When a business goes bust

As company failures start rising, here's a guide to what shareholders can expect to salvage from the wreckage

- PAM WALKLEY

If a company in which you are a shareholder goes bust, it’s very likely you won’t see any of the funds you invested.

This is because in the event of an insolvency, shareholders rank behind debt holders and other parties owed money by the company.

Shareholders are “unlikely to receive any dividend in an insolvent liquidation,” says the Australian Securities and Investments Commission (ASIC).

For example, when ABC Learning – one of the world’s largest childcare providers with more than 1200 centres across Australia, New Zealand, the US and the UK – went bust in 2008, its 34,000 retail shareholders received nothing. In 2006, the company had a market capitalisation of $2.5 billion.

A similar outcome befell most HIH shareholders in the wake of the $5.3 billion collapse of the insurer in March 2001 – the biggest collapse in Australian corporate history.

The Parliamentary Joint Committee on Corporations and Financial Services is conducting an inquiry into corporate insolvency in Australia as the government and corporate sectors look to limit the fallout from businesses collapsing.

In particular, the tax office features prominently in businesses going out of business, as a creditor in 74% of insolvencies, often as the largest creditor and sometimes as the only creditor.