Valuing shares in Waterford

Q&A:Your finance queries answered.

Q. I work at Waterford Crystal and, like many employees, hold shares in the company. What is the value of those shares now that the company has gone into receivership? We are still working here, keeping the furnace going and manning the visitors’ centre and glass is being sold, so the business is still going. Does that affect things? Are my shares treated the same as shares held by people like Sir Anthony O’Reilly and Peter Goulandris?

Mr G.W., Waterford

AThe first thing to get clear is that all shares within the same bracket hold the same rights. Thus, all holders of common stock, such as you describe, are treated exactly the same at all times, including in receivership. There can, however, be different classes of share with different rights – preferred stock and the like. Again all holders of a particular class of share have the same rights.

On the more salient point as to the current value of the stock. You are probably aware that the shares in Waterford Wedgwood were suspended when a receiver was sent into the Irish plant and administrators into British operations – both from Deloitte.

Since then US private equity firm KPS has bought significant assets from the company – though not the Waterford plant or the company pension scheme.

The fact that workers are still manning the visitors’ centre or maintaining the furnace has no bearing on whether the company is solvent and on whether the shares have any value.

Theoretically, once the receiver concludes the receivership process, he reports back on what money has been made on the sale of any assets and how much debt has been repaid.

A decision is then made by the directors on what to do with what is left of the company. It is technically possible that the rump company could remain solvent and be wound up in a fashion that would see a payout for shareholders.

However, several sources in the business restructuring world assure me that, in reality, once a receiver is appointed, companies are generally incapable of emerging without going through insolvency liquidation – in which case, shareholders would be unlikely to receive any recompense for their shares.

The advice I have been given is that you should not bank on receiving anything for your shares. It is almost certain they are worthless.

Still, until the shares are cancelled from the exchange as part of a company liquidation, you should retain your share certificate just in case.

One restructuring specialist reminded me of a case where a firm paid out a final dividend to shareholders almost 20 years after the company went into receivership – you never can tell.

Q Can you advise me if it would be a good time to transfer Bank of Ireland shares to my children since they have slumped by more than 95 per cent? Two years ago they were worth €45,000. They are now worth less than €2,500. Would there be any implications for gift or inheritance taxes?

Mr P.W., e-mail

AThat's an enterprising approach to the current stock market turmoil – using the present lowly value of stock to reduce exposure to gift or inheritance tax.

Certainly, if you intend passing on the stock to your family at some stage, there are advantages to doing so at a time when the value of the shares is low.

And, at the level you state, there would be no exposure to gift or inheritance tax – more formally known as capital acquisitions tax (CAT).

There is a specific exemption in the CAT code that covers the first €3,000 by value of gifts given by a benefactor to any beneficiary in any calendar year.

At a value of €2,500, this would make your gift exempt even if all the shares were passing only to one child.

For your part, passing on the shares at this stage will leave you in a position where you have a capital loss of €42,500, even before taking into account costs incurred in the buying of the stock. This capital loss can be offset against other capital gains made this year or in future years.

The offset, of course, is that your children will eventually face a capital gains tax charge on any subsequent gain in the price of the stock.

At the other extreme, should the bank fail, the stock will have no value at all. But then again, they won’t have paid for the shares, nor will they have incurred a tax charge.

Q Your have written several pieces recently on the subject of companies paying dividends. I wonder how safe dividends are if things get really bad?

Mr P.McK., email

A As you say, there is no guarantee about dividends, especially in the current scenario. Even BP, which this week went on record to state it would borrow, if necessary, to continue making dividend payments, could yet change its mind.

Each company has to make its own decision based on the state of its finances at that time. Clearly, directors have certain obligations in regard to ensuring the financial stability of their companies and that would influence any decision on dividends.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by 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 questions. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.