FAQs

Where do I stand with regards to owning shares in a company that goes into administration?

ANSWERS

I live in France for around six months of the year; recently the pound has fallen 33% against the euro with dramatic consequences for retired people like me who are paid in GBP (pounds sterling) but spend in euros. Why should sterling perform so badly against the euro when three euro countries - Greece, Spain and Portugal - are in such dire straits? Len, South of France

Hugh Pym:The foreign exchange markets are often driven by sentiment rather than detailed calculation. Recently sentiment has been against sterling because the UK is perceived to be more vulnerable than other leading economies in the face of the international downturn.

The UK economy is smaller than the eurozone as a whole, another reason for the perceived weakness. The eurozone is dominated by Germany, France and Italy, so the weakness of Greece, Spain and Ireland might be less relevant in the decision by dealers to buy euros.

The pound strengthened against the euro on Thursday, possibly because traders are looking more closely at the eurozone issues. Sentiment, always fickle, could be changing.

What are the chances of us entering a "depression" and how does this differ from recession?Grant Peaker, Edinburgh

Steve Schifferes: While there is no exact definition of a depression, economists generally define it as a prolonged economic slowdown, lasting several years or more, with severe effects on employment, prices and output.

For example, in the "Great Depression" in the US, GDP fell by 50% and unemployment rose to 25% between 1929 and 1933. The knowledge of the severe effects of such a depression has influenced policy makers who are responding to the current economic slowdown by using both interest rate cuts and government spending to try and boost the economy.

This may help, although it cannot guarantee that we won't fall into a depression.

I have a one year saving bond with Anglo Irish bank. When I took this bond out it was covered by the UK financial compensation scheme, I have received a letter from the bank saying that it is now covered by the Irish financial saving scheme. Should I be worried about this?Derek Allcott, Beccles

Kevin Peachey: Deposit protection, or in other words the safety of your savings, has been a huge concern for people during the downturn - but most people are completely covered if a bank goes bust.

Under the Irish scheme, all deposits, bonds and debts in six banks and building societies - including the Anglo Irish bank - are totally guaranteed for two years. So you'll get all your savings paid back in compensation if one of the six banks goes bust.

Under the UK scheme, the first �50,000 of deposits per person, per institution is covered although the government's actions so far have suggested it would guarantee savings above this figure.

Who owns the Bank of England? Who prints the currency? If money is lent at interest how is there ever going to be enough money in circulation to pay it back?Winston Smith, Northern Ireland

Steve Schifferes: The Bank of England, as the nation's central bank, is a public body, but it has been granted "operational independence" from the Treasury to set interest rates since 1997.

Since 2003, its bank notes have been printed by the private company De La Rue.

The total volume of "money" in the economy is much larger than the amount of cash in circulation, as banks and building societies only keep a small proportion of our deposits as ready cash. This allows for a higher volume of borrowing and lending than if we had a purely cash economy.

Where do I stand with regards to owning shares in a company that goes into administration like Woolworths? Steve Ward, Doncaster

Pauline McCole: Under the administration process shareholders join the ranks of unsecured creditors. Any supplier of goods or services that is owed money by the firm in administration, would typically be considered an unsecured creditor.

The administrators job is to salvage as much money as possible by selling off whatever assets are left in the failed business. At that point the senior creditors, those first in the queue with special legal entitlement to get their money back, would be paid.

The administrators fees need to be paid too, and if anything at all is left over it would be shared around the unsecured creditors. It would be very unusual for there to be enough money in the kitty for shareholders to get anything back at all. If a business was worth enough to pay all of its debts and buy back all of its shares it would have been very unlikely to be in administration in the first place.

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