When companies are placed in liquidation or administration, the shares they have on issue may become worthless. In this situation, company law may restrict investors being able to transfer these shares to other investors.
A declaration may be issued in writing by either the liquidator or administrator, as relevant, stating:
- for shares, that there are reasonable grounds to believe there is no likelihood that shareholders in the company will receive any further distribution for their shares.
- for financial instruments, that the financial instruments have no value or have only negligible value.
At this point the investor may choose to realise a capital loss on their worthless stock.
Where the above requirements for declarations are not satisfied, an investor may not claim a capital loss.