What should shareholders do if a listed company goes bust?

Creditors always come first.

Retail investors run the risk of losing capital if a public company becomes insolvent. While financially distressed firms can explore various options to reverse their fortunes, SGX's chief regulatory officer Tan Boon Gin warned that shareholders should be aware that their rights will rank behind the rights of creditors in the event that a company becomes bankrupt.

"The limited company structure limits shareholders’ liability so that shareholders are not personally responsible for the company’s debts. However, in return for this and other benefits that shareholders enjoy, they face the risk that their investment may be lost if the company becomes insolvent," Tan said in a column on the SGX.

If a company enters financial restructuring, shareholders should be ready for the possibility of an extended trading halt, suspension or delisting. In the event that a company does not recover even after restructuring, shareholders should expect to lose some or most of their investments.

"A shareholder is only entitled to his pro-rated share of the remainder after all creditors have been paid. If the assets are insufficient to satisfy all creditors, shareholders may lose the money they paid for their shares. Dividends are unlikely to be declared as the company may not have any profits," Tan wrote.

The worst-case scenario is a delisting without an exit offer, which will only happen if the company does not have enough assets to satisfy its creditors.

Tan's full column can be read here.

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