Realising value from shares that are worthless

Companies suspended from quotation, delisted or in external administration often hide a tax advantage in the form of a capital loss. Many of these companies have failed. Some are in administration.

Their shares are usually worthless or of negligible value. You may be unaware of this, as portfolios typically include shares at their last closing price. Too many shareholders are locked into capital losses for years.

All shareholders should now be reviewing their portfolios and the status of their companies. If you have shares that are really of little or no value, you may be able to realise a capital loss for tax purposes in 2012-13.

The earliest clear sign of company failure is often the suspension of a company’s shares from quotation. By then it is too late to dispose of shares on market. Other avenues for crystallising the loss have to be explored.

The first is off-market disposal. This has to be at ”arms length” and should be done professionally, particularly where the subject company is in administration.

Early disposal is usually recommended. Disposal crystallises the capital loss, even if it can’t be utilised immediately and capital losses can be carried forward.

The issue of a declaration by a liquidator or an administrator to the effect that shares are worthless is also a capital gains tax event and triggers the loss.

The problem with this option is that administrators often hold out hope of a return to shareholders from a recapitalisation of the company. They are thus unable to make a declaration, however small the anticipated return.

Of course if a recapitalisation eventually occurs, existing shareholder capital is diluted so savagely that ultimate returns after requotation are negligible. The shares still have to be sold to realise the loss.

Liquidators are often also reluctant to issue a declaration where litigation is contemplated. Stanilite Pacific shareholders, for example, waited for a declaration for almost 12 years after the appointment of a liquidator. Bell Group shareholders are still waiting after more than 20 years. Litigation in the latter case has been successful, but shareholders should not hold out hopes of any return.

The third avenue is deregistration of a company by ASIC. This occurs after a liquidator has completed a ”winding up” of its affairs. If all else fails and the capital loss has not previously been claimed, deregistration is a capital gains tax event and the loss is crystallised.

Tony McLean is managing director of deListed (AFSL 334036) and a former chief executive of the Australian Shareholders’ Association. deListed has online facilities at delisted杭州夜网 where you can initiate the disposal of your securities, whether held on a wrap platform or not. Their fees are claimable.

The original release of this article first appeared on the website of Hangzhou Night Net.

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