Q&A

Arcon

I note that Arcon International Resources has granted its directors share options at 0.029 per share. I bought shares in this O'Reilly company back in 1998, paying 0.34p per share. I was unable to avail of the rights issue as the details were, I'm told, sent to my broker, who denies receipt of same. I now hold shares which are useless as it will cost more to sell than the shares are actually worth. Should I just burn them?

Mr J.C., Donegal

The granting of share options to directors is becoming an increasingly thorny subject. There is still a broad belief that key executives should be incentivised by ensuring they have a greater stake in the company than simply the salary they draw down from it.

The problem is finding the happy medium.

All too often, remuneration deals, including bonuses and the granting of options, has succeeded only in narrowing executives' focus to the short term. In the case of share options, which were designed to encourage executives to help advance the value of companies and hence the price of their stock, it has all too often become a case of executives pursuing short-term strategies to inflate the share price, with little attention paid to the underlying development and strength of the company.

The other real problem with both bonuses and share options is that there is no consensus that the targets set before such bonuses are paid or options granted are fair - that is that they sufficiently challenge management to justify the award. The truth is that, in many cases, options are being granted for no better reason than that the company concerned is short of cash, and options are a non-cash form of remuneration and, at least until recently, did not undermine balance-sheet performance.

Another factor, of course, is that the granting of share options inevitably dilutes, albeit marginally, the value of the stock held by the other shareholders as they will consequently hold a smaller share of the company.

Having said all that, it is important to point out a couple of things. First, the fact that you bought shares at 34p in 1998 does not, in itself, undermine the validity of the price at which options are being granted in 2003. Five years is a long time for a public company, especially an exploration group - a sector more volatile than most. On top of that, shares have gone through one of their most historically volatile periods in the years precisely covering your ownership of this stock.

One other point. You describe Arcon as an O'Reilly company which, given his shareholding, is probably apt if not strictly true. In the same way as you feel aggrieved about the performance of your shares, he can hardly be delighted at the performance of the shares.

On the subject of the rights issue, I am at a total loss. There was a rights issue as part of the company's restructuring last year and all Irish brokers would have been aware of that. Details were published in the media and, in any case, shareholders would have to have been informed at their most recent address by the company.

In all the circumstances, it is hard to see how you or your broker would have been unaware of the rights issue. If you do believe there was incompetence on the part of either your broker or the company, I suggest you contact the Irish Stock Exchange or, at a stretch, the Director of Consumer Affairs at the new single financial regulator, IFSRA (lo call line 1890 777777).

Finally, while the shares are not useless, I can see that you might currently spend more selling them than their current face value - to say nothing of your loss on the deal to date. In those circumstances, you might as well hold on to them. The only way is up as far as you are concerned. Burning them might satisfy your pique but it won't do a lot for your bank balance.

Canada Life.

I have been living in London for the past 14 years. A number of years ago, my mother started paying into a Canada Life policy for me. As a result, I still have the policy, and was subsequently issued with shares when the company demutualised.

My name, and my mother's address, which is in Ireland, are listed on my share certificate. I, however, live in London. My questions are, if I decide to sell my shares as part of the takeover of Canada Life:

a) Am I liable for Irish CGT?

b) If not, am I liable for UK CGT, even if I do not bring the profits back to the UK? I plan to put the sale price into my Irish bank account.

Mr S.F., London

Given the length of time that you have been in England, you are unlikely to face a liability under Irish law on any capital gains tax accruing, notwithstanding the address on the share certificate. You are the owner and it is your circumstances that matter.

Insofar as that goes, you are living in England, have been doing so for, as you say, 14 years and, but for your mother's continued tenure in the family home, would have changed the address on the share certificates years ago.

That is good news for you because whatever your liability under British law, the exemptions and reliefs available are far more generous. The most important thing is that you have an annual exempt amount of more than £7,700 sterling, a figure that is going to keep you outside the tax net in the UK for capital gains on this transaction. Taper relief - where the percentage of the capital gains paid on the sale of assets held for more than two years decreases with the passing of time - is also far more generous than in Ireland.

On the stricter point of whether you would be liable to British capital gains: even if you kept that gain outside the jurisdiction - i.e. in Ireland - I am not conversant enough with the British law. Certainly, if you were an Irish resident, you would be liable to capital gains no matter where they were realised or held. I imagine the rules in Britain are pretty much the same.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.