Wednesday, September 16, 2009

Are Shareholders in Canada Treated Fairly?

Perceptions matter when it comes to having faith in stock markets. The recent case of the company Allen-Vanguard has left many investors wondering if they’ve had their shares taken away unfairly.

Allen-Vanguard has had serious debt problems and its share price has dropped over 99% in the last two years. A Friday press release announced that Versa Capital Management would take over Allen-Vanguard, but that all existing shares would be “cancelled on closing of the transaction, with no consideration paid to holders.”

To the average shareholder, this can be baffling. Don’t shareholders get to vote on this? If a company is willing to take over Allen-Vanguard, doesn’t that mean it still has value? Investors can’t be blamed if they think that their shares were simply stolen away.

The reality is that Versa only took over some of Allen-Vanguard’s debts. If creditors agreed to only partial repayment, this is a strong sign that the company was indeed underwater and had negative value. Without any further information, it is plausible that the shares were worthless. Of course, it would certainly be nice to know whether some impartial third party was present to confirm that the shares were worthless.

All indications are that shareholders were treated fairly, but perceptions matter too. It isn’t good for Canada’s stock markets to have investors believing that they were robbed.


  1. Sounds like an interesting case. It's sort of like a bankruptcy settlement before the company actually went to bankruptcy court. Shareholders have to hope a better offer comes along.

  2. Gene: The fact that no court was involved is enough to make investors suspicious.

    CC: I agree that shareholders would have been wiped out, but the perception that shares can simply be taken away needs to be addressed somehow.

    1. The second reply above is to Canadian Capitalist's comment:

      I read this in the Citizen yesterday and it sounds very murky. But I think shareholders would have been wiped out one way or the other as it appears that Allen-Vanguard had defaulted on its debt. I have no idea why the shares still traded at 10 cents on Friday.

  3. Sounds like a lawyers wetdream!
    5 months of exclusive talks with someone who gave shareholders zero....all the while there is a $5 billion upgrade on the Canadian military vehicles up for grabs, just began distributing DARPA chief's products.
    Versa will provide capital to Allen-Vanguard. Financial terms were not revealed.....because public companies in Canada do not require you to disclose? One more reason to stay clear of the Toronto Stock Exchange!

  4. Thicken: Thanks for the insight into the possible legal arrangements between company and creditors. Without some mechanism to explain this to shareholders they can hardly be blamed for suspecting that their shares were stolen from them.

    1. The comment above is a reply to Thicken My Wallet's comment:

      It sounds like, given limited information, that the senior secured lender gave forbearance not to enforce its rights and that the valuation of the collateral was less than the loan (as you indicated). Court was probably not involved because the general security agreement had a private receivership clause and lender opted to seize all the collateral and operate the corporation itself as a subsidiary.

      I guess (and I don't have enough knowledge to comment intelligently) there is some loophole in securities law where you can take the corporation private and not attorn to the securities regulators or the TSX (there's been a lot of ink spilt lately on OSC and TSX trying to figure out jurisidictional issues).

  5. MR. James,
    Perhaps shareholder of allen-vanguard would be interested in the following
    Our firm is reviewing corporate governance issues as it relates to a formerly listed TSX company, Allen-Vanguard Corp. If you owned shares of Allen-Vanguard (TSX: VRS) prior to the delisting we kindly request that you complete the online information form.
    Your information will be held in strict confidence. By completing the form, you are not retaining Siskinds, nor do you incur any obligations in connection with this investigation. For further information concerning this investigation, please contact Scott Selig at 1 (800) 461-6166 ext. 7824 or email Updates concerning this investigation will be posted above.

  6. For readers who saw the comment from the Siskinds legal firm, I don't know what their plans are or whether it is a good idea for shareholders to get involved with them, but the form the comment refers to is available on the Siskkinds web site (just type Siskinds into Google).