Delisting Company: What Really Happens When a Company Gets Delisted

Companies often find themselves navigating rough waters in the volatile world of finance, where markets are constantly changing.

The delisting of a firm is one such scenario that frequently raises eyebrows and sparks speculation.

It’s an unsettling term that raises doubts about the company’s fate and its consequences for its stakeholders.

Sometimes shareholders are not aware of the things to do after the companies where they have invested get delisted. So in this blog, we will look at the delisting aspects of a company. 

We will learn what delisting is, how it works, why a company gets delisted and if it can be re-listed again.

What is Delisting?

Delisting is simply the removal of a company’s shares from a stock market. Delisting occurs when a company’s shares are no longer traded on the market, basically making them inaccessible to the investing public. 

This withdrawal from the public trade environment can be voluntary or involuntary, and the reasons behind it vary.

How does a company get delisted?

Following could be reasons a company gets delisted from the stock market.

Failure to Comply with Listing Requirements

Every stock exchange has a specific list of requirements that a company must follow to keep its listing status. Requirements like financial performance, appropriate share price, and on time submissions of financial reports. If a company fails to adhere to these requirements, the company will get delisted.

Financial Suffering 

If a company is going through a rough patch of financial distress, it may make a decision of delisting their company from the stock exchange, and later restructure the company and handle its obstacles away from the public eye.

Merger or Acquisition

In the case of a merger or acquisition, a company might decide to get delisted in order to simplify operations and centralise ownership.

Violation of Exchange Rules

Stock exchanges have very strict rules and regulations for the companies listed and violations of these might result in forced delisting of a company. This could include things like fraud, dealing with insiders, or other unethical practices.

Process of Delisting

The delisting process consists of several components, and the path taken is influenced by whether the delisting is voluntary or involuntary.

Voluntary Delisting

Companies can choose to voluntarily delist from the stock exchange for various reasons. It could be a conscious choice to reorganise, restructure, and review the company.

The process of voluntary delisting entails:

Approval from board: To delist your company you first have to get approval from the board of directors. They examine the advantages and disadvantages of delisting and decide whether it is aligned with the company’s long term goals.

Notice to the exchange: After getting the approval, the company has to notify the exchange about delisting so that the exchange begins the process of removing the shares from the list.

Shareholder approval: In several nations, to delist the company you require permission from your shareholders, as they own the shares of your company, Shareholders must be given the appropriate reasons for the delisting as well as the consequences for their investments.

Delisting Execution: After getting the approval the company works with the exchange in the process of delisting. This includes repurchasing the shares from shareholders, and other procedures to settle the outstanding shares.

Involuntary Delisting

In most cases, involuntary delisting occurs as a result of a firm failing to meet the exchange’s listing requirements. The procedure entails the following steps:

Exchange Notification: When there’s a violation of the listing standards, the exchange notifies the company and gives it a grace period to work on the problems like missing financial reports, meeting the share price requirements, or any other issues.

Review and Hearing: If the company fails to resolve the issue even after the warning, the exchange conducts a review and can hold a hearing to determine whether to delist the company or not.

Notification of Delisting: In the hearing if the exchange decides to delist the company, it delivers a formal notification to the public and lets them know about the delisting of the company. 

Transition Period: A transition period is given to the shareholders to adjust with the delisting. Shareholders can sell their shares on the over-the-counter (OTC) market or through other alternative spots during this time.

Can a Delisted Company Get Re-Listed?

The journey does not always conclude with delisting. In some situations, companies may seek relisting after correcting the issues that caused their delisting. This entails a lengthy procedure of meeting the exchange’s listing requirements, re-establishing compliance, and obtaining regulatory approval.

However, relisting is not guaranteed, and companies must pass a rigorous review to prove their suitability for returning into the public market.

What happens to shareholders when a Company is Delisted?

Investors facing the delisting of a company in which they own stock are not powerless. There are several alternatives available:

Sell on OTC Markets: When a company delists voluntarily, it often facilitates trading on over-the-counter (OTC) markets, allowing shareholders to sell their shares.

Hold and Wait: Some investors choose to keep their shares even after they have been delisted, expecting for a price increase over time. However, this method comes with risk, and the outcome is unpredictable.

Investigate Legal possibilities: In some cases, shareholders may investigate legal possibilities if they believe they experienced losses as a result of the company’s actions that led to its delisting.

Conclusions

Delisting is a complex financial move that can have serious consequences for a firm and its stockholders. The process, whether voluntary or involuntary, entails thorough consideration, approvals, and an effective implementation plan.

Shareholders, who are the lifeline of any business, are not left in the dark, and options for managing their investments are frequently available.

While what lies ahead may be uncertain following delisting, it is not necessarily the end of the journey for the company or its investors. Companies can try to restore their stock market position, and shareholders can manage their investments based on the circumstances surrounding the delisting.

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