In a spring cleaning move by the Australian Securities Exchange, companies which have been suspended from trading for more than three years could be automatically delisted.
The proposed cut-off date is an initiative designed to stop shareholders and businesses being “left in limbo”.
The proposed policy was revealed in a paper on Thursday and would see a tidying up of the ASX’s inactive companies.
Currently there are 100 companies on the ASX which have been suspended from trading. Of these, 70 have been suspended for more than 12 months and a small number have been suspended for up to a decade.
“Reasons for their suspensions include failure to lodge periodic reports by the due date, appointment of an administrator or receiver, or an announcement by the entity that it is pursuing a backdoor listing transaction,” the ASX said in a statement.
“Security holders make the point that it is often better from their perspective if an entity with no immediate prospects is wound up and surplus assets returned to them.”
The ASX says to avoid further “value leakage” for security holders of ongoing administration costs, they could possibly enable them to crystallise a loss for tax purposes.
This process would involve shareholders being allowed to sell their shares in order to realise the loss so it can then be offset against any capital gains made. Currently, shareholders are unable to claim a loss in their tax return until the year they actually dispose of an investment.
Prior to 2001, companies on the ASX were removed if they had been suspended from trading for more than a year.
This rule was originally deleted because it “proved administratively difficult to apply”, according to the ASX.
“A period of 12 months was not necessarily long enough to enable an entity to fully explore opportunities that might lead to the reinstatement of trading in its securities, and the rigorous application of the rule after that period was not necessarily in the interest of its security holders,” the ASX says.
Currently the ASX conducts an annual review of suspended companies and if the business is able to show it’s functioning adequately and moving toward trading its shares again, it won’t be delisted.
This can sometimes occur for years at a time without resolution.
The ASX now considers three years to be an appropriate time period for which it can impose automatic delisting, although it says in some circumstances this could be extended.
Earlier this year Billabong shares were placed in a trading halt while the business was negotiating a takeover deal with Sycamore, led by former Billabong Americas president Paul Naude, and a consortium of US private equity firms VF Corporation and Altamont Capital Partners.
Its shares have since recommenced trading.
Companies are also often suspended from trading for failing to lodge their annual reports on time.
In 2009, 23 businesses were suspended for late lodgements including Aurora Minerals, Fulcrum Equity and Pacific Environment.
Submissions for interested parties on the policy change can be submitted until Friday November 1, 2013.
