In our experience there are often early indications that a listed company is about to fail. Here are some signs, there may well be others:

  Management and board strife which is often accompanied by resignations and departures.

  Lengthy "discussions" or "negotiations" with bankers or other financiers over the extension of credit facilities.

  Proposals to raise further capital, particularly in the context of ongoing losses or other significant impairments.

  A capital raising that is not underwritten, extensions to the closing dates for the acceptance of applications under a prospectus or significant shortfalls of shares not taken up.

  Share sales by members of the management team or board.

  Delays in filing financial statements, more so when there are indications that asset valuations are the cause.

  Auditors not signing the financial statements, delaying their sign-off or resigning.

  Failure to maintain the company’s website or shutting the site down.

  A proposed back door or reverse listing.

  Financial statements showing:

  Negative returns on equity.

  Negative cash flows at operating level.

  High gearing.

  Low or negative NTA (net tangible assets).

Eventually the truth about the failure of a company emerges. It is usually attributable to bad management, but management just as often point to other causes. Shareholders are left to read the fine print of reports by external administrators or the post mortems of financial journalists to get the good oil.

FURTHER READING

"Mega heads to NZX's back door" by Brian Gaynor, NZ Herald 29 March 2014 Click here .