I am not sure this ruling on shareholders getting equal share with creditors will last long. The banks and any business will be lobbying hard for this to be legislated away.
Sorry shareholders are taking the most risk so get last piece of any cake after everyone else.
Look at the balance sheet of any company, where does the equity (which is where the shareholders are) come into the equation. This ruling means that equity is now some kind of liability!!!
Creditors are not just banks and other lenders, this includes any business which provides method of payment other than cash on delivery (COD).
The subjective rubbery nature of this requirement
""A person who buys shares in a company in reliance upon misleading or deceptive information from the company, or is misled as to the company's worth by its failure to make disclosures required by law, may have a claim for damages against the company which ranks equally with claims of other creditors," the court held."
Is this misleading?, our biggest creditor pulled the plug on us (to try and recover some money) and the company reports "We are in negotiation with creditors to refinance". This is exactly what Sons of Gwalia were trying to do. It is the exact reason why the creditors pulled the plug.
They had had enough and wanted to recover some portion of their money which they had loaned.
At what point does this become misleading?
Is the value of development properties deceptive?
Knowing that the company has one third of the cash required to pay current liabilities?
There are websites, books, magazines and newsletters dedicated to this stuff.
Bring on the nanny state... whoops you invest your all your life savings trying to pick the bottom in a stock like Sons of Gwalia and then to turn around and ask for your money back when the gamble doesn't pay off.
Does the bookmaker provide you are refund your bet when the favourite runs last?
Here is a good lesson, one which I have learned from as well.
When you read this in financial report (this from Sons of Gwalia 18th February 2004) and it specifically mentions something like this. It is time to ask why?
"Operating Cashflow:
During the half year ended 31 December 2003 the Company’s operating cashflow and its closing
reported cash balance were reduced by a sizeable decrease in its trade creditors balance."
Some trade creditor (Payables on the balance sheet) demanded their cash!
Have Fun
Paul
