PSE crafts early warning system for distressed firms

MANILA, Philippines - The Philippine Stock Exchange (PSE) is crafting an early warning system to alert the investing public of financial trouble in a listed firm.

In a memorandum, the PSE opened for public comment the proposed rules for companies under financial distress and firms under corporate rehabilitation.

The rules were rolled out “to give the minority shareholders sufficient warning and afford them a timely opportunity to exit a company experiencing financial distress,” PSE said.

“There is no exit mechanism for the minority stockholders of companies under rehabilitation in view of the immediate suspension of the trading of those companies’ shares,” it added.

Hence, investors are locked up with the company or are forced to sell at a large discount given the trading suspension on companies under rehabilitation.

Specifically, the troubled company is required to disclose major developments like the disposal of a major business, suspension of business operations for at least six months and negative stockholders equity for three consecutive years.

Distressed firms should also disclose any delay in the payment of loans amounting to 10 percent of its total assets and the issuance of an adverse auditor’s opinion on the financial statement.

PSE will designate firms in hot water as “company under financial distress” to allow the public to quickly discern the financial situation of the listed entity.

Within five days from being labelled as a distressed company, the listed firm should submit a business plan specifying the activities and timeline to remedy the situation.