholders who wished to avail themselves of a capital loss had to track down a liquidator and then endeavour to extract a copy of a liquidator’s declaration.  There is whole range of problems for shareholders associated with this process.  For a start many shareholders are unaware that such declarations have been issued and have no idea how to claim their loss.

It should be noted that hundreds of thousands of Australian shareholders (200,000 have been affected by collapses over the last couple of years) initially angry at suddenly losing their investment in a company, have then been endlessly frustrated by a lack of information and problems in crystallising their capital loss.  They end up disillusioned with share investing.

Inadequacies in the system for reporting and communications with shareholders of companies in external administration create additional pressures for regulators and insolvency practitioners; thousands of individual shareholders end up pursuing details to support their tax returns thereby putting pressure on the resources of both.
3.  Possible solutions

While there may be a good case for reducing the financial reporting requirements for companies in external administration it is important that shareholders are informed about the fate of their companies at least until the point their economic interest is extinguished.  In most cases this will be the point at which a liquidator determines there will be no distribution to shareholders and issues a declaration to that effect.

In this electronic age it should be possible to make brief and simple financial information available to the majority of shareholders without imposing unnecessarily on administrators and without having to incur the costs of sending reports to individual shareholders.

I recommend therefore:

1.	The law should start from the position that companies in any form of external administration should be required to hold an AGM (at present rarely do such companies hold AGMs). At the same time ASIC should have authority to exercise discretion and provide relief in certain situations.  Besides considerations of cost and the burden on administrators, ASIC might consider where the administration is at, the quality and frequency of information provided to shareholders thus far and what might be achieved, if anything, by holding an AGM. 

2.	The first release to the market notifying shareholders of the appointment of a receiver or administrator should contain details of where shareholders may find details of subsequent releases; whether this be via ASX while the company is suspended from quotation and not delisted or through a site such as delisted.com.au at any time. 

3.	Many of the financial forms lodged with ASIC by insolvency practitioners are incomprehensible to the average shareholder.  External administrators (administrator, receiver/manager, deed administrator or liquidator) should provide a simplified version or at least make a copy available to shareholders via ASX, where the company is still listed, or through a site such as delisted.com.au after the company is delisted from ASX.  This would be inexpensive and not burdensome on the administration.

4.	Liquidators should issue a liquidators’ declaration immediately the determination is made that there is no likelihood of a distribution to shareholders. Again a copy should be made available to shareholders via ASX, where the company is still listed, or through a site such as delisted.com.au after the company is delisted from ASX.  The declaration need not be circulated to shareholders and therefore costs would be minimised. 

5.	Receivers, administrators and deed administrators should also be vested with authority to make the declaration pursuant to s 104-145 of the ITAA 1997, which can currently only be made by a liquidator. 

6.	In the absence of any other reporting requirements an external administrator should be required to provide a brief status/progress/outlook type report for the benefit of shareholders at least annually throughout the period of the external administration and at least until a declaration (pursuant to s 104-145) is issued. Again a copy should be made available to shareholders via ASX, where the company is still listed, or through a site such as delisted.com.au after the company is delisted from ASX.  I would be happy to suggest details of the content of such a report. 

7.	Legal actions taken against directors and auditors by an administrator or a liquidator should be mounted on behalf of the company and in recognition of the losses suffered by both shareholders and creditors. If this requires funding, shareholders should also be invited to participate and their interests protected in the negotiation of any settlement.
4. Responses from visitors to the website www.delisted.com.au
(during the period 1 September 2002 to 31 October 2002)

Thanks for the prompt reply.  We have just started using your website this week and it is providing us with information that previously took weeks, or months, to find.  We will be using this site as our main source of information from now on.

 Firstly well done on this web site a much needed tool for the small investor.

Thanks for your prompt and useful action!!

Just wanted to let you know what a valuable resource delisted.com.au is and how important it will become in the future as one of the very few sources of information about delisted companies. Whilst there is much information on the internet about listed companies, as soon as they become delisted, the information disappears without a trace!

This website is brilliant.

I shall consider my options when I complete my 2003 tax return. Thank you and the best of luck with your much needed website.

The site is a great quick solution to not infrequent problems.
Especially with changes of name it would be a convenience if you gave the ASX code.

Excellent site and well overdue.  However, is it possible that you could provide an option that lists the various companies in each category, e.g., Delisted companies, in alphabetical order, that one could scroll through?  This would be a most useful addition.

Great site thanks.

 Thankyou for your informative site. At least somebody out there knows what it is like to suffer the pain after investing in a complete debacle. Pasminco: now there is THE complete debacle. Next they are going to refloat it all just to shove it back in our faces! Thankyou for persuing the tax office re capital loss on this. Is there a Pasminco shareholders action group or is all entirely lost? Boy have I learnt a lesson about share investing on this shambles.

Sorry about that Tony . I was so excited about the fact that this wonderful service was being provided I overlooked this minor detail!    The company involved is LASER HOLDINGS.

Many thanks for the swift response - what a service!

Both myself & our company have (had?) shares in Pasminco. In this am mail dated 4.09.02 Liquidators letter saying "We confirm that we believe that shareholders will not receive any return on their existing shares in Pasminco." As they are going to float again can we consider this as a delisting or not? We agree with your newspaper article 8.09.02 - site like this is loooooong overdue - well done!! 

Again, I think this will be very useful in supporting research into Australian companies and I congratulate you - it is no mean feat maintaining this information.

Thanks for your help. The position you describe is how I understand it to be also. I was issued with shares in Forbio Inc which are of course worthless. I just wondered what happened to the company that was then registered in USA? I don't expect you to put in time on this. I just thought it might have been information that was readily available. Anyway I'll write off the shares. Thanks for your help. Once again a useful site offering prompt, efficient service. 
 
Thanks for your service  Like your site - wondering if you have any info on the status of Res Assco (Adsteam)? Thanks 

Congratulations! A very useful website.

Thank you for this great site. I have (had) shares in Stanilite and Clifford and lost quite a deal of hard earned money through shady business practices. To date I have had no advice from either company or liquidators to say that I may claim the losses. Your article appeared in the Brisbane Sunday Mail of the 8th Sept and I intend putting it to what I hope is an excellent use as I am about to complete my 2001-2002 Tax return. Thanks again for a most timely service.  PS Useful site!!
Thanks again for such a great site. One question if I may though, is it possible to include the ASX code of each company? (No small ask!) I'll ask the ASX tomorrow if they have records that are publicly available.