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B4 The Bell Moonday July 26


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Many months ago I mentioned Air Canada TSE:AC was a screaming short at around 1.50. AC has been in CCAA {Chapter 11} for over a year and has told all "investors" and holders of the common they would get nothing upon reemergence from bankruptcy. Recently the last contract of 9 unions was signed and it now looks as though the restructuring is done. Months ago Victor Li {Trinity time investments} was sent scurrying back to Hong Kong when the unions basically told him the defined benefit pension plans were non negotiable. As no other bailout artist was willing to take Li's place ACs largest debtor Deutche Bank stepped up to the plate and saved the day. Usury was at stake and the loan write off would of been enormous. Air Canada was nothing more then an Argentina with wings.

Last week shareholders were informed they would get a fraction of a cent on the dollar for shares held and only if tens of thousands were owned. Immediately AC dumped going from 1.20 to .35 cents Cdn.

It has since bounced to .68 cents. With the shares going to zero in the next few months I will not be clearing just yet. Better yet I am under the impression that the trade will not be covered as how can you buy back worthless stock. Nice taxation implications! If Im wrong on this or anyone out there has experience shorting bankrupt companies could you post or pm me.

Generally in the US, the date the bankruptcy judge declares the shares worthless is the date used for tax purposes to reflect a sale or buy at zero - depending on whether long or short. It is probably better to actually buy or sell shares in the market to realize a gain or loss for technical reasons to long to mention here - but it is not necessary under the rule above. If there are distributions from lawsuits which may not finish until some time later, and adjustment to the previously reported gain or loss must be made for those distributions.

 

This would also apply to US citizens trading Canadian companies, but I don't know much about how Candaians report gains or losses.

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