THE thorny, sensitive and occasionally emotional issue of the Singapore Exchange (SGX) delisting companies that fail to meet its continuing listing requirements has recently been revived through a series of letters to the press.

"Thorny" because minority shareholders who eventually end up holding worthless and untradeable shares have accused SGX of not doing enough to minimise their losses; "sensitive" because the exchange can, in truth, rebut those accusations by quite legitimately invoking the "caveat emptor" maxim but in its published responses has perhaps diplomatically chosen not to just yet; and "emotional" because feelings will always run high when financial loss is incurred.

While our sympathies lie with the affected shareholders, other than raise the listing entry requirements even higher to admit only top-quality companies - an unrealistic move in today's competitive exchange environment - it's difficult to see what more SGX could do to protect their interests.

In the first place, before a company's shares are delisted, a full five years could elapse under normal circumstances - three consecutive years of losses followed by two years of being red-flagged on SGX's Watchlist - so there is more than ample time to react and make an informed judgement about one's shareholdings, especially as quarterly updates are mandatory once companies are on the Watchlist.

In many cases, the time from first reported loss to delisting could well be more than five years because SGX is open to granting extensions if there is a chance, however remote, of a turnaround.

If these companies still cannot satisfy the listing rules after spending at least two years being scrutinised on the Watchlist, then only as a last resort is an involuntary delisting enforced.

At this point, rules 1306 and 1309 of the Listing Manual apply, which together state that a reasonable exit offer normally in cash should be made and that to raise this cash, a voluntary liquidation of assets may be conducted.

Here, the key words are "should", "voluntary" and "may", which when read together, suggest that the exchange has no legal power to wind up or liquidate companies and sell their assets to raise cash to pay off shareholders.

This is indeed the official position. In a letter to BT published on July 5 last year on the subject of mandatory delistings, SGX said that "under the law, it is only creditors and shareholders who have the powers to liquidate or wind up companies and distribute the assets to shareholders. Other parties have no power to do so".

It's important to bear in mind that countries such as Hong Kong, Australia and Canada do not provide for an exit offer to shareholders in the event of an exchange-initiated delisting, ie when companies fail to meet the listing obligations of those exchanges and shares are removed from trading after the appropriate warnings, shareholders ultimately receive nothing.

In Singapore, even though SGX lacks the legal authority to force companies to pay off shareholders or to wind up companies to raise cash, its rules at least state that companies should try to take into account shareholder interests. In other words, SGX rules offer some hope of a cash payment however small versus none at all in many other jurisdictions.

Problem is, it's difficult to envisage major shareholders of Watchlist companies which have exhausted all avenues to turn around their fortunes - either via finding a "white knight" or reverse takeover/merger/joint-venture partner or saviour of any kind - saying anything other than that the companies have negative equity and no cash, and that as a result, cannot pay shareholders much money, if any.

Furthermore, these companies, though unprofitable and cash-strapped, may not be technically bankrupt, so winding up may not be an option since they can continue as going concerns. In any case, the continued existence of such companies is a decision for shareholders to make, not the exchange.

Much as it is unpopular to say this, it's an undeniable fact of life in the market that when it comes to trading in shares of loss-making and/or Watchlist companies, it's really a case of "buyer beware" because the risk of losing all of one's investment is very real.

Investors, who are given more than enough time to make a reasoned judgement on whether to hold on to these shares or to sell, have to recognise this and accept that other than employ moral suasion, there's little the authorities can do to force companies to pay off minorities.