Winding-up of cos to harm investor

Said a BSE official: "We would also request the court toappoint a provisional liquidator for better recovery or else it would be a mere academic exercise." However, once the court allows winding up of the company, then the stock exchange will have to stop trading in that scrip. This means automatic delisting. Any delisting of the share is against the interest of the shareholders who end up the losers. Once delisting takes place, an investor cannot buy or sell the shares through the stock exchange and it will remain a worthless paper.

The regulator also has an about-turn in the matter. The SEBI is now supporting the move of the exchanges to remove such companies from the trading list. It may be recalled that the SEBI was against stock exchanges delisting companies from the stock exchanges for several years. The BSE and the Calcutta Stock Exchange wanted to delist several shares two years ago. However, the regulator stepped in and stopped the arbitrary move by the exchanges and set up a committee, Chandatre panel, to look into the issue.

BSE President AnandRathi says that the exchange will file winding-up notices against companies which failed in solving investor complaints and violated listing norms. “If the company is wound up, then how will the investors benefit? In such cases, the court will appoint a liquidator who will take charge of the assets. Here, secured creditors like banks and institutions will be given priority in repayment. After this, it is very unlikely that anything will be left out for investors,” said a banker.

Take the case of 163 companies which the BSE has now threatened to move the court with winding-up notices. Most of these companies are with small equity bases of around Rs 5-6 crore. This means around Rs 1,000 crore of investors money is locked in the targeted 163 companies. Will they get back their money? Veteran capital market experts don’t recall any case of investors getting back their investments from liquidated companies. With promoters siphoning off funds and stripping all visible assets, it is rare even for securedcreditors get back their funds.

The exchange can take credit that it has cleaned up their Augean stables by delisting or winding up such erring companies. But at the cost of investors. SEBI and exchanges were late in putting entry barriers and allowing only good companies to be listed. “Investors are now paying the price for the lax rules which allowed shady promoters to collect money and disappear,” complained an investor.

Rathi says out of 163 firms, show-cause notices to 39 returned undelivered. Where are these companies? This is a clear indication that these 39 companies have vanished after collecting money from the public. Around 3,000 companies had raised public money and listed their shares in the 1994-96 public issue boom period. The BSE at that time merrily listed these firms attracted by huge listing fee revenue. Many of these companies are fake ones and some are stuck mid-way due to the economic slowdown. BSE admits many of them are not traded at all and listing fee is not paid. Remedy:delist or wind-up such companies. Investors are now taking this as a signal from the regulator and the stock exchange to forfeit their investment in such companies. It is unlikely that any investor would like see his/her investment going down in the drain in such a fashion.