A reason why the PSE might be hesitant to delist errant companies

Yesterday, I wrote about the seven zombie companies that were “punished” [link] for reporting failures by just continuing to serve their suspensions that were already in-place, and how the language of the PSE’s Consolidated Listing and Disclosure Rules actually requires the PSE to initiate involuntary delisting proceedings against companies that are unable to become compliant after only three months of suspension. Several of those companies have been suspended for years without any real effort to become compliant. I said that the PSE should act according to the rules, or if it’s afraid to, it should re-write the rules and then act according to the new rules. The big problem here is obviously the public shareholders who are trapped in these zombie companies. 

> What would happen under the current rules?  An involuntary delisting (as it’s written) would actually disadvantage the minority public shareholders more than anyone else. The minority holders would be free to sell their shares, but they’d be constrained by all the problems that face individual shareholders in private share sales (time, cost, significant price discount), plus whatever additional problems have been piled on by the ownership group that steered the company into the rocks and failed to upkeep its basic reporting requirements. The majority owners, who have every advantage relative to the minority holders at every stage of the suspension and delisting, are never punished more than the minority shareholders in such an involuntary delisting.

> How could the rules change?  The rules should be amended to punish the people who are in the best position to correct the reporting problem: the owners. Instead of being so willing to suspend trading in all a company’s shares upon a missed reporting deadline, perhaps the PSE should instead only suspend the trading of shares belonging to the owners (those shareholders that hold enough stock to be considered non-public). Leave the public float alone, and allow it to trade. Suspend the ability of the owners to trade in the stock, either directly or indirectly, until the problems are corrected to the PSE’s satisfaction.

MB bottom-line: This isn’t a perfect solution by any means, but it is just one example of a change that the PSE could make to better target those in control and improve the effectiveness of its enforcement action. This idea has been bouncing around in forums for a while, but I was reminded of it by a reader who wrote in with a passionate defense of the minority shareholder that reminded me that what I wrote “enforce the rules as written” was not the most accurate reflection of how I feel toward the plight of the minority holder. What I thought that I implied with my line about the PSE re-writing the rules apparently didn’t come across, so I wanted to make it clear that I think the PSE should re-write the rules to lessen the burden of enforcement on minority holders, and only then become more aggressive in enforcing them.  

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