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Company busts on the increase

Penny Pryor

The Banksia bust may have been high profile but it turns out there are thousands of companies that declare insolvency each year and have an external administrator appointed. In the September quarter, there were 2807 external administration appointments, according to the Australian Securities and Investments Commission.

That’s slightly higher than the June quarter, when there were 2552 appointments but not as high the September 2011 quarter, when they reached a record 2961.

The majority of companies going into external administration in the September quarter were in NSW, where there were 1119, followed by 741 in Victoria. The Northern Territory had the lowest amount at just 11.

With such a large number of companies in difficulty, it raises the question “what should you do if a company you invest in goes bust”?

Shareholder options

If you have shares in the company, you may realise a capital loss in some circumstances. ASIC explains these circumstances as:

  • if a liquidator or deed administrator makes a written declaration that they have reasonable grounds to believe there is no likelihood that shareholders will receive any further distribution in the winding up, or;
  • if no such declaration is made by the liquidator, the deregistration of a company at the end of the liquidation also enables realisation of any capital loss.

However, you can’t transfer shares in the company unless you have permission from the appointed external administrator or the court.

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