Selling shares in a company that went bust a few days later should be a lucky escape.
But the reality for investors is that they could still end up out-of-pocket, as the shares they’ve sold might still be theirs.
This was the case for Lillian Barter, who is yet to see a penny from the sale of £1,380 worth of shares in ill-fated Carillion, despite it being made three days before the construction firm collapsed.
Cyril Barter said his wife Lillian (both pictured) lost have not been able to recover £1,380 from the sale of her Carillion shares
The share sale was made through Ms Barter’s self-invested personal pension account with online investment broker Bestinvest on Friday, 12 January 2018.
Carillion went under on the following Monday, 15 January.
Cyril Barter, who manages his wife’s finances, said on her behalf: ‘I thought we got lucky selling when we did at first but it wasn’t the case in the end.
‘What confused me most is the money from the sale was still being flagged as cash that was still invested in Carillion.
‘I was under the impression that Bestinvest is responsible for ensuring the money is credited to the account once we clicked on the ‘sell’ button.’
Yet, while in the modern age of easy online share trading, investors may think they have sold instantly that is not always the case.
Under current UK rules, the stock buyer has a two business days grace period to deliver payment to the seller’s brokerage firm – Bestinvest in this case. The sum would subsequently be credited to the seller’s investment account.
So, while the sale of stock through an online broker during trading hours may only take a couple of minutes to action, you may have to wait days before receiving the proceeds.
Unfortunately for Ms Barter, it was a case of bad not lucky timing, as the share sale did not come long enough before Carillion collapsed.
Carillion is understood to have owed almost £7billion when it went bust at the start of the year
A Bestinvest spokesman said that Ms Barter’s situation is unlikely to be an isolated case, adding: ‘While we are very sympathetic to investors who found themselves in this situation, no broker or platform can be held responsible for Carillion’s problems and the resulting illiquidity of its shares.
‘This is an inherent risk when trading individual securities and something we point out in our terms and conditions which state that ‘our obligation to deliver assets or the proceeds of the sale of any assets to your Bestinvest Online Investment Service Account is conditional on our receipt of the relevant assets or sale proceeds from the other party to the transaction’.
‘Neither we, nor the third parties to whom we may pass your orders, will be liable or compensate you, in the event that a counter-party (which is not us or the third party we used) fails to settle a transaction.’
Will Lillian get anything for her shares?
Unfortunately, the chances of Lillian getting any money for her shares is slim to none.
Due to the counterparty involved in her share sale not finalising the deal before the Monday, the Carillion shares were still hers when the firm was put into compulsory liquidation.
In a normal liquidation process, shareholders will only be reimbursed a small portion (or more if they’re lucky) of the remaining value of a company after the administrators for the firm have repaid debts to creditors.
Carillion’s last set of published accounts (September) revealed the firm’s debt liabilities totalled £4.05billion after the companies £1.7million assets had been taken into account.
The defunct company is understood to have owed almost £7billion when it went bust at the start of the year.
What if the shares were held in certificate form?
It would have made no difference. ‘In fact it would probably make the situation worse as the time to ‘clear’ the shares can then be longer,’ according to Roger Lawson, of investor campaign group ShareSoc.
This is because you’d be require to complete a transfer form and send it by post to your broker along with your share certificate which could be a faff if you want to sell your shares quickly.
Is there a quicker method of selling shares?
The quickest and easiest way to trade shares is through an online investment platform, Lawson said.
If you sell shares through an online investment broker like Bestinvest within trading hours, you’d normally have a limited time (around 20 seconds) to accept the price quoted. But, as mention before, the stock buyer has two days to settle the deal.
There is no way to instantly deal in shares because trades always have to be cleared through the Crest system – the electronic settlement system.
How to know when to sell a stock
‘Buy low, sell high’ might be an often-quoted investment maxim, but it isn’t quite so simple. in fact very few investors, if any, will ever buy at the absolute bottom and sell at the absolute top.
It is impossible to predict the fate of an investment. However, while there is no one measure that definitively flags a company in trouble, there are a number of indicators that should prompt you to tread carefully.
The truth is, things don’t usually turn out as bad as they did for Carillion, but a big share price slump, or a slow grind down, can still be painful for investors, even if the firm lives to fight another day.
We outline five key indicators to spot an investment in trouble here