We discuss investors’ limited options when it comes to the administration and delisting process

If a company goes into administration, have shareholders lost everything? How long on average does it take to find out, what market if any exists if the listing is suspended and can retail investors access such a market? Finally, what are the implications with HMRC?

Robert


Deputy Editor, Tom Sieber replies

Unfortunately, the answer to the first part of this question is almost always yes – administration leaves shareholders out of pocket.

A company’s shares will be suspended when the business goes into administration and there are no real options for ordinary investors to trade them beyond this point, even if a buyer is found for part or all the business. In most cases the shares will eventually be delisted.

It’s therefore bad news for investors in stocks like shopping centre investor Intu and medical centre operator NMC Health which have both recently entered administration.

An administrator’s job is to either restructure the business and reach an agreement with indebted creditors, pay the creditors by realising the company’s assets, or sell the business to new owners as a going concern to yield greater returns than if the company was liquidated. Shareholders are right at the back of the queue behind all the firm’s other creditors.

It can take some time for shareholders to find out their fate and for the situation to be fully resolved. For example, shareholders in department store Debenhams were certain to be wiped out by its administration process in April 2019 but they had to wait until May 2020 before the company’s shares were moved from administration to dissolution status.

At that point, administrators of the company confirmed there had not been and will not be any return to the company’s shareholders, thus Debenhams’ shares were finally removed from shareholders’ investment accounts as they were worthless.

It is worth keeping a full record of all relevant information as soon as an administration or delisting process starts. From a tax perspective if you can give evidence to HMRC that shows that your assets no longer have any value since you acquired them, you may be able to make a negligible value claim. You can use this to realise a loss and thereby reduce your capital gains tax liability.

More details on how to make a claim can be found via this link where there is also a list of shares which have already been accepted as being of negligible value.

Sometimes there are warning signs before a company’s shares are suspended because of going into administration. For example, Citigroup analysts assessed the value of doomed travel agent Thomas Cook’s shares as zero in May 2019, months before its collapse in September of that year. While swallowing a potential loss on an investment can be painful it is better than being left with nothing at all.


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Please note, we only provide information and we do not provide financial advice. We cannot comment on individual stocks, bonds, investment trusts, ETFs or funds. If you’re unsure please consult a suitably qualified financial adviser.

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